MASTER 
NEGATIVE 

NO.  95-8241 4-4 


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Author: 


Title: 


American  business  and 
accounting. ..6V. 

Place: 

Detroit 

Date: 

[1908-1909] 


COLUMBIA  UNIVERSITY  LIBRARIES 
PRESERVATION  DIVISION 

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,  A  standard  reference  book*  for  accountants  and  busi- 
ness men,  profusely  illustrated  with  hundreds  of  special 
forms  ami  plates.'  Ed.  by  W.  W.  Thorne  ...  Detroit, 
Mich.,  The  Business  man's  publishing  company,  Imi- 
ited  f  lOOS-'^OQj 

6  V.    illus.,  forms  (part  fold.)     27i^™. 

3d  ed.  (1901)     Comp.  by  E.  H.  Beach  and  W.  W.  Thorne. 

_1.  Encyclopedias  and  dictionaries.   2.3i_siness— Dictionaries,      i.  Thorne, 
William  Winter,  1870-        ed. 


Library  of  Congress 
Copyright 


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intftfCitpofJI^rtngork 

THE  LIBRARIES 


GRADUATE 

SCIiOOL  OF  BUSINESS 

LIBRARY 


1 


N0N-CIRCULATIN6' 


American 
Business  and  Accounting 

Encyclopedia 


REVISED  EDITION 


A  Standard  Reference  Book  for  Accountants  and  Business  Men. 
profusely  illustrated  with  hundreds  of  special 

forms  and  plates 


VOL  I. 
COMPLETE  IN  SIX  VOLUMES 


The  Business  Man's  Publishing  Company,  Limited 

DETROIT.  MICHIGAN 


jk 


I 


INTRODUCTION 


L-  - 


Entered  according  to  Act  of  Congress, 
in  the  year  1908,  by 

rwt  Blsixess  Man's  Publishing  Company,  Limitej> 
Dbtroit,  Michigan 

In  the  otfice  of  the  Librarian  of  Congreas 
All  rights  reserved 


vClA^A^-Q-^c-cm/Q^-c 


IN  presenting  the  American  Business  and  Accounting  Encyclo- 
pedia to  the  public,  we  beg  to  call  attention  to  the  meaning 
of  the  words  we  have  adopted  as  the  title  of  this  undertaknig. 
"Encyclopedia"  is  defined  as  a  comprehensive  summary  of  knowl- 
edge, or  of  a  branch  of  knowledge.  In  this  encyclopedia  we 
propose  to  endeavor  to  furnish  a  comprehensive  summary  of 
information  pertaining  to  the  science  of  accounts  and  other  mat- 
ters connected  with  business  management,  and  when  considered 
desirable,  to  expand  the  summary  into  a  description,  or  discus- 
sion, according  to  our  judgment. 

It  will  undoubtedly  be  found  that  this  work  will  not  cover 
nor  refer  to  everything  pertaining  to  the  science  of  accounts, 
nor  is  such  the  aim  of  the  editors;  but  it  will  include  every- 
thing of  any  importance  or  value  that  comes  within  the  scope 
of  our  own  observation  and  knowledge,  and  that  of  the  many 
experts  who  are  associated  with  us  in  this  enterprise. 

Included  under  different  headings  will  be  found  a  number 
of  special  articles  of  considerable  importance  and  value  to  the 
student  of  accounting,  and  we  hope  to  give  particular  attention 
to  subjects  not  to  be  found  in  any  detail  in  the  text  books  on 
accounting  hitherto  to  be  obtained,  and  neither  time  nor  expense 
will  be  spared  to  make  this  work  as  complete  as  possible,  with 
a  due  regard  to  conciseness  and  clearness  of  expression. 

In  this  revised  edition  we  have  the  advantage  of  the  assist- 
ance  of  the  most  celebrated  Certified  Public  Accountant  authori- 
ties in  the  United  States  who,  by  contributing  to  the  general 
information  contained  in  this  Encyclopedia,  have  conferred  their 
approval  on  the  work  we  are  endeavoring  to  accomplish. 

An  encyclopedia  covering  the  business  field,  in  order  to  be 
entirely  practical  and  of  value  to  the  reader,  must  necessarily 
be  in  harmony  with  commercial  advancement  and  progression, 
but  it  is  well  understood  that  there  are  many  rules  and  methods 
in  connection  with  special  business  which  cannot  be  improved 
upon,  but  which  are  as  practical  today  as  when  originated.  The 
general  scheme  of  this  Encyclopedia  is,  therefore,  to  combine 
everything  old  that  is  good  with  everything  new  which  is  desir- 
able, and  we  hope  that  those  who  study  this  work  will  find  that 
it  is  of  assistance  in  broadening  the  mind  and  assisting  in  per- 
fecting their  technical  knowledge. 


After  completing:  the  arduous  labors  connected  with  the  publication  of  the 


REVISED  AMERICAN   BUSINESS  AND  ACCOUNTING 

ENCYCLOPEDIA 

we  submit  the  result  with  confidence  that  it  will  be  found  helpful  in  the 
office  to  the  business  man,  credit  man,  general  office  man,  accountant  and 
book-keeper. 

We  desire  to  express  our  obligation  to  those  up-to-date  accountants 
to  Whom  'we  are  indebted  for  a  number  of  special  articles  used  in  this 
encyclopedia  whose  names  are  hereunder  published. 

The  commercial  law  section  has  been  contributed  by  the  Hon.  Chas. 
C.  Simons,  late  Senator  of  the  Michigan  State  Legislature,  who  is  an 
acknowledged  authority  on  the  subject. 

The  authors  of  many  of  the  principal  articles  contained  in  the  revised 
American  Business  and  Accounting  Encyclopedia  are  as  follows : 
Dr.  Joseph  French  Johnson,  Dean  of  New  York  University  School  of  Commerce,  Accounts 
and  Finance,  New  York  City. 

Geo.  Wilkinson,  of  Wilkinson,   Reckitt,  Williams  &  Co.,   Certified   Public  Accountants, 
New  York  City. 

Robt.  H.  Montgomery,  Lybrand,  Ross  Bros.  &  Montgomery,  Certified  Public  Accountants, 

New  York  City. 
W.  H.  Prendergast,  Ex-Sec'y.  National  Assn't  of  Credit  Men,  New  York  City. 

C.  N.  Smith,  Business  Systems  Manager,  Burroughs  Adding  Machine  Co.,  Detroit,  Mich. 
J.  F.  Ruark,  Certified  Public  Accountant,  New  York  City. 

Thos.  Conyngton,  Manager  and  Treasurer,  The  Ronald  Press,  New  York  City. 

Robert  J.  Bennett,  C.  P.  A.,  Detroit,  Mich. 

N.  T.  Ficker,  Civil  Engineer,  New  York  City. 

L.  U.  Crawford,  Building  Society  Expert,  Kansas  City,  Missouri. 

Charles  B.  Cook,  Chief  Accountant,  Royal  Typewriter  Co.,  Hartford,  Conn. 

A.  J.  Conen,  Accountant,  Louisville  Soap  Co.,  Louisville,  Kentucky. 

J.  H.  K.  Shannahan,  Accountant,  Maryland  Steel  Co.,  Sparrow's  Point,  Maryland. 

D.  C.  Eggleston,  Cost  Accountant,  Winthrop,  Massachusetts. 

G.  E.  Hutchison,  Auditor,  Pittsburg,  Belmont  Coal  Co.,  Cleveland,  Ohio. 

M.  V.  White,  Trust  and  Deposit  Company  of  Onondaga,  Syracuse,  New  York. 

J.  A.  Finnegan,  Systematizer,  Philadelphia,  Pennsylvania. 

H.  L.  Leister,  Principal,  Zanesville  Business  College,  Zanesville,  Ohio. 

G.  Brownlee,  Cost  Accountant,  Woodside  Cotton  Mills,  Greenville,  South  Carolina. 

R.  G.  Alcorn,  Cashier,  First  Nat'l  Bank  of  Hopedale,  Ohio. 

G.  Jacobsson,  B.  A.,  Public  Accountant,  Chicago,  Illinois. 

C.  B.  Smeeton,  Public  Accountant,  Chicago,  Illinois. 

L.  Joseph,  Accountant,  Wilmerding,  Loewe  Co.,  San  Francisco,  California. 


I 


The  American 

Business  and  Accounting 

Encyclopedia 

(REVISED  EDITION) 


( 1 )     ABATEMENT. 

(See  Rebate.) — A  discount  allowed  for  prompt  payment;  the  de- 
duction from  fixed  debts  at  the  custom  house  on  account  of  damage  or 
loss  to  goods  while  detained  in  warehouse.  A  term  used  to  signify  a 
deduction  or  allowance  from  the  value  of  goods  as  invoiced  on  account 
of  damage,  loss,  or  some  kindred  cause. 

(2)  ABSTRACT. 

To  abridge,  to  summarize,  to  epitomize. 

A  term  used  by  accountants  to*  describe  their  analysis  of  account  books 
made  in  connection  with  an  audit.  It  generally  consists  of  independent 
postings  from  original  books  of  entry  Such  abstracts  are  usually  confined 
to  nominal  or  impersonal  accounts  and  summary  accounts  representing 
custoiners'  and  creditors'  accounts. 

A  term  used  by  credit  men  to  describe  the  report  required  by  them 
from  customers  in  order  to  determine  the  advisability  and  limit  of  credit. 

A  term  used  to  describe  the  report  on  transfer  of  real  estate,  showing 
in  whose  name  title  or  ownership  is  vested.     (See  Real  Estate.) 

(3)  ACCEPTOR. 

The  person  upon  whom  a  bill  of  exchange  is  drawn  (the  drawee)  by 
signifying  his  assent  to  the  document  by  writing  his  name  upon  it,  becomes 
the  acceptor. 

(  (4)     ACCOMMODATION. 

Temporary  pecuniary  aid  given  by  one  trader  to  another  or  by  a  banker 
to  his  customers.    The  loan  of  money  or  value  without  consideration. 

(5)     ACCOUNT. 

An  epitome  of  transactions  for  reference. 

A  group  of  entries  in  a  ledger  relating  to  one  particular  person  or  to 
one  particular  class  of  transaction. 

A  record  of  transactions  for  reference. 


I 


Ace.  American  Business  and  Accounting  Encyclopedia 


O 


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The  copy  of  the  charge  entered  up  in  the  books  of  account  of  the  seller 
against  the  purchaser. 

"A  particular  group  or  class  of  entries  in  a  ledger  relating  to  a  person, 
or  kind  of  property,  or  a  branch  of  the  profit  and  loss  account." 

A  monthly  statement  furnished  by  the  creditor  to  the  debtor  frequently 
itemizing  the  month's  transactions  and  exhibiting  the  balance  due. 

(6)     account  books,  manufacture  of. 
The  story  of  the  manufacture  of  a  blank  book  properly  begins  with  a 
description  of  the  paper  which  makes  up  its  pages.     Blank  books  require 
a  special  kind  of  paper— a  paper  having  a  smooth  writing  surface,  proper 
sizing  to  permit   erasures,   a   permanent   white   color,   great   strength  to 
prevent   tearing,   and   sufficient   body   to   make   it   lie   flat.     The   kind   of 
paper  which  has  all  these  qualities,  and  which  is  used  on  all  the  better 
grade  of  blank  books,  is  called  ledger  paper.     There  are  various  grades 
of  ledger  paper,  the  grade  being  determined  by  the  degree  in  which  they 
possess  the  qualities  mentioned  above.     Ledger  paper  is  carried  in  many 
sizes,  the  most  used  being  Cap  14x17,  Demy  16x21,  Medium  18x23,  Double 
Cap  17x28.     These  same  names  which  designate  the  size  of  the  sheet  of 
ledger  paper,  also  designate  the  size  of  the  blank  book  which  is  made 
from  that  sheet.     For  example,  we  speak  of  a  demy  ledger,  a  medium 
cash  book,  or  a  double  cap  journal.     The  demy  ledger  has  a  page  about 
10j4xl5}i,  the  size  of  a  folded  sheet  of  demy  trimmed  down  slightly.      In 
the  same  way,  a  medium  cash  book  would  have  a  page  about  111  i4xl7>^ 
and  the  double  cap  journal,  133/^xl6j/S. 

After  the  ledger  paper  of  proper  grade  and  size  has  been  selected,  a 
quantity  of  sheets,  dependent  on  the  number  of  pages  wished  in  the  book, 
is  counted  out  and  sent  to  the  ruling  room.  Here  the  flat  sheets  are  fed 
into  the  ruling  machines  and  ruled  up  either  in  the  customary  form  of 
ledger,  cash,  journal,  day  book,  voucher  register,  etc.,  or  to  special  copy 
which  may  be  furnished.     The  pens  in  the  bar  of  the  ruling  machine  can 


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Ace. 


American  Business  and  Accounting  Encyclopedia 


6 


be  placed  so  as  to  make  columns  of  any  width,  and  as  every  pen  is  fed 
with  ink  by  a  saturated  worsted  cord,  any  number  of  colored  lines  may 
be  obtained, — a  double  red  line,  a  triple  green,  or  a  single  purple — all  are 
made  at  the  same  time.  Although  several  colors  can  be  run  simultan- 
eously, the  sheet  cannot,  however,  be  ruled  in  more  than  one  direction 
at  a  time,  or  on  more  than  one  side  at  a  time.  It  must  run  through  the 
machine  once  for  the  horizontal  lines,  and  again  for  the  perpendicular 
lines,  and  twice  more  for  the  same  result  on  the  other  side  of  the  sheet. 
Oftentimes  where  the  form  to  be  ruled  is  complicated  with  interlining  or 
special  lines,  the  sheet  must  go  through  the  machine  half  a  dozen  times 
to  accomplish  the  result.  The  horizontal  lines — the  lines  which  are  used 
to  write  on,  are  called  "feint"  lines,  while  the  perpendicular  lines  which 
make  the  columns,  are  called  "down"  lines. 

When  the  sheets  have  been  ruled  to  the  desired  form,  they  are  sent 
either  to  the  bindery  or  to  the  press  room,  depending  on  whether  or  not 
a  printed  heading  is  desired.  The  printed  head  book  requires  two  opera- 
tions more  than  the  blank  head  book,  and  so  is  more  expensive.  The  first 
of  these  operations  is  the  setting  of  the  type.  The  type  has  to  be  spaced 
out  and  built  into  a  form  which  will  fit  the  ruling,  so  that  the  word  "date," 
for  instance,  will  be  at  the  top  of  the  date  column  and  the  word  "amount" 
at  the  top  of  the  amount  column,  etc.  When  such  a  type  form  has  been 
set  up,  it  is  put  on  a  printing  press  and  the  ruled  sheets  are  run  through 
first  on  one  side  and  then  on  the  other.  A  very  accurate  press  register 
is  required. 

They  then  go  to  the  bindery.  The  term  binding  is  very  inclusive.  It 
covers  folding,  sewing,  trimming,  forwarding,  finishing,  tooling,  indexing, 
paging,  numbering,  lettering,  etc.,  and  so,  although  generally  speaking  the 
making  of  a  blank  book  may  be  said  to  consist  merely  of  ruling,  printing 
and  binding,  these  three  terms  in  reality  cover  ten  or  a  dozen  distinct  oper- 
ations. We  have  seen  that  so  far  the  sheets  have  been  handled  flat.  When 
they  reach  the  bindery,  they  are  folded  once  through  the  center  in  sections 
of  five  or  six  sheets  each.  The  flat  piece  of  paper  we  have  called  the 
"sheet,"  but  the  folded  sheet  we  must  now  refer  to  as  "leaves"  or  "pages." 
A  "leaf"  is  half  a  sheet,  measured  from  the  fold  to  the  edge.  A  "page" 
is  half  a  leaf,  or,  rather,  one  side  of  a  leaf.  Therefore,  a  book  with  200 
leaves  will  contain  400  pages.  A  book  with  500  pages  will  contain  250 
leaves,  etc.  A  leaf  is  sometimes  spoken  of  as  a  "folio"  or  a  "folio  page.'* 
Especially  is  this  true  -when  the  ruled  form  continues  across  two  pages, 
the  right  and  the  left,  instead  of  being  complete  on  each  page. 

But  to  go  back  to  our  story.  We  left  the  sheets  folded  into  sections. 
These  sections  are  now  sewn  through  the  center  of  their  fold  to  three  or 
four  strong  canvas  or  parchment  tapes,— one  section  being  laid  on  top  of 
another  until  the  book  is  built  up.  The  tapes  are  cut  so  as  to  leave  a  short 
projection  on  each  side,  which  is  afterwards  glued  onto  the  covers  of  the 
book.     No  matter  how  careful  the  folding  and  sewing  may  have  been 

6 


I 


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American  Business  and  Accounting  Encyclopedia 


Ace. 


done,  the  edges  of  the  book  at  this  stage  are  rough  and  unsightly.  For 
this  reason  a  trim  is  taken  from  all  three  sides  to  smooth  them  off,  and 
in  the  majority  of  cases,  they  are  stained  to  improve  their  appearance. 
Although  a  plain  green  stain  is  often  used  for  the  edges,  the  distinctive 
blank  book  edge  is  the  marble  comb  edge.  This  is  obtained  in  the  follow- 
ing manner:  Liquids  of  several  colors  are  sprinkled  on  the  surface  of 
a  thick  solution  of  gum.  The  colors  remain  on  the  surface  of  this  solution, 
and  can  easily  be  combed  out  into  a  pattern.  The  edges  of  the  blank  book 
are  then  dipped  quickly  on  to  this  pattern  in  the  solution  and  the  colors 
adhere  to  the  edge  of  the  book. 

We.  mentioned  above  the  term  "forwarding,"  and  this  is  the  next 
operation  which  the  book  goes  through.  It  includes  the  casing  in  of  the 
book,  and  the  putting  of  it  into  the  leather.  The  case  into  which  the 
book  is  fitted  and  glued  consists  of  strong  binder's  board  covers,  with 
rounded, backs.  This  binder's  board  is  a  tough  substance  possessing  tljc 
outward  appearance  of  a  rough,  thick  card  board,  and  made  essentially  of 
the  same  materials,  but  having  the  strength  and  rigidity  of  a  wooden  board. 
The  thickness  of  the  binder's  board  used  is  determined  by  the  size  and 
weight  of  the  book,  and  upon  the  wear  and  tear  to  which  it  is  to  be  put, 
as  well  as  upon  the  style  of  binding  which  is  desired.  After  the  case  has 
been  firmly  glued  to  the  book  and  fastened  to  the  projecting  tapes,  it  is 
ready  to  be  covered  with  cloth,  canvas  or  leather,  or  any  combination  of 
same  which  may  be  desired.  The  smaller  and  lighter  weight  books  are 
usually  made  with  leather  back  and  corners,  with  black  cloth  or  drab 
canvas  sides,  but  an  entire  canvas  covering  is  often  used.  This  is  called 
"full  canvas"  binding.  The  large,  heavy  books  are  usually  covered  en- 
tirely with  leather,  and  this  is  called  "full  leather"  binding,  or  the  book 
is  spoken  of  as  a  'full  bound  book,"  a  "full  Morocco  book,"  or  a  "full  Russia 
book."  Usually  a  combination  of  two  kinds  of  leather  is  used,  most 
commonly  red  Russia  back  and  ends,  with  white  leather  flesher  sides. 
This  is  called  "Russia  Ends  and  Bands."  The  leather  is  moistened  be- 
fore being  pasted  to  the  book  so  as  to  be  easily  shaped  with  rounded 
corners.  The  reader  has  probably  heard  of  "half*  bound,  "three-quarter" 
bound,  and  "ends  and  bands"  books,  and  wondered  what  was  meant.  The 
half  bound  books  have  light  weight  boards  with  smooth  rounded  backs. 
The  three-quarter  books  have  medium  weight  boards  with  back  reinforced 
by  bands  which  may  be  seen  to  project.  The  ends  and  bands  books  have 
thick,  heavy  boards  with  double  band  reinforcements  on  the  back. 

We  now  have  our  book  cased  in  and  covered  over,  but  it  is  in  a  wet, 
gluey  condition,  and  must  have  a  chance  to  dry  out  and  season.  To 
prevent  warping  in  this  drying  process  and  to  allow  the  glue  or  paste  to 
set  firmly,  the  book  is  put  under  heavy  pressure  and  allowed  to  stand  for 
two  or  three  days,  or  if  a  heavy  book,  better  for  two  or  three  weeks.  After 
this  time  has  elapsed,  it  is  ready  for  finishing.  The  finishing  consists  in 
pasting  in  the  fly  leaves,  scraping,  varnishing  and  ornamenting  the  cover. 


Ace. 


American  Business  and  Accounting  Encyclopedia 


The  ornamentation  is  either  burnt  into  the  leather  or  put  on  with  gold 
leaf.  The  gold  leaf  is  applied  with  hot  iron  rollers  whose  heat  causes 
the  gold  to  cling  to  the  leather.  The  gold  lettering  is  applied  in  much 
the  same  way.  The  lettering  is  set  in  type,  the  type  is  then  heated  to  a 
high  temperature,  covered  with  a  sheet  of  gold  and  applied  with  pressure 
to  the  leather.  With  the  exception  of  indexing,  paging,  and  other  minor 
operations,  the  blank  book  is  now  complete. 

The  time  consumed  in  making  a  blank  book  by  the  process  described 
above,  is  from  one  week  to  ten  days  for  a  small  unprinted  book,  and  from 
two  to  three  wrecks  for  the  large  printed  head  book,  but  the  longer  a  book 
's  allowed  to  season  the  stronger  it  will  be,  and  the  longer  it  will  last.  The 
life  of  a  blank  book  may  often  be  prolonged  by  the  addition  of  a  canvas 
cover  over  the  binding.  This  cover  can  suitably  be  retained  while  the 
book  is  in  current  use  and  taken  off  when  the  book  is  closed,  revealing  the 
fresh  binding  which  looks  well  when  the  book  takes  its  place  on  the 
shelf  among  other  books  which  have  seen  active  service  and  have  been 
retired.  It  may  be  of  interest  to  know  that  bindings  can  often  be  repaired 
when  worn  or  damaged,  and  strengthened  when  beginning  to  give  way. 
The  books  can  often  be  resewed  and  put  back  into  the  old  or  new  covers, 
renewing  their  usefulness  for  many  years.  Although  the  life  of  a  blank 
book  depends  to  a  large  extent  on  the  care  it  receives  at  the  hands  of 
the  book-keeper,  it  depends  far  more  on  the  care  of  the  maker  in  selection 
of  materials  and  the  kind  of  labor  which  goes  into  it.  There  is  no  com- 
modity which  is  sold  at  a  wider  range  of  price  than  the  blank  book,  and 
no  commodity  in  which  the  difference  in  value  is  less  apparent  to  the 
average  man.  We  trust  that  the  above  explanation  of  the  process  of 
manufacturing  will  aid  the  reader  in  detecting  this  difference  in  value,  and 
will  teach  him  to  look  first  at  the  quality  of  paper,  the  form  of  ruling  and 
the  kind  of  binding  before  attempting  to  make  any  comparison  in  price. 
Time  tells  the  story,  and  after  the  blank  book  has  been  put  into  use,  the 
discovery  of  inferior  quality  comes  too  late. 

The  loose  leaf  book  has  become  of  late  years  a  new  feature  in  the 
commercial  stationer's  stock.  Some  of  the  best  loose  leaf  methods  of  bind- 
ing are  only  to  be  found  now  in  the  stationery  establishments.  The  origi- 
nal period  of  introduction  has  passed,  and  the  loose  leaf  ledger  is  now  a 
staple  article  of  stock  in  both  large  or  small  stationery  houses. 

It  is  made  on  a  simple,  everyday  mechanical  principle,  and  the  very 
best  materials  the  market  affords  are  used  in  its  construction.  The  salient 
features  are  simplicity,  durability  and  strength. 

The  vice-like  grip  so  easily  effected  with  the  powerful  jaws  insures 
a  perfect  alignment  of  the  sheets,  the  great  essential  feature  of  a  successful 
loose  leaf  ledger. 

Three  points  of  excellence  in  the  ledger  are  the  rounded  back  which 
will  open  flat,  the  leather  covered  back  which  allows  for  lettering  of  title, 
and  the  absence  of  exposed  metal  parts  to  scratch  the  office  desk. 


8 


American  Business  and  Accounting  Encyclopedia 


Ace. 


II 


Suggestions  and  Instructions 

ON  PREPARING  COPY  FOR  BLANK  BOOKS  TO 
BE  MADE  TO  ORDER. 


Mark  on  copy  the  number  or  width  of  feim.  .uiing  (horizontal 
lines). 

If  a  "box"  heading  is  wanted,  rule  double  head  line,  as  tllustra- 
ied  l.el..w  (No.  i).    Note  the  width  of  faint  lines  on  marijin. 

Write  very  plainly  all  copy  for  printing. 

No.  1 


When  getting  up  a  sample  of  a  new  form  It  is  desiralile  to 
mike  it  of  a  regular  size,  so  thtre  maybe  no  waste  of  material; 
tlierefore  it  is  best  to  know  the  usual 

SIZES  OF  PAPERS  USED  IN  BLANK  BOOKS 


Faint  Lines 
No. 


1 

1 

NAMB  UP 
SIZB 


Cap      •       - 
Demy 
Medium    - 
Double  Cap. 
Royal   -    - 
Super  Royal 
Imperial   • 
Dbl,  Demy 
Dbl.  Medium 


STANDARl 
WEIGHTS 
PBR    REA\: 


SIZK  OF 
SHEBT 


18 
28  and    30 
36  a.nd   40 
36  and   40 

41 

U 

72 
56  and  60 
72  ::nd  85 


14  X 

16  X 

18  X 

17  X 

19  X 

20  X 
23  X 

21  X 
23  X 


SIZE  OF 

FOLDED 

SHBET 


I0'4 

i\% 

14 
12 
14 

16 

18 


SIZE  OF 

PAGE  IN 

BOOK    WHBH 

MADB  UP 


No.  2 


8K 
lOK 

n% 
n% 

13% 
15 

1514 

17 '4 


13'4 
1554 
1754 

1654 

\»% 

19H 

2054 

22% 


Date     i  No.       In  Favor  of 


FOR  RULING  SAMPLE  FOR  COPY 

Trim  a  sheet  of  Manila  or  other  plain  paper  to  the  size  of  a 
folio  or  page  of  book  wanted.  Rule  off  the  head  lines  at  the  usual 
distance  from  the  top.  then  space  off  your  down  columns  cxacUy 
where  you  want  them,  allowing  V^  inch  extra  space  for  the  bind- 
ing In  center,  or  %  at  side,  as  your  copy  may  he  drawn. 

If  the  ruling  of  each  page  is  the  same,  use  only  a  half  sheet  (or 
one  leaf);  if  the  form  of  ruling  extends  acrcss  the  two  pages  or 
the  two  pages  are  different,  you  had  better  use  the  full  width  of 
two  pages,  showing  sufficient  space  in  center  (three-quarter  inch) 
lor  binding. 

It  is  not  necessary  to  send  the  whole  sheet  showing  length  un- 
less there  is  different  matter  or  a  change  below  the  heading. 
The  width  of  page  determines  the  usual  length;  Jf  it  is  to  be 
shorter  it»t»  U-ngth  desir<»d. 


1. 
2. 
S. 
4. 
3. 
6. 


Give  Full  iiwtructioiw  on  Copy  •»  FoUowk 

Number  of  PAGEi  or  Leaves, 

Size  of  Paper  ok  Page  in  Inches. 

W:dth  of  Faint  Ruling, 

Paging.    Whether  consecutive  or  In  folios. 

Style  of  Binding. 

Lettering  on  titles,  at      Top: 

Center 


Bottom:       Box  &  Cox. 

7.  NUMBER  of  accounts  TO  A  PAGE,  as  in  Ledgers;  40B 
pages.  1  account;  200  pages.  2  accounts;  20O  pa^-es   3  accounts. 

8.  INDEX.    Ifbuund  in  or  separate,  and  what  formf 

9.  CANVAS  COVER.    If  wanted.  _ 

If  the  book  is  to  be  a  duplicate  of  one  we  have  made,  it  is  un 
necessary  to  send  copy;  see  our  label  inside  front  ^°^" /"'^^f. 
vise  us  of  the  job  number  on  same;  we  save  duplicate  shtet  with 
instructions  thereon  of  all  Job-work  done  in  our  establi-hment. 

If  the  book  is  to  be  a  duplicate  of  one  made  by  other  parties,  cut 
out  the  last  leaf  one-fourth  inch  from  binding,  if  it  can  l>e  spared; 
this  will  show  both  pages  If  they  vary.  Write  particulars  on 
copy,  as  per  Items  1  to  9  herewith. 


Many  forms  of  ruling  and  sizes  of  ledger  sheets  are  carried  in  stock 
ready  for  immediate  delivery. 

Besides  the  ledger  and  ledger  transfers,  there  may  be  found  loose  leaf 
price  books,  order,  receipt  and  inventory  systems,  and  holders  and  binders 

of  all  kinds. 

To  a  person  desiring  an  account  book,  we  offer  the  following: 
Everything  that  a  man  needs  at  his  desk,  in  the  counting-room,  in  his 
library,  in  his  advertising  department,  or  in  his  correspondence,  can  be 
furnished  promptly  by  the  manufacturing  stationer  so  equipped.  There 
is  no  order  too  small  to  receive  their  prompt  and  careful  attention,  and 
there  is  no  order  too  large  for  them  to  execute  satisfactorily. 

(7)      ACCOUNTS  PAYABLE  ACCOUNT. 

The  ledger  account  with  the  creditors.  A  purchase  account.  A  repre- 
sentative account  to  which  are  posted  the  totals  of  accounts  payable  col- 
umns from  cash  book  and  journal. 

(7a)   ACCOUNTS  PAYABLE  BOOK. 

ACCOUNTS  PAYABLE  RECORD. 

ACCOUNTS  PAYABLE  REGISTER. 

The  record  of  accounts  payable  is  sometimes  called  a  purchase  record, 


9 


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American  Business  and  Accounting  Encyclopedia 


7-9 


or  voucher  record.  The  distinguishing  features  of  these  records  will  be 
considered  under  their  appropriate  headings.  In  some  businesses  the 
record  of  purchases  is  called  an  accounts  payable  record.  All  invoices  are 
entered  in  this  book  as  received  and  columns  are  provided  for  rebates, 
allowances,  cash  discounts,  transportation,  deductions,  etc.  Distribution 
columns  are  also  provided  for  the  different  accounts  to  which  the  goods 
purchased  are  to  be  charged.  In  most  cases  the  gross  amount  of  the 
invoices  (less  legitimate  trade  discounts)  is  credited  to  the  accounts 
payable  account  in  the  general  ledger,  the  posting  being  the  total  of  the 
amount  column  in  the  accounts  payable  record.  The  totals  of  the  col- 
umns provided  for  cash  discounts,  rebates,  allowances,  etc.,  will  be  posted 
to  the  delii  cl  accounts  payable  account  or  charged  to  accounts  which  are 
negative  to  accounts  payable  account. 

Where  the  accounts  payable  record  is  kept  as  above  indicated,  the 
total  of  the  invoices  entered  therein  is  at  the  close  of  each  month  credited 
to  an  accounts  payable  account  kept  in  the  general  ledger.  A  special 
column  is  provided  in  the  cash  book  headed  "accounts  payable"  and  the 
total  of  this  column  is  at  the  close  of  each  month  posted  to  the  credit  of 
the  accounts  payable  account  in  the  general  ledger.  Allowances,  discounts, 
etc.,  are  credited  to  interest  and  discount,  or  similar  accounts,  and  debited 
to  accounts  payable  account,  so  that  the  balance  of  this  account  will  always 
reveal  the  amount  of  outstanding  indebtedness  on  accounts  payable. 

This  method  is  particularly  convenient  where  it  is  customary  to 
discount  all  bills,  or  for  taking  care  of  small  accounts  payable  where  they 
are  very  numerous.  The  balance  of  the  account  can  always  be  verified  by 
inventory  of  unpaid  bills  on  file. 

(8)     accounts  payable  ledger. 

A  purchase  or  creditors'  ledger  in  which  are  carried  the  individual 
accounts  with  creditors. 

(9)      ACCOUNTS  RECEIVABLE  ACCOUNT. 

(a)  The  ledger  account  with  a  customer,  or  debtor.     A  sales  account. 

(b)  A  sundry  account  receivable  is  one  in  which  a  number  of  small 
accounts  are  bunched,  the  balance  being  drawn  at  the  close  of  the  month 
by  subtracting  the  total  of  the  credits  to  all  the  accounts  as  if  it  were  an 
account  with  one  individual. 

The  credits  to  sundry  accounts  receivable  account  should  be  posted 
consecutively,  and  checked  alphabetically,  or  numerically,  with  the  debits 
to  which  they  relate.  When  the  system  is  adopted  of  placing  each  credit 
opposite  to  its  corresponding  debit,  the  entire  account  to  be  footed  anew 
every  time  a  balance  is  taken,  the  account  is  always  in  great  confusion  and 
a  prolific  source  of  error. 

There  are  many  ways  of  treating  accounts  receivable  from  the  time 
the  letter  is  received  which  contains  the  remittance  in  payment  of  the 
account  to  the  posting  of  same  to  the  ledger.    As  a  tule  the  letter  and 

10 


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American  Business  and  Accounting  Encyclopedia 


Ace. 


check  are  handed  to  the  cashier  (or  book-keeper  when  he  combines  the 
duties  of  cashier  and  book-keeper),  and  he  makes  a  notation  on  the  letter 
of  the  page  of  the  cash  book  on  which  the  remittance  is  entered,  and  at 
the  same  time  examines  the  correctness  of  all  deductions  for  discount, 
freight,  allowances,  claims,  etc.  After  the  entry  has  been  made  on  the  cash 
book,  it  is  desirable  to  file  the  letters  in  a  special  accounts  receivable  file, 
where  they  may  be  traced  as  vouchers,  which  will  show  the  net  amount 
of  check  received  in  case  any  question  should  hereafter  arise  in  regard  to 
the  amount  of  deductions  as  shown  on  the  cash  book.  Where  deductions 
have  to  be  referred  to  a  traveling  salesman  or  other  party  for  O.  K.,  the 
amount  of  remittance  will  be  entered  on  the  cash  book  and  posted  to  the 
ledger,  leaving  a  balance  outstanding  until  the  claim  can  be  O.  K.'d  or 
refused. 

(10)       ACCOUNTS   receivable   BOOK. 

A  sales  book  or  record. 

A  book  designed  to  keep  track  of  credits  for  the  use  of  the  credit  man. 
It  is  usually  ruled  for  months,  the  customer's  name  and  amount  of  bills 
being  entered  under  the   due  date. 

Each  month,  therefore,  this  book  furnishes  a  list  of  collections  to  be 
made  during  that  month,  and  space  is  provided  in  which  to  record  the 
steps  taken  for  collection  and  their  result,  together  with  other  memoranda. 

(11)  ACCOUNTS  receivable  AS  CAPITAL. 

Problem  :  It  sometimes  happens  that  in  the  organization  of  a  cor- 
poration the  original  proprietor  turns  over  certain  accounts  receivable  as 
part  payment  for  stock  in  the  new  corporation.  As  some  of  this  may  turn 
out  to  be  uncollectible,  what  is  the  correct  way  of  dealing  with  such  a 
transaction  ? 

Solution  :  If  the  bills  and  accounts  receivable  were  taken  at  their 
face  value,  open  an  account  with  B  and  as  the  bills  and  accounts  mature 
credit  B  with  the  interest  on  the  same,  if  there  be  any.  If  any  of  the  bills 
or  accounts  prove  worthless  charge  the  same  to  B.  By  doing  this  the 
value  of  B's  capital  account  will  not  be  affected,  and  the  firm  will  not  be 
obliged  to  stand  any  loss  (which  does  not  belong  to  it)  through  the  in- 
ability to  collect  some  of  the  accounts  receivable  or  bills  receivable  taken 
from  B. — {G.  E.  Mark.) 

(12)  ACCOUNTS  RECEIVABLE  DISCOUNTED. 

ASSIGNED  ACCOUNTS. 

Accounts  assigned  to  a  bank. or  other  party  for  the  purpose  of  realizing 
on  same  before  they  become  due. 

As  this  method  of  discounting  accounts  receivable  is  not  very  common, 
we  will  illustrate  it  as  follows : 

We  will  assume  that  W.  H.  Hunt  &  Co.  have  $12,000  out  in  accounts 
receivable,  distributed  as  follows:  Smith  &  Co.,  $2,000;  Jones  &  Co., 
$4,000;  Brown  &  Co.,  $6,000.    Wishing  to  raise  immediately,  say  $8,000, 

11 


L 


Ace. 


American  Business  and  Accounting  Encvcloi'e 


DIA 


12 


they  communicate  with  their  bankers,  and  having  obtained  their  consent 
to  teh  loan,  copies  of  each  bill  (represenitng  the  $12,00)  are  made  in 
duplicate,  and  on  the  back  of  each  is  endorsed  the  usual  ''for  value  received 
we  do  hereby  transfer,  set  over,  etc."  A  statement  is  attached  to  each 
firm's  bills,  making  each  account  complete.  All  the  firms  verbose  accounts 
are  being  assigned  are  then  notified  by  Hunt  &  Co.  of  the  fact,  and  the 
bills  assigned  are  specifically  mentioned.  The  bills  are  then  sent  to  the 
bank  accompanied  by  addressed  and  stamped  envelopes,  in  order  that 
they  may  have  as  little  trouble  as  possible  in  the  matter.  This  completes 
the  preliminaries. 

The  bank  then  makes  a  demand  note  for  the  amount  of  the  loan 
($8,000),  which  embodies  the  collateral  on  which  the  loan  is  made,  i.  e., 
Smith,  Jones  and  Brown's  accounts,  it  being  understood  that  the  bank  does 
not  loan  on  the  accounts  but  on  the  note,  which  is  signed  by  Hunt  &  Co., 
and  their  account  is  then  credited  by  the  bank  and  loan  account  charged. 

Hunt  &  Co.,  first  make  a  journal  entry  crediting  Smith,  Jones  and 
Brown  and  charging  assigned  accounts,  which  is  really  an  account  against 
the  bank.  The  reason  for  this  entry  is  very  plain.  The  moment  the 
assignment  is  made  to  the  bank,  that  moment  the  accounts  of  the  three 
customers  are  settled  as  fully  as  though  they  had  mailed  checks  for  the 
proper  amounts,  so  far  as  they  are  concerned ;  but  as  a  matter  of  fact  the 
amounts  are  still  "accounts  receivable,"  the  only  change  being  the  source 
from  which  the  payment  is  to  be  received. 

Cash  is  then  charged  with  $8,000  and  the  item  is  credited  to  loan 
account.  Some  might  prefer  calling  this  account  bills  payable,  which  is 
perfectly  proper ;  but  it  has  been  found  more  desirable  to  separate  it  from 
the  trade  notes.  The  accounts  affected  by  the  above  entries  then  stand  as 
follows : 

SMITH    &  CO. 
$2,000      Nov.  26.     Asgmt $2,000 


Nov. 

20. 

Mdse 

Nov. 

15. 

Mdse 

Nov. 

15. 

Mdse 

Nov. 

26. 

Smith 

JONES    &   CO. 

$^,000     Nov.  20.     Asgmt $4,000 

BROWX    &   CO. 

$6,000      Nov.  2G.     Asgmt $6,000 

ASSIGNED  ACCOUNTS. 

Smith  &  Co $2,»)00 

Nov.  26.    Jones  &  Co 4,000 

Nov.  26.     Brown  &  Co 6,000 

LOAN  Account   (first  nat'l  bank.) 

Nov.  26    $8,000 

CASH. 

Nov.  26.    Loan    $S,000 

The  bank  receives  Smitn  &  Co.'s  check  for  $2,000.  They  pass  it  to 
the  credit  of  Hunt  &  Co.  exactly  the  same  as  a  deposit  made  in  the  regu- 
lar way.  Then  a  subsequent  entry  is  made,charging  H.  &  Co.,  and  credit- 
ing loan. 

Hunt  &  Co.  do  exactly  the  same  thing,  i.  e.,  charge  cash  and  credit 


12-14  American  Business  and  Accounting  Encvcloi'euia 


Ace. 


w 


the  bank  (assigned  accounts)  and  then  credit  cash  and  charge  loan  account. 
These  are  the  methods  applied  by  the  borrower  and  lender.  When  the 
$8,000  has  been  received  by  the  bank,  it  closes  out  the  loan  and  makes 
up  interest  charge;  which  is  deducted  from  the  regular  deposit  account  of 
Hunt  &  Co.,  the  papers  relating  to  the  assignment  and  the  note  are  all 
returned,  and  subsequent  payments  from  Smith,  etc.,  are  received  by  the 
bank  and  credited  up  as  straight  deposits,  while  Hunt  &  Co.,  credit  such 
payments  to  assigned  accounts  until  it  is  closed. 

(13)       ACCOUNTS  receivable  LEDGER. 

A  'sales  or  customers'  ledger  in  which  are  carried  the  individual  ac- 
counts with  debtors. 

(14)       adjustment  or   controlling  ACCOUNT. 

A  term  used  to  describe  an  account  to  which  adjusting  entries  are 
debited  and  credited  for  the  purpose  of  adjusting  or  correcting  books  of 
account.  In  auditing,  it  is  a  common  practice  to  open  such  an  account, 
charging  and  crediting  to  same  all  differences  or  errors  which  may  be  dis- 
covered in  the  course  of  the  audit.  Where  such  an  account  is  carried  it 
will  be  found  of  great  assistance  to  the  accountant,  as  this  account  not 
only  contains  the  details  of  every  difference,  but  at  the  same  time  keeps 
the  books  in  balance. 

A  title  used  by  accountants  to  describe  balance  accounts  with  ledgers, 
which  are  used  to  assist  in  locating  errors  which  may  have  occurred.  The 
original  idea  was  that  each  departmental  ledger  (wholesale,  retail,  city, 
country,  state,  etc.)  should  contain  a  general  ledger  adjustment  account, 
while  th^  general  ledger  should  contain  an  adjustment  account  with  each 
departmental  ledger.  In  practice,  however,  it  has  been  found  unnecessary 
to  carry  the  adjustment  accounts  with  the  general  ledger  in  the  depart- 
mental ledgers,  as  this  merely  involves  a  duplication  of  work.  The  adjust- 
ment account  in  the  departmental  ledger  has  been  discontinued  also  witii 
the  object  of  preventing  the  book-keeper  keeping  the  departmental  ledger 
from  knowing  whether  his  work  is  correct  or  not  until  it  has  been  incor- 
porated in  the  general  ledger  and  compared  with  the  postings  to  the  adjust- 
ment account  from  the  total  columns  of  the  books  of  original  entry.  So 
far  as  this  is  concerned,  however,  the  desired  object  cannot  be  obtained, 
as  any  book-keeper  can  prove  his  own  work  if  he  has  any  wish  to  do  so. 
If  he  cannot  obtain  the  actual  balance  of  his  ledger  as  a  basis  for  proving 
his  postings,  he  can  establish  an  imaginary  basis  which  will  answer  the 
purpose  just  as  well.  The  assertions,  therefore,  of  some  accountants  that 
they  can  introduce  systems  of  accounting  by  which  the  various  book- 
keepers will  be  dependent  upon  the  head  accountant  for  the  knowledge  of 
the  accuracy  or  inaccuracy  of  their  work  are  entirely  specious  and  unjusti- 
fiable. 

To  the  adjustment  account  in  the  general  ledger  will  be  debited  and 
credited  the  totals  of  columns  provided  in  the  books  of  original  entry  for 

13 


Ace. 


American  Business  and  Accounting  Encyclopedia 


14 


the  purpose  of  keeping  departmental  sales;  purchase,  receipts  and  pay- 
ments separate,  the  balance  of  the  adjustment  account  thus  representing 
the  total  of  the  balances  in  the  departmental  ledger  with  which  the  account 

is  kept. 

Such  accounts  may  be  kept  with  great  advantage  where  a  number  of 
traveling  salesmen  are  employed,  each  having  a  certain  territory.  In  this 
case  the  sales  ledgers  should  be  subdivided,  so  many  pages  being  allotted 
to  the  customers  of  each  salesman.  Separate  columns  should  be  provided 
in  sales  books,  cash  book  and  cross-entry  journal  for  each  section,  and  a 
representative,  or  adjustment  account  opened  with  each  section  in  the 
general  ledger  to  which  the  totals  of  columns  in  sales  book,  cross-entry^ 
journal,  and  cash  book  are  posted  at  the  close  of  each  month.  If  practica- 
ble, it  will  be  found  more  convenient  to  provide  a  separate  ledger  for  the 
section  covered  by  each  traveler,  and  the  loose  leaf  system  is  admirably 
adapted  for  this  purpose,  as  it  can  be  made  just  the  size  to  suit  the  number 
of  accounts  to  be  carried,  and  enlarged  and  diminished  at  will. 

The  form  of  ledger  we  recommend  (where  exceptional  circumstances 
do  not  alter  cases)  would  contain  the  following  columns: 

Date,  items,  folio,  debits,  monthly  debits,  debit  balance. 

Date,  items,  folio,  credits,  monthly  credits,  credit  balance. 


j:  F.Robins     LEDGER 

Date 

rouo 

DeaiTs 

Mo. 

Dm. 
Balancb 

0AT£ 

Folk. 

cnaoiTS 

Mo 
C/T£0/rj 

'A, 

Bmianc«s 
Wo  u  mat 
Cush 

6? J/ 
129 

i.0 
60 

6600 

^0 

76  3c 

/9 
14- 

^/30 

Cas/c 

Jounnat 

/60 
S8 

6967 

Hi  7 

so 

9S 

70  as 

7S 

The  purpose  of  the  "monthly  debits"  and  "debit  balance"  columns 
will  be  explained  a  little  later  on. 

The  representative,  or  adjustment,  accounts  in  the  general  ledger  will 
at  the  close  of  each  month  show  as  follows: 

This  account,  you  will  note,  displays  the  total  business  of  J.  F.  Robins, 
salesman,  and  its  results,  and  it  can  be  made  still  more  useful  by  a  little 
more  itemizing.  Sales  can  be  kept  separate  from  cross  entries  on  the  debit 
side,  and  on  the  credit  side  returns  and  allowances  may  be  particularized. 
The  increase  of  "monthly  debits"  shows  an  increase  of  business,  and  the 
increasing  or  decreasing  "debit  balance"  shows  how  the  customers  are 
paying  their  accounts.  So  that  this  account  becomes  a  valuable  compara- 
tive statement  of  J.  F.  Robins'  business. 

In  taking  the  trial  balance  of  the  J.  F.  Robins  ledger,  draw  off  monthly 
debits,  monthly  credits  and  the  balances,  and  foot  all  three  columns.    Then, 

1. 
14 


14 


American  Business  and  Accounting  Encyclopedia 


Ace. 


if  the  total  of  the  individual  balances  does  not  amount  to  $7,631.24,  you  can 
see  at  a  glance  whether  your  total  debits  posted  are  $6,880.20,  and  your 
total  credits  $7,095.75.  That  means  that  ninety-nine  times  out  of  a  hun- 
dred when  there  is  an  error  it  can  be  located  to  the  side  on  which  it 
occurred,  which  is  a  tremendous  advantage. 

The  principle  above  outlined  can  be  successfully  carried  out  in  any 
business  with  manifest  benefit.  In  enterprises  of  considerable  magnitude 
it  will  frequently  be  found  convenient  to  have  separate  cash  books,  sales 
books,  etc.,  as  the  use  of  columnar  books  in  such  cases  will  necessitate 
books  of  an  unwieldly  size. 

The  accounts  may  be  sectionalized  in  many  ways  as  may  be  found  most 
suitable  to  the  requirements  of  the  business.  Some  houses  sectionalize 
territorially,  as:  New  York  ledger,  Pennsylvania  ledger,  Ohio  ledger,  etc., 
etc.  Some  sectionalize  alphabetically,  A-F  ledger,  G-K  ledger,  L-R  ledger, 
S-Z  ledger. 

A  very  frequent  sectionalization  is  by  departments,  as  wholesale  led- 
ger, city ;  wholesale  ledger,  foreign ;  retail  ledger,  etc.,  etc. 

Where  sales  tickets  are  used  it  will  be  found  useful  to  have  different 
colored  tickets  for  each  section. 

Where  there  are  a  number  of  sections  it  is  also  found  useful  to  carry 
the  separate  adjustment  accounts  in  the  general  ledger,  and  group  them  in 
the  private  ledger  for  the  benefit  of  the  principals,  or  officers  of  the 
company,  thus: 

For  further  explanation  of  the  uses  of  ledger  adjustments,  or  balance 
accounts,  we  quote  from  Dicksee's  "Book-keeping  for  Company  Secre- 
taries" as  follows: 

"The  details  in  connection  with  adjustment  accounts  vary  under 
different  circumstances,  but  the  general  principle  is  that  each  separate 
ledger  should  be  so  arranged  as  to  possess  within  itself  all  the  necessary 
materials  for  a  complete  trial  balance.    That  is  to  say,  each  departmental 


D^T£ 


73/ 


4/30 


Balances 
N.y  L  ed^ ' 
P«,      - 
OMo     > 

Jo  XI  met 
NYLtdife^ 
Pv.       • 
OAio     . 

Cos  A.. 

N.Y.L9df9^ 
Pa. 
Oht«     . 

f*«      - 
0^i«    • 


FOLh 


o|  Deb 


ITS 


/76 
/90 


iJS 


/0  7SS 
997* 


9C 


4  7S 

Si 


3S 

JO 


OSBITS 


i4€9e 


Dm. 
BALANCe 


\OaT£ 


ipsa 

697J- 


60 


f0940 


4^/30 


ft 

*s 


Folio 


CasA 

N.Y.Ltdi*r 
Pa.       " 
Oh  to   • 

Journal 
N.y.L€*i*i' 
Po. 
OAt'o   . 


934- 
1*4 


/7« 
170 
/OO 


CmeoiTs 


S76S 
2.x/  9 
7SSO 


•  7* 


to 


7S 

•« 
If 


Mo 


i0  9«* 


•  9 


Ace. 


American  Business  and  Accounting  Encyclopedia 


14 


ledger  should  contain  a  'general  ledger  adjustment  account/  while  the 
general  ledger  should  contain  an  adjustment  account  for  each  of  the  de- 
partmental ledgers.  To  the  adjustment  accounts  in  the  various  depart- 
mental ledgers  are  posted  contra  entries  for  every  single  entry  that  occurs 
elsewhere  in  that  particular  ledger;  but,  of  course,  these  contra  postings 
are  not  made  in  detail,  but  in  totals,  as  otherwise  an  enormous  amount  of 
labor  would  be  involved.  In  the  same  manner  the  various  adjustment  ac- 
counts which  occur  in  the  general  ledger  each  contain  the  contra  entries  of 
such  other  entries  as  are  entered  in  the  general  ledger,  and  which — but  for 
these  adjustment  accounts — would  not  have  any  contra  entry  at  all  in  that 
particular  ledger.  Thus  the  total  of  the  sales  is  posted  to  the  sales  account 
in  the  general  ledger;  the  corresponding  debit  of  this  entry  would  be  the 
debit  to  the  customers  in  the  sold  ledger. 

"When  'self-balancing'  ledgers  are  used,  however,  the  practice  is  as 
follows:  The  various  items  are  still  debited  to  the  customer  in  the  sold 
ledger,  and  the  total  sales  posted  to  the  sales  account  in  the  general  ledger. 
In  addition,  however,  the  double  entry  of  the  sold  ledger  is  completed  by 
the  monthly  total  of  the  sales  being  posted  to  the  credit  of  the  general 
ledger  adjustment  account  in  the  sold  ledger;  while  the  double  entry  of 
the  general  ledger  is  completed  by  the  monthly  total  of  the  sales,  in  addi- 
tion to  being  posted  to  the  credit  of  the  sales  account,  being  also  posted 
to  the  debit  of  the  sold  ledger  adjustment  account  in  the  general  ledger. 
All  other  transactions  are  treated  in  a  similar  manner.  Where  there  is  a 
considerable  number  of  sold  ledgers,  a  separate  adjustment  account  is 
usually  kept  for  each. 

"From  what  has  been  said  it  will  be  seen  that  the  entries  which  occur 
in  the  general  ledger  adjustment  account  in  the  sold  ledger  will  be  identi- 
cal with  the  entries  which  occur  in  the  sold  ledger  adjustment  account  in 
the  general  ledger ;  and  that  therefore  the  balance  of  these  two  adjustment 
accounts  will  always  be  the  same  if  the  books  are  correct.  But  the  balance 
will  fall  upon  diflferent  sides,  namely,  upon  the  credit  side  of  the  account 
in  the  sold  ledger,  and  upon  the  debit  side  of  the  account  in  the  general 
ledger.  If  these  two  balances  agree,  one  may  feel  reasonably  satisfied  that 
the  postings  are  correct,  provided  each  ledger  separately  balances;  but  in 
the  event  of  their  not  agreeing  it  ought  to  be  comparatively  a  very  simple 
matter  to  trace  the  difference,  because  not  only  should  the  balance  of  the 
two  accounts  agree,  but  each  separate  item  should  be  the  same. 

"To  make  this  clear  the  following  example  of  these  adjustment  ac- 
counts is  appended : 


r 


u 


American  Business  akd  Accounting  E-\ cyclopedia 


GENERAL  LEDGER   (ADJUSTMENT)    ACCOUNT. 


Ace. 


Dr. 


1896. 

£  s. 

d. 

.1896. 

Oct.     31 

To 

Cash   

...700  0 

0 

Oct.       1 

Nov.    30 

« 

Discount    

20  0 

0 

Oct.     31 

(< 

Discount    

...  20  0 

0 

Nov.    30 

<( 

Returns    

...   40  0 

0 

Dec.    31 

Nov.    30 

n 

Cash    

...  800  0 

0 

u 

Discount      

...   25  0 

0 

« 

Returns     

. . .    20  0 

0 

Dec.  31 

« 

Cash    

. . . 600  0 

0 

1897 

<< 

Discount    

...    15  0 

0 

Jan.       1 

tt 

Returns    

...   30  0 

0 

« 

Bills    Receivable 

...750  0 

0 

« 

Bad  Debts 

...   50  0 

0 

« 

Balance    down    . . 

..1,250  0 

0 

Cr. 

£.  s.d. 

By  Balance  1,500  0  0 

"     Sales     1,200  0  0 

"     Sales    900  0  0 

"     Sales    700  0  0 


4,300  0  0 


B}'   Balance  down 1,250  0  0 


4,300  0  0 


SOLD   LEDGER    (ADJUSTMENT)    ACCOUNT. 


1896. 
Oct.      1 
Oct.    31 
Nov.   30 
Dec.    31 


Dr. 

£.  s.d. 

To  Balance    1,500  0  0 

"     Sales    1,200  0  0 

"     Sales    900  0  0 

"     Sales    700  0  0 


Cr. 


4,300  0  0 


1897. 
Jan.       1 


To   Balance  down 1,250  0  0 


1896. 

£.  s.  d. 

Oct.     31 

Bv 

Cash   

. . .    700  0  0 

« 
« 

Discounts 
Returns    . . 

. . .      20  0  0 

...      40  0  0 

Nov.    30 

« 

Cash    

.  .  .     800  0  0 

u 
« 

Discounts    . 
Returns    . .. 
Cash    

. .  .      25  0  0 

. .  .      20  0  0 

Dec.  31 

....60C  0  0 

« 
« 

Discounts    . 
Returns    . . 

.  ..       15  0  0 

. .  .      30  0  0 

Bills   ReceiA 

•able 

...    750  0  0 

« 

Bad  Debts 

. .  .      50  0  0 

« 

Balance   down    . 

...1.250  0  0 

4.300  0  0 

Ifi 


General  Principle  of  Adjustment  Accounts. — Before  leaving  the 
question  of  adjustment  accounts  as  a  means  of  balancing  ledgers  separately, 
it  is  well  to  call  attention  to  the  following  points  which,  no  doubt,  will 
help  to  clear  up  any  difficulties  which  may  be  experienced  in  understanding 
the  application  of  the  general  principle. 

The  mere  fact  that  one  ledger  is  divided  into  two  or  more  books  does 
not  ipso  facto  alter  its  nature.  The  ledger,  as  a  whole,  still  records  the 
double  effect  of  each  transaction.  At  any  time  the  sum  of  its  debits  will, 
therefore,  always  equal  the  sum  of  its  credits.  Consequently,  a  trial  bal- 
ance of  a  set  of  ledgers  can  always  be  taken  out  by  abstracting  every 
balance,  and  the  total  of  the  debit  balances  will  always  equal  the  total  of 
the  credit  balances  if  the  postings  are  correct.  There  is  thus  no  difficulty 
in  testing  the  accuracy  of  a  set  of  ledgers,  provided  all  the  ledger  balances 

17 


Ace. 


American  Business  and  Accounting  Encyclopedia 


14 


are  extracted.  On  the  other  hand,  when  there  is  more  than  one  ledger — 
or,  at  all  events,  when  there  are  more  than  two  or  three  ledgers — it  will 
very  soon  be  found  that  the  number  of  balances  is  so  large  that,  when  the 
■trial  balance  does  not  agree,  it  is  a  very  difficult  matter  to  localize  the 
error.  Hence,  it  is  very  desirable  that  there  should  be  some  means  of 
verifying  the  accuracy  of  each  ledger  separately,  and  it  is  for  this  purpose 
that  the  adjustment  accounts  are  introduced.  Incidentally  it  may  be  men- 
tioned, however,  that  they  are,  in  practice,  particularly  valuable,  because, 
by  their  means,  trade  ledgers  (which  usually  contain  the  heavies*  amount 
of  posting")  may  be  separately  balanced,  not  only  when  a  general  balance 
is  being  struck,  but  also  from  time  to  time  throughout  the  year.  In  practice 
it  is  usual  for  them  to  be  balanced  at  least  once  a  month,  and  without 
adjustment  accounts  this  could  not  be  done  without  balancing  all  the  books 
monthly. 

Practical  Working  of  Adjustment  Accounts. — ^With  regard  to  the 
practical  working  of  the  adjustment  accounts,  it  is  necessary  that  those 
subsidiary  books  from  which  the  various  ledgers  are  posted  should  either 
be  in  separate  sets  (one  set  for  each  ledger),  or  else  they  should  be  of  the 
columnar  order,  a  separate  column  being  devoted  to  the  postings  which 
have  to  go  into  each  ledger.  In  practice  by  far  the  most  convenient  way 
is  to  have  separate  day  books  for  each  ledger ;  but  with  regard  to  the  cash 
book,  it  is  sometimes  best  to  have  one  of  the  columnar  type,  wlme,  in 
other  cases,  separate  subsidiary  cash  books  are  more  convenient.  With 
regard  to  transfers  from  one  ledger  to  another,  these  may  be  conveniently 
passed  through  a  transfer  journal;  and  for  all  practical  purposes,  it  will 
be  quite  sufficient  if  the  contents  of  this  transfer  journal  are  analyzed  at 
the  end  of  each  month,  and  posted  to  the  various  adjustment  accounts. 

"The  chief  difference  in  the  system  of  book-keeping,  where  adjust- 
ment accounts  are  used,  will  be  with  regard  to  the  general  ledger.  Ordi- 
narily speaking,  the  general  ledger  is  posted  up  from  the  totals  of  the  vari- 
ous day  books  and  the  general  cash  book,  and  in  the  case  of  most  trading 
or  manufacturing  undertakings  the  number  of  journal  entries  will  be  very 
few.  It  is  not  really  necessary  that  the  number  should  be  increased 
because  adjustment  accounts  are  used,  as  the  necessary  postings  of  day 
book  totals  can  still  just  as  easily  be  made  from  the  day  books  direct  as 
through  the  journal;  but  as,  in  employing  self-balancing  ledgers,  two 
entries  have  now  to  be  made  in  the  general  ledger  itself,  it  is,  perhaps, 
desirable  that  journal  entries  should  be  made  to  enable  this  to  be  done." 

Questions  sometimes  arise  where  there  are  branch  businesses  as  to  the 
adjustment  of  differences  between  the  main  office  and  the  branches  on 
account  of  goods  and  cash  in  transit  which  have  been  charged  by  the  mam 
office  on  a  certain  date  (the  books  being  closed  on  that  date),  but  have  not 
been  credited  by  the  branch  office  on  account  of  their  not  having  been 
received  on  that  date.  In  such  a  case,  the  financial  statement  of  the  busi- 
ness, which  would  be  a  summary  of  the  accounts  of  the  main  office,  to- 

18 


14-16 


American  Business  and  Accounting  Encyclopedia 


Acc. 


gether  with  the  branches,  would  not  be  disturbed,  and  it  would  be  only 
necessary  to  record  the  fact  that  certain  merchandise  or  cash  had  been 
shipped  to  such  a  branch  and  was  at  the  date  of  preparing  the  statement 
in  course  of  transit. 


f 


(15)     adventure  account. 

A  ledger  account  recording  the  transactions  of  a  commercial  enter- 
prise outside  of  the  regular  line  of  business,  undertaken  alone  or  in  co- 
partnership with  another  party  who  shares  the  proceeds  or  losses. 

Example  of  Adventure  Account.  A  corpooration  purchases  jointly 
with  another  a  large  invoice  of  goods,  the  first  company  agreeing  to  finance 
the  account,  and  the  other  to  handle  the  selling  end  of  it,  the  profit  from  the 
sales  to  be  divided  equally  between  the  two  corporations.  The  first  corpor- 
ation pays  for  the  merchandise  invested  in,  being  assisted  in  so  doing  by 
the  sum  of  $3,000  received  from  the  second  corporation.  The  total  paid  for 
the  merchandise  is  $11,000,  $3,000  of  which  is  paid  by  the  second  corpora- 
tion, and  $7,890  of  which  is  paid  by  the  first  corporation,  who  take  advan- 
tage of  a  cash  discount  of  1  per  cent,  the  total  making  $11,000.  How  should 
this  investment  be  recorded  ?    One  very  simple  method  would  be  as  follows : 

Carry  a  memorandum  investment  account.  To  this  investment  account 
charge  the  amount  paid  for  merchandise  and  the  charges  for  interest,  stor- 
age, and  commission.  Credit  same  with  1  per  cent  discount  .and  the  g^ross 
sales.  The  balance  of  this  account  will  then  show  the  profit  jointly  made 
on  the  investment. 

In  the  books  of  account  proper  open  "Smith  and  Jones  investment 
account."  Charge  same  with  the  amount  of  the  total  investment,  $11,000, 
when  making  payment  for  the  goods,  the  credit  being  to  cash.  Charge 
Jones  with  his  share  of  the  investment,  $5,500,  and  credit  investment  ac- 
count. Credit  Jones  with  the  $3,000  received  on  account  of  investment, 
the  charge  being  to  cash.  Also  credit  the  investment  account  with  the 
1  per  cent  discount,  the  charge  being  to  cash. 

When  Jones  renders  his  account  of  sales,  which  we  will  say  amounts 
to  $14,000,  less  $750  paid  out  for  interest,  storage  and  commission,  verify 
same  and  obtain  his  check  for  the  amount  due,  which  on  the  above  basis 
would  be  $9,070,  crediting  $2,500  to  balance  Jones'  account,  and  $6,570  to 
investment  account.  Investment  account  will  then  show  a  profit  of  $1,180, 
which  will  be  one-half  of  the  total  profit  of  $2,360. 

If  the  charges  for  interest,  storage  and  commission  are  paid  by  Smith 
instead  of  Jones,  it  will,  of  course,  increase  the  amount  due  by  Jones. 

(16)     advertising  account. 

An  account  containing  a  record  of  advertising  expenditures,  the  bal- 
ance of.  same  being  transferred  at  the  end  of  each  statistical  period  to  the 
debit  of  the  selling  expense  section  of  profit  and  loss  account. 

19 


Ace. 


American  Business  and  Accounting  Encyclopedia 


16-17 


In  an  advertising  agency  business  the  advertising  account  performs  the 
same  function  as  the  sales  account  in  an  ordinary  business. 

(17)     approbation  sales  account. 

Goods  delivered  to  customers  on  approval— that  is,  on  the  understand- 
ing that  they  may  be  returned  without  charge  if  found  unsatisfactory. 

Such  sales  should  be  kept  in  a  separate  memorandum  sales  book  until 
disposed  of.  If  the  goods  are  retained  by  the  customer,  they  should  be 
entered  in  the  regular  sales  book ;  if  returned,  a  memorandum  to  that  effect 
should  be  made  in  the  approbation  sales  book. 

In  all  large  businesses  where  there  is  danger  of  approbation  sales  being 
overlooked,  it  is  advisable  to  open  an  account  called  "Approbation  Sales." 
To  this  account  charge  all  goods  sent  out  and  credit  all  goods  returned,  and 

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goods  charged  in  the  regular  sales  book.  The  balance  of  this  account  will 
thus  always  show  the  value  of  goods  out  on  approbation.  A  special  form 
of  bill  can  be  used  in  duplicate,  the  original  being  handed  to  the  customer 
with  the  goods,  and  the  duplicate  being  retained  as  a  record.  The  bills  can 
be  so  devised  as  to  perform  the  functions  of  an  approbation  sales  book  as 
above  mentioned ;  thus  saving  the  labor  of  making  entries  in  a  bound  vol- 
ume. 

In  most  businesses  these  departments,  and  the  records  of  same,  are  not 
as  satisfactory  as  they  might  be,  and  the  attention  of  those  who  are  obliged 
to  send  out  goods  to  their  patrons  in  this  way  is  particularly  directed  to  the 
form  here  presented. 

Sales  on  approbation  sometimes  remain  out  quite  a  long  time,  and 
where  monthly  statements  of  business  conditions  are  required  this  record 
will  be  appreciated  as  giving  full  information  in  the  best  possible  way. 

Regular  sale  checks  are  used  by  the  store  clerks  for  this  class  of  sales, 
but  they  are  printed  in  a  distinctive  color  and  carry  a  distinctive  series  cf 

numbers. 

In  most  establishments  we  suppose  posting  would  be  made  direct  to 
customers'  accounts  from  the  "on  credit"  column  and  the  total  of  that 
column  dissected  into  departments,  and  the  departmental  totals  posted  to 
the  credit  of  the  regular  sales  accounts  at  the  end  of  the  month. 

20 


18-21 


American  Business  and  Accounting  Encyclopedia 


Acc. 


(18)      ASSET  accounts. 

Those  accounts  which  record  the  value  of  property,  possessions  and 
resources. 

(19)     balance  account. 
A  summar};  account  into  which  at  a  given  date  the  balances  of  other 
accounts  are  transferred.    See  "Adjustment  Account." 

(20)     balancing  accounts. 
The  computation  and  entry  of  balances  of  ledger  accounts  when  pre- 
paring for  closing  of  books  or  making  a  trial  balance. 

(21)       BANK  account. 

A  general  ledger  account  to  which  is  posted  at  the  end  of  each  month 
the  balance  of  cash  at  bank. 

An  account  of  moneys  deposited  with  and  withdrawn  from  a  bank. 
One  of  the  most  common  methods  of  keeping  this  account  is  to  make  the 
record  of  deposits  and  withdrawals  on  the  stub  of  the  check  book,  which 
should  be  specially  ruled  so  as  to  conveniently  provide  for  the  record  of 
deposits  on  the  reverse  of  the  stub,  and  permit  footings  of  checks  to  be 
made  with  facility. 

The  check  stubs  thus  form  a  check  register,  showing  at  the  close  of 
each  day  the  balance  at  bank  by  the  simple  process  of  deducting  the  totals 
of  checks  from  the  totals  of  deposits.  The  footings  should  be  carried  for- 
ward to  the  end  of  the  month  before  striking  a  new  balance  on  the  stub, 
for  the  reason  that,  if  any  error  is  made,  the  bringing  forward  of  a  new 
balance  every  day  obstructs  its  discovery. 

The  separate  check  register  is  an  amplification  of  the  stub  record,  and 
is  often  developed  into  a  bank  cash  book  where  all  receipts  are  deposited, 
the  general  cash  book  in  this  case  becoming  only  a  record  of  minor  expendi- 
tures. 

The  bank  account  is  frequently  kept  in  either  cash  book,  or  journal, 
separate  columns  being  provided,  both  debit  and  credit,  headed  "Bank." 
The  totals  of  deposits  is  entered  daily  in  the  proper  column  from  the  deposit 
slips  (which  are  filed  for  reference)  and  the  total  of  checks  issued  is  also 
entered  daily.  The  entering  of  checks  in  detail  in  the  bank  column  is 
unnecessary  and  profitless  labor,  and  the  grand  totals  only  of  the  bank  col- 
umns should  be  posted  to  the  ledger  at  the  end  of  each  month  for  trial 
balance  purposes. 

The  ideal  method  of  treating  bank  account  is  to  utilize  it  as  a  preventa- 
tive of  defalcation  by  depositing  all  receipts,  and  making  all  payments  by 
check  except  petty  expenditures,  and  this  method  is  now  quite  extensively 
used.  Exchange  and  discount  will  be  charged  through  the  cash  book,  so 
that  the  balance  of  the  cash  book  must  always  agree  with  that  of  the  bank 
pass  book. 

A  petty  cashier  has  charge  of  necessary  incidental  cash  payments, 
which  are  recorded  in  a  petty  cash  book.    He  is  supplied  with  money  by 

21 


ACC. 


American  Business  and  Accounting  Encyclopedia 


21-22 


checks  drawn  to  his  order,  the  amounts  of  which  are  charged  to  his  account, 
while  he  is  credited  with  approved  expenditures. 

Checks  drawn  to  his  order  should  cover  the  exact  amount  disbursed 
from  date  of  last  check,  as  by  this  method  any  unusually  large  expenditures 
would  at  once  attract  attention. 

(22)       BANK  deposit   ACCOUNT. 

It  is  often  lost  or  mislaid  and  confusion  arises  when  a  new  one  is  issued 
and  the  older  one  is  found  and  presented  for  balancing  by  mistake. 

Bank  examiners  can  never  secure  all  the  pass  books  for  the  purpose  of 
securing  proof  of  correctness  of  each  separate  account. 

Counter  errors  in  posting  sometimes  are  not  discovered  for  weeks,  as 
the  pass  book  is  the  final  means  of  locating  the  same. 

If  some  method  of  reconciling  accounts  between  banker  and  dealer  can 
be  offered  overcoming  these  imperfections,  it  is  the  belief  of  many  students, 
that  it  would  be  gladly  accepted  in  many  places. 

The  individual  ledger  department  of  the  bank  could  be  arranged  in  the 
following  manner  for  a  business  of  from  fifteen  hundred  to  two  thousand 
accounts,  with  an  average  number  of  twelve  to  fifteen  hundred  items  per 
day  and  a  total  deposit  balance  of  about  two  million  or  more  dollars. 


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First — The  chief  clerk,  who  has  full  charge  of  the  department.  He 
will  receive  all  material,  morning  exchanges,  letter  items,  deposit  tickets 
and  other  items  from  the  various  parts  of  the  bank.  He  will  deliver  to  all 
dealers  their  statement  sheets  and  vouchers,  and  will  meet  and  answer  all 
inquiries.  He  will  file  all  vouchers  and  all  deposit  tickets,  receiving  assist- 
ance when  necessary. 

Second — Two  ledger  keepers,  who  will  examine  indorsements  on  morn- 
ing exchange  checks.  They  will  post  and  prove  ledgers,  posting  from 
checks  and  deposits,  with  discounts  on  green  tickets,  collections  on  blue 
and  receiving  teller's  deposits  on  white  ones.  The  balances  of  the  ledger 
accounts  will  be  compared  with  the  customers'  statements'  sheet  the  next 
morning  by  exchanging  ledgers,  in  order  to  guard  against  collusion  or 
error  of  design  or  accident. 

Third — Two  (or  perhaps  three)  statement  clerks,  who  will  check  off 
from  slips  received  with  the  morning  exchanges ;  they  will  compare  "Pay- 
ment stopped"  items  and  sort  checks  for  posting.     Will  list  on  adding 


22 


22-23 


American  Business  and  Accounting  Encyclopedia 


Acc. 


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machine  for  cash  proof.  They  will  write  up  items  on  statement  sheets,  as 
shown  herewith,  for  return  to  customers  and  stamp  vouchers  paid.  They 
will  extend  balances  of  all  sheets,  having  transactions  of  the  day^  in  balance 
column  provided  and  call  back  to  book-keeper  the  next  morning  such  bal- 
ances only. 

When  a  customer  calls  for  his  vouchers  and  statement  of  account,  the 
chief  clerk  gives  the  name  to  the  statement  clerk,  who  will  at  once  complete 
the  sheet  and  hand  it  to  the  book-keeper  to  note  on  the  ledger  the  number 
of  vouchers  returned  against  the  corresponding  balance  and  then  the  sheet 
will  go  to  the  chief  clerk,  who  has,  in  the  meantime,  taken  vouchers  and 
deposits  from  the  file,  counted  and  placed  vouchers  in  envelope  and  deposit 
tickets  in  rack  for  permanent  filing.  He  tears,  at  the  perforation,  the  sheet, 
places  in  envelope  and  gives  to  the  dealer.  At  his  leisure  he  starts  a  new 
sheet  with  balance  and  date  for  statement  clerk's  next  transactions. 

The  customers'  deposit  when  made  could  be  receipted  for  in  any  one 
of  three  or  four  ways.  A  form  of  receipt  could  be  attached  to  the  regular 
debit  ticket  form  by  perforated  edge.  A  memoranda  pass  book,  similar  to 
the  style  now  used,  could  be  carried  simply  to  secure  entry  of  deposit.  A 
form  of  receipt  could  be  filled  out  by  the  receiving  teller.  Acknowledgment 
by  mail  could  be  used. 

The  system  outlined  above  will  give  the  dealer  the  "statement  of  ac- 
count" at  once,  without  delay  or  unnecessary  confusion. 

The  sheets  are  always  neat,  clean  and  fresh,  for  if^a  dealer  does  not 
call  frequently  enough,  the  vouchers  can  be  sent  to  him  by  mail. 

The  examiners  can  always  compare  the  accounts,  or  any  one  or  more, 
and  feel  sure  there  is  no  danger  of  any  mistakes  or  other  means  of  loss, 
because  of  the  absolute  impossibility  of  securing  all  pass  books,  and  this 
can  be  done  very  rapidly  with  but  little  interference  with  the  routine  work. 

No  lost  or  mislaid  accounts  is  self  evident. 

No  collusion  would  be  possible  between  any  two  clerks  or  with  a  dealer 
and  book-keeper,  as  the  statement  written  up  by  one  man  is  checked  by  one 
book-keeper  when  called  back  and  by  the  other  when  delivered  to  chief 
clerk  for  final  disposal. 

No  counter  errors  in  posting  would  be  likely  to  occur,  for  two  men  are 
proving  the  same  transaction  and  the  chief  clerk  verifies  the  number  cf 
items  on  delivery  to  dealer. 

This  system  is  not  intended  to  save  or  reduce  labor  or  time  but  to  give 
better  results  with  the  same  expenditure  of  time  and  labor. — F.  Mead. 

(23)     BILLS  payable  account. 

A  representative  account  in  which  is  kept  a  record  of  the  amount  of 
bills  payable  issued  in  settlement  of  liabilities,  the  amounts  paid  on  same, 
and  balance  due. 


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American  Business  and  Accounting  Encyclopedia 
(Sills  P<ny(nblc  Accowot. 


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The  check  numbers  in  the  illustration  are  provided  with  a  view  to 
doing  away  with  the  prevalent  system  of  debiting  the  payment  of  the  bill 
opposite  the  credit  entry ;  likewise  in  Bills  Receivable  account  crediting  the 
payment  opposite  the  debit  entry.  This  very  considerably  increases  the 
trouble  of  getting  out  the  trial  balance,  and  mistakes  are  very  liable  :o 
occur  through  overlooking  the  debit  or  credit  which  should  enter  into  the 
trial  balance  of  the  particular  month  on  which  the  work  is  being  done.  By 
using  the  check  numbers,  reference  to  the  bill  paid  is  easily  made  and  the 
monthly  trial  balance  is  in  no  way  interfered  with. 

(24)       BILLS    RECEIVABLE   ACCOUNT. 

A  ledger  account  showing  in  detail  or  in  totals  the  amounts  of  bills, 
promissory  notes,  etc.,  received  from  customers  or  debtors;  the  amount 
paid  on  same  and  balance  outstanding. 

The  proper  manipulation  of  bills  receivable  account  and  bills  receivable 
register,  or  record,  is  so  closely  interwoven  that  it  is  necessary  to  treat 
them  together.  The  proper  end  in  view  is  to  devise  a  system  that  shall 
always  give  complete  information  promptly  when  required  and  dispense 
with  needless  labor.  Many  plans  have  been  evolved  to  accomplish  this, 
including  the  combination  in  one  book  of  the  features  of  register  and  ledger. 
This  will  be  considered  later  on  under  the  head  of  ''Bills  Receivable  Led- 
ger." 

Where  the  ordinary  bills  receivable  account  is  carried  in  the  ledger, 
we  would  recommend  the  use  of  key  numbers  instead  of  endeavoring  to 
write  the  credit  directly  opposite  the  charge  when  the  bill  is  paid.  The 
latter  method  results  in  great  inconvenience  when  taking  off  the  trial  bal- 
ance, which  is  entirely  obviated  by  the  use  of  key  rumbers.  We  append 
an  example  of  bills  receivable  account  to  illustrate  the  idea. 


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American  Business  and  Accounting  Encyclopedia 


Acc. 


(25)     BILLS  receivable  suspense  account. 
An  account  to  which  are  transferred  doubtful  or  uncollectible  bills 
receivable,  in  whcih  account  they  are  retained  until  it  is  decided  to  charge 
them  off  to  profit  and  loss. 

(26)     BOOK  account. 
A  ledger  account.    An  account  receivable  (generally). 

(27)       BUILDINGS  account. 

A  general  ledger  asset  account.  The  relation  to  this  account  of  dilapi- 
dations, depreciations,  maintenance,  repairs,  renewals,  etc.,  will  be  consid- 
ered under  the  head  of  "Depreciation." 

(28)       CAPITAL  ACCOUNTS. 

An  account  in  the  general  ledger  showing: 

(a)  The  net  investment  of  the  single  proprietor  or  partners  in  a 
business. 

(b)  The  total  of  stock  authorized  for  issue,  or  of  stock  usually  sub- 
scribed for  in  connection  with  corporations.     (See  Capital.) 

(29)       CASH  ACCOUNTS. 

A  general  ledger  account  to  which  is  posted  at  the  end  of  each  month 
the  balance  of  cash  on  hand.  This  is  considered  desirable,  for  the  reason 
that  the  items  included  in  the  balance  sheet  should  consist  of  actual  bal- 
ances obtained  from  the  regular  ledger  accounts. 

(30)       CASH  and  BANK  ACCOUNT. 

An  account  to  which  the  balances  of  both  cash  on  hand  and  cash  In 
bank  are  posted  in  one  total  for  closing  purposes  and  transferred  to  the 
balance  sheet. 

This  is  one  of  the  most  important  elements  of  the  accounting  system 
of  any  business.  The  man  who  handles  the  cash  holds  a  very  responsible 
position,  and  is  always  surrounded  by  more  or  less  checks  on  his  work. 

The  double  entry  cash  book  carries  receipts  on  the  left  hand  page  and 
payments  on  the  right  hand  page,  and  is  self-proving  by  inclusion  of  the 
balances  on  hand  at  the  commencement  and  close  of  any  particular  perio  I. 

Where  businesses  are  very  large  and  the  detail  is  very  great  separate 
books  are  used  for  cash  receipts  and  cash  payments,  each  book  being  in 
charge  of  a  separate  clerk.  For  facility  of  posting,  it  is  frequently  arranged 
that  there  shall  be  alternate  cash  books,  one  being  used  for  Mondays,  Wed- 
nesdays and  Fridays,  and  the  other  for  Tuesdays,  Thursdays  and  Saturdays. 

The  debit  and  credit  to  cash  on  double  entry  cash  books  is  usually 
referred  to  as  ''automatic."  This  is  explained  by  the  following  illustration 
of  cash  account: 

Jan.    2.  Cash  on   hand. $  750  00  Jan.    2.  Cash  Payments   65  50 

Jan.    2.  Cash  Receipts    200  00  Jan.    3.  Cash  Payments   125  00 

Jan.    3.  Cash  Receipts    450  00  Jan.    5.  Cash  Payments    468  00 

Jan.    5.  Cash  Receipts    600  PO  Jan.  31.  Cash  Payments 

Jan.  31.  Cash  Receipts    290  00 


75  00 

Bal.  on  hand   1,555  50 


$2,290  00 


$2,290  00 


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On  Saturday,  Dec.  31st,  the  ledger  account  shows  a  debit  to  cash  to 
$750.    If,  therefore,  all  the  above  items  are  posted  to  cash  account  in  detail 
or  in    daily   totals,  the   result  would   be  a  debit   balance  on   Jan.  31st  of 
$1,555.50,  but  in  order  to  save  trouble  and  unnecessary  labor,  it  is  usual  tc 
simply  rule  a  line  under  the  "balance  on  hand"  Jan.  2,  $750,  the  next  post 
ing  being  the  balance  on  Jan.  31st  of  $1,555.50.    This  amount  is  incorpor- 
ated in  the  trial  balance,  and  this  entry  answers  every  purpose,  it  being 
understood  that  cash  has  been  debited  with  all  the  receipts  on  the  cash 
book,  and  credited  with  all  the  payments,  leaving  $1,555.50  on  hand.    An 
other  method  is  to  post  the  total  of  the  cash  received  on  "debit  to  cash' 
side  for  the  month  to  the  debit  side  of  cash  account,  and  to  post  the  total 
of  cash  paid  or  credit  to  cash  side  at  the  end  of  the  month  to  the  credit 
of  cash  account,  which  furnishes  the  same  balance  for  incorporation  as  the 
trial  balance. 

The  method  of  dividing  cash  account  into  main  cash  and  petty  cash 
with  separate  books  for  each  will  be  treated  under  the  heading  of  "Petty 
Cash." 

One  of  the  best  methods  of  arranging  the  cash  department  of  a  business 
is  the  following: 

Deposit  all  receipts  and  credits,  and  the  bank  pass  book  will  then 
always  equal  the  receipts  in  the  cash  book  less  exchange. 

Pay^  everything  by  check,  with  the  exception  of  small  incidental 
expenses. 

Draw  checks  for  currency  to  meet  incidental  expenses  and  provide  a 
separate  column  for  such  payments,  charging  the  cashier  with  the  amount 
of  checks  drawn  for  this  purpose,  and  holding  him  responsible  to  furnish 
vouchers  for  all  disbursements. 

For  the  purpose  of  checking  the  amount  of  receipts  entered  on  the  cash 
book,  a  method  frequently  adopted  is  for  the  officer  or  other  person  who 
opens  the  mail  to  make  a  memorandum  of  the  cheeks,  money  orders,  notes, 
etc.,  contained  in  the  envelope  which  he  opens,  and  some  time  thereafter 
this  memorandum  is  compared  with  the  entries  on  the  cash  book. 

In  some  businesses  the  cashier  is  permitted  to  carry  an  "over  and  short'* 
account,  to  which  are  debited  or  credited  differences  for  which  he  is  unable 
to  account.  This  is  certainly  conducive  to  carelessness,  and  the  practice  U 
to  be  discouraged.  While  it  may  not  be  strictly  equitable,  yet  it  has  been 
found  that  the  best  method  of  making  the  cashier  equal  to  his  responsibili; 
ties  is  to  charge  the  account  with  all  shortages  and  to  credit  any  overages 
to  the  profit  and  loss  until  accounted  for. 

The  best  method  of  treating  cash  sales  will  be  found  under  that  heading 

The  cash  book  usually  shows  a  balance  o  fcash  both  on  hand  and  at 
bank,  but  there  are  many  different  methods  of  arranging  this  form  of 
record. 

Sometimes  the  cash  balance  shows  the  total  of  cash  on  hand  and  at 
bank  in  one  amount,  but  the  check  register,  or  stub,  of  check  book  must 

26 


be  consulted  to  find  how  much  is  on  band  and  how  much  is  at  the  bank. 

Sometimes  bank  columns  are  provided  on  each  side  of  the  cash  book, 
and  when  this  is  the  case,  bank  deposits  are  usually  entered  on  the  cash 
paid  side  as  a  charge  to  the  bank,  while  the  amount  of  checks  issued  arc 
entered  in  the  bank  column  on  the  cash  receipt  side  as  a  credit  to  the  bank ; 
thus  reversing  the  method  used  in  the  6ame  book  in  regard  to  cash  on  hand. 
Where  cash  on  hand  and  at  bank  are  distinguished  in  this  way,  we  think 
the  same  rule  should  apply  to  both,  that  the  deposits  in  bank  should  be 
entered  in  the  column  adjoining  the  cash  receipts,  and  that  the  record  of 
checks  issued  should  be  entered  in  the  column  on  the  cash  paid  side  adjoin- 
ing the  payments.  This  will  be  found  particularly  convenient  where  it  is 
the  practice  to  deposit  all  receipts  and  make  all  payments  by  check,  using 
the  petty  cash  book  for  incidental  expenditures.    The  deposits  in  the  bank 

Where  the  bank  withdrawal  column  is  placed  on  the  cash  received  side 
of  the  cash  book  and  the  bank  deposit  column  on  the  cash  paid  side  of  the 
cash  book,  it  is  interesting  to  note  the  actual  course  of  the  entries.  Under 
these  circumstances  the  cash  received  side  will  contain  entries  of  the  fol- 
lowing different  descriptions: 

column  will  then  equal  the  amount  of  receipts  and  the  total  of  the  bank 
withdrawal  column  will  equal  the  total  of  the  checks  issued. 

When  bank  columns  are  used  it  is  scarcely  necessary  to  say  that  the 
itmes  of  receipts  and  payments  should  not  be  entered  in  detail  in  the  bank 
columns,  as  this,  of  course,  involves  double  entries  for  every  amount.  Not 
more  than  one  entry  in  the  bank  withdrawal  column  should  be  made  per 
page,  and  only  the  total  of  each  deposit  should  be  entered  in  the  bank  de- 
posit column. 

1.  Credits  to  customers  for  value  received. 

2.  Debits  to  cash  for  same. 

3.  Credits  to  bank  for  cash  paid  out  obtained  from  cash  at  bank.  In- 
asmuch as  cash  in  the  office  safe  and  cash  at  the  bank  are  equally  available 
and  constitute  part  of  the  same  fund,  it  does  not  seem  consistent  to  debit 
and  credit  cash  on  the  same  side  of  the  cash  book. 

(31)  columnar  account  books. 
A  title  applied  to  books  of  account  in  which  separate  colunms  are  pro- 
vided for  accounts  to  which  there  are  a  large  number  of  charges  or  credits 
per  month.  The  totals  of  these  columns  are  posted  at  the  end  of  the  month, 
thus  saving  the  time  and  labor  of  posting  the  items  in  detail  day  by  da.y. 
The  columnar  arrangement  is  now  largely  used  on  cash  books,  journals, 
department  sales  books,  voucher  records  and  all  books  of  statistical  record. 

(32)     commission  account. 
A  general  ledger  account  recording  amounts  of  commission  paid  or 
earned. 

(33)     consignment  accounts. 
The  accounts  of  consignees  of  the  goods  received  for  sale  on  consign- 
ment should  be  carried  in  a  separate  consignment  book,  from  which  the 


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account  sales  can  be  made  to  the  consignor  when  required,  showing  amount 
of  goods  sold  and  commission  gained  on  same.  The  value  of  goods  sold 
only  should  be  entered  on  the  regular  books  of  account  as  a  liability  to  the 
consignor,  thus  avoiding  complications. 

The  actual  forms  of  consignment  records  and  consignment  ledgers  vary 
with  different  businesses,  but  the  following  method  combines  both  sales 
book  and  ledger  and  stock  book  features  obtained  on  ordinary  ledgers  with 
double  columns  on  each  side.  In  the  outer  column  on  the  credit  side  enter 
value  of  goods  received  on  consignment  and  state  quantities  in  the  "particu- 
lars" column.  As  goods  are  sold  enter  same  on  the  debit  side,  giving  quan- 
tities, date,  folio  of  sales  book,  and  value  in  inner  column.  When  account 
sales  is  made  enter  date  and  amount  in  outer  column  on  debit  side.  On 
rendering  account  sales  enter  quantity  of  goods  on  hand  in  "particulars" 
column  and  value  in  inner  column  on  credit  side,  which  will  thus  be  the 
balance  of  account  at  that  date.    This  account  will  then  always  show : 

Amount  of  sales. 

Amount  on  hand. 

Total  value  of  consignment, 

Amount  accounted  for  to  consignor. 

Where  the  business  is  large  a  consignment  account  should  be  opened, 
not  only  with  each  consignor,  but  with  each  kind  of  goods  consigned. 

As  stated  above,  the  amount  due  consignor  should  be  transferred  to 
the  main  books  of  account  as  each  account  sales  is  rendered,  thus  entering 
on  the  books  only  the  actual  liabilities,  the  debit  being  to  purchases,  the 
sales  of  goods  to  customers  being  charged  in  the  usual  way,  crediting  sales 
account. 

In  large  consignment  or  commission  businesses  the  use  of  columnar 
sales  books  will  be  found  of  great  advantage,  one  column  being  provided 
for  charges  to  customers,  and  separate  columns  for  the  distribution  of  the 
diflFerent  kinds  of  goods  purchased,  separate  trading  accounts  being  kept 
with  each  class  of  goods.  Those  trading  accounts  will  include  both  sales 
and  purchases,  being  debited  with  the  value  of  goods  sold,  and  credited 
with  the  amounts  charged  to  customers.  In  this  way  each  trading  account 
will  exhibit  the  profit  made  on  each  kind  of  goods  carried  on  consignment. 
All  charges  and  expenses  connected  with  the  consignment  are  also  charged 
to  the  trading  account  so  that  it  may  exhibit  net  proceeds.  When  accouit 
sales  are  rendered  commission  account  will  be  credited  with  the  commission 
earned,  which  will  be  charged  to  the  consignors. 

Where  the  consignment  business  is  carried  on  in  connection  with  a 
regular  mercantile  business,  it  is  useful  to  provide  a  separate  column  in 
the  sales  book  for  consignment  sales,  distinguishing  them  from  the  regular 
sales. 

(34)       CONSTRUCTION    ACCOUNT. 

An  account  which  carries  the  cost  of  erecting  and  equipping  buildings, 
construction  of  railroads  and  public  works  of  all  kinds,  building  of  vessels, 
etc. 


ii 


CONSTRUCTION  ACCOUNT  OF  AN  ELECTRICAL  CO. 

Land. 

Station  and  Buildings. 

Motive  Power. 

Arc  Apparatus. 

Incandescent  Apparatus. 

Power  Apparatus. 

Pole-lines. 

Installations. 

Conduits. 

Cables. 

(35)       COPYRIGHT   ACCOUNT. 

An  account  recording  the  cost  of  copyrights  secured.  Usually  treated 
as  a  passive  asset  on  account  of  the  difficulty  of  determining  the  actual 
value,  this  depending  very  much  on  the  popularity  of  the  publication  copy- 
righted and  the  length  of  time  the  copyright  has  to  run. 

The  treatment  of  copyrights  on  books  of  account  is  an  important  part 
of  the  detail  of  a  publisher's  business,  and  is  very  similar  in  principle  to 
the  treatment  of  good  will,  especially  when  a  lump  sum  has  been  paid  for 
the  copyright.  A  copyright  expires  in  accordance  with  law  within  a 
specified  period,  and  while  the  value  of  the  book  or  publication  as  a  selling 
article  may  continually  increase  during  the  life  of  the  copyright,  it  is  the 
wisest  course  to  gradually  write  off  the  copyright  account,  so  that  at  the 
expiration  of  the  copyright  the  extinguishment  of  the  asset  will  not  fall 
entirely  upon  one  year's  profits. 

It  often  happens  that  on  account  of  the  popularity  of  a  book  the  copy- 
right actually  appreciates  during  its  life,  but  unless  for  purposes  of  sale 
no  real  benefit  accrues  from  increasing  the  value  of  the  asset  on  the  books 
of  the  business.    An  authority  on  the  subject  states : 

"It  should  be  mentioned  that  there  are  items  on  the  books  of  a  private 
firm  or  joint-stock  company  to  which  no  general  rule  of  writing  off  is 
applicable.  Such  are  the  cost  of  good  will,  patents,  trade  marks,  copyright 
designs,  etc. ;  for  although,  as  in  the  case  of  patents,  the  life  of  the  asset  is 
clearly  defined,  the  incidental  advantages  derived  from  the  possession,  for  a 
term  of  years,  of  a  valuable  monopoly  do  not  necessarily  cease  upon  the 
expiration  of  the  term  of  the  patent.  On  the  contrary,  the  value  of  the 
good  will  may  increase  although  the  term  of  the  patent  is  expiring.  Assets 
such  as  those  should  be  considered  as  having  a  combination  value  diflFering 
altogether  from  their  value  per  se.  The  obvious  rule,  therefore,  is  that  in 
the  balance  sheet  such  assets  should  appear  at  their  cost  value,  and  need 
not  be  written  down  unless  their  realizable  value  as  integral  parts  of  a 
going  concern  falls  below  their  cost  value." 

(36)       creditor's    ACCOUNT. 

A  purchase  ledger  or  accounts  payable  account. 

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Aca  American  Business  and  Accounting  Encyclopedia  37-40 

(37)      CURRENT  accounts. 

A  term  sometimes  applied  to  an  itemized  account  or  statement. 
A  live  personal  account. 

(38)     customer's  accounts. 

A  sales  ledger  or  accounts  receivable  account. 

(39)       DEAD   account. 

A  closed  or  non-active  account.     A  bad  debt. 

(40)       DEFICIENCY   ACCOUNT. 

A  term  used  to  describe  an  account  showing  in  detail  how  the  deficit 
exhibited  by  the  balance  sheet  of  an  insolvent  trader  or  corporation  was 
caused.  Inasmuch  as  a  deficit  is  also  incurred  over  and  above  the  amount 
of  capital  invested,  it  is  apparent  that  deficiency  account  must  be  charged 
with  both  capita]  invested  and  deficit,  and  credited  with  all  losses  and 
impairments  of  values  which  make  up  that  amount. 

Or,  it  may  be  that  on  a  given  date  there  was  a  surplus  which  would 
also  have  to  be  accounted  for. 

EXAMPLES. 

STATEMENT  OF  AFFAIRS,   1ST  JULY,  1890. 

Liabilities — 

Unsecured  Creditors $144,480  Oo 

Fully  secured  Creditors  $  11,760  00 

Hold  securities  values  (at  cost)  at 13,150  00 

Estimated  Surplus,  per  contra $    i,390  00 

Partly  secured  Creditors 188,485  00 

Less  value  of  securities  (estimated  at  cost) 90.490  00        97,995  00 

Liability  on  Bills  Receivable  discotmted  $  29,165  00 

Estimated  to  rank  for  dividend  at  (say) 5^000  00 

Preferential  Creditors  for  salaries  and  wages 4,110  00 

Deducted  per  contra  

.       .  $247,475  00 

Assets — 

Cash — At  bankers $       400  00 

Cash— In  hand 20  00    $       420  Oo 

OflBce  furniture  (cost  $1,445)  estimated  at i^ooo  00 

Accounts   Receivable — Good    $    6,705  00 

Accounts  Receivable— Doubtful  ($850  estimated  at) 425  00 

Accounts  Receivable — Bad  ($62,690.00  estd.  of  no  value) 7,130  00 

Stock  in  trade  Main  Office  (cost  $6,530,  estimated  at) 6,000  00 

Stock  in  trade  and    (less   sundry   liabilities)    at  branches  cost 

$171,110,  less  $28,190  estimated  loss  on  realization 142,920  00 

Buildings,  plant,  steamers,  and   carrying    craft    (cost    $154,715) 

estimated  at  54,715  00 

Estimated  surplus  from  securities  (per  contra) 1,390  00 

$213,575  00 


40  American  Business  and  Accounting  Encyclopedia  Ago 

Less  preferential  creditors    4,110  00 

$209,465  00 
Deficiency 38,010  00 

$247,475  00 

DEFICIENCY   ArCOUNT.   FROM    IST    JTTLY,    1894.   TO    IST   JULY^    1899. 

Dr. 

To  Capital— July  1,  1894 $210,000  00 

To  Profits,  as  per  books,  viz., 

1894-5 .$  35,000  00 

1895-6    30,000  00         65,000  00 

$275,000  00 
Cr. 
By  losses  as  per  books,  viz.:  ' 

1896-7    $       500  00 

1897-8    3,000  00 

1898-9    5,155  00 

3,655  00 

Drawings  (at  the  rate  of  $22,500  per  annum) 112,500  00 

Bad  debts    62,690  00 

Estimated  losses  on  realization,  viz.  : 

Stock  at  main  office 530  00 

Stock  at  branches  28,190  00 

Branch   buildings,   plant,   etc 100,000  00 

^  Office    furniture    445  00      129,165  00 

$313,010  00 
Deficiency   38,010  00 

$275,000  00 
EXAMPLE  OF  DEFICIENCY  ACCOUNT. 

The  firm  of  Warren,  Smith  and  Pierce  became  involved  in  business 

difficulties  and  was  compelled  to  stop  payment.  The  accountants  appointed 
to  prepare  a  statement  of  affairs  and  a  deficiency  account  presented  the 
following  details: 

Unsecured   Creditors   $147,500  00 

Preferred  Creditors  750  00 

Rent   500  00 

Accounts  Receivable    42,500  00 

(Of  which  $37,500.00  are  considered  good,  $1,825.00  doubtful 
and  estimated  to  produce  $625.00,  $3,125.00  bad.) 

Bills   Receivable    7,000  00 

Land  and  Buildings  25,000  00 

Plant  and  Machinery , 8,500  00 

Stock   on    hand 5,000  00 

Furniture  and  Fixtures 1,500  00 

Cash    15,000  00 

Sundry  Profits 37,500  00 

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Sundry   Losses    80.000  00 

Trading  Expenses    17,500  00 

Warren's  Capital  Account  5,000  00 

Smith's  Capital  Account   3,750  00 

Pierce's  Capital  Account   3,750  00 

Warren's  Drawings  10.000  CO 

Smith's   Drawings    •  15,000  00 

Pierce's  Drawings 17,500  00 

SOLUTIONS. 

STATEMENT   OF  AFFAIRS,   WARREN,   SMITH    &  PIERCE. 

As  at  October  27,  1903. 

Expected 
Liabilities,  as  stated  and  estimated  by  debtors.  to  rank. 

Unsecured  creditors  $147,500 

Rent    500 

Preferred  creditors   750 

$148,000 

Estimated 

Assets,  as  stated  and  estimated  by  debtors,  to  produce. 

Debtors,  good $37,500 

Debtors,  doubtful   625 

$  38,125 

Debtors,    doubtful    $  1»250 

Debtors,   bad    3,125 

$  4,375 

Bills   receivable    11,250 

Land  and  Buildings    25,000 

Plant  and  machinery   8,500 

Stock  on  hand  5,000 

Furniture  and  fixtures  1.500 

Cash    15.000 

$104,375 
Less  preferred  creditors   750 

•                  .  $103,625 

Deficiency    44,375 

$148,000 
Balance  from  statement  of  affairs  44,375 

DEFICIENCY   ACCOUNT. 

Capital  Accounts    12,500 

Warren   $  5,000 

Smith    3,750 

Pierce    3,750 

Profits    37,500 

$  94,375 


40 


I 


40  American  Business  and  Accounting  Encvcloi'edia 

Drawings   42,500 

Warren     $10,000 

Smith  15,000 

Pierce    17,500 

Losses   30,000 

Trading  expenses  17  50Q 

Debtors 4,375 

$  94,375 
ANOTHER   METHOD. 

Descriptions—  Assets.  Liabilities, 

Debtors    $38,125 

Good   $37,500 

Doubtful    625 

Bills   receivable    11,250 

Land  and  buildings  25  000 

Creditors  unsecured  $147  500 

Plant  and  machinery  g  500 

Stock  on  hand   5  qqq 

Furniture  and  fixtures  1  500 

^^sh  15,000 

Preferred  creditors    •j^q 

R«"t   500 

$104,375     $148,750 
I^eficit    44375 

$148,750      $148,750 
Capital  Items —  d^  q^ 

Warren's  capital   3  ^^q 

Smith's  capital  ,  -_„ 

Pierce  s  capital ^    ^^^ 

Partners'  drawings — 

barren  $  10,000 

S^^ith  15000 

^*^'"*^^    17,500 

$  42,500     $  12.500 
Balance,  deficit  30000 

$  42,500    $  42.500 
Profit  and  Loss  Items — 

Sundry   profits    $37,500 

Sundry   losses    $30,000 

Trading  expenses   17  50Q 

Debtors   4;375 

_  ,  $  51,875     $  37,500 

Balance  to  deficit  account 14  375 

$  51,875     $  51.875 

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DEFICIENCY    ACCOUNT. 

Balance  of  Capital  items  $  30,000 

Balance  of  Profit  and  Loss  items 14,375 

$  44,375 
Excess  of  liabilities  over  assets  ^ .     44,375 

$  44,375 

The  Statement  of  aflfairs  and  its  appendix,  the  deficiency  account,  :s 
presented  in  two  forms,  A  and  B.  Form  A  is  ordinarily  used  in  Great 
Britain,  the  English  colonies  and  this  country,  whereas  Form  B  is  mostly 
in  vogue  in  continental  Europe. 

(40a)     departmental  accounts. 

The  ledger  trading  accounts  in  which  all  departmental  transactions  are 
recorded,  thus  showing  either  gross  or  net  profit  at  the  end  of  each  statisti- 
cal period. 

(41)  development  account. 

A  term  frequently  used  to  designate  an  account  in  the  general  ledger 
to  which  are  debited  organization  or  promotion  expenses,  discount  on  stock, 
etc. 

(42)  distribution  account. 

An  account  carried  in  an  auxiliary  book  or  record  and  consisting  of 
special  columns  into  which  the  items  of  general  expense  account  from  the 
regular  ledger  are  distributed  each  month  and  the  totals  of  these  columns 
posted  to  separate  accounts. 

(43)  donation  account. 

An  account  carried  in  the  general  ledger  to  record  donations  to  charity, 
presents  to  employes,  etc. 

An  account  representing  a  donation  of  stock  for  services  rendered. 
Such  accounts  are  carried  as  assets  until  it  is  found  convenient  to  transfer 
them  to  profit  and  loss,  such  transfer  being  frequently  spread  over  a  term 
of  years. 

(44)  doubtful  accounts. 

It  is  usual  in  this  country  to  carry  a  suspense  account,  to  which  is 
transferred  all  doubtful  and  bad  accounts.  At  the  end  of  the  year  a  certain 
proportion  of  these  doubtful  and  bad  accounts  which  are  considered  irre- 
coverable are  charged  off  to  profit  and  loss.  Those  remaining  in  suspense 
account  are  only  taken  as  assets  to  the  extent  of  perhaps  50  per  cent  of 
their  face  value.  This  does  not  in  any  way  affect  the  question  of  a  reserve 
for  possible  future  losses  in  regard  to  accounts  which  have  not  been  trans- 
flferred  to  a  suspense  account. 

(45)  equipment  account. 

An  account  representing  expenditures  on  equipment  of  rolling  stock 
of  railroads,  machinery  for  manufacturing  establishments,  etc.    This  title 

34 


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Ace. 


is  not  often  used,  as  it  is  considered  preferable  to  designate,  by  the  names 
of  the  accounts,  the  different  kinds  of  equipment  purchased. 

(46)    error  account. 

An  account  called  "Error  Account"  is  frequently  opened  in  cases 
where  a  book-keeper,  undertaking  the  duties  of  a  new  position,  finds  the 
books  out  of  balance.  On  bringing  the  matter  to  the  attention  of  his  em- 
ployers they  will  probably  tell  him  to  keep  up  the  current  work  and 
endeavor  to  balance  the  books  in  his  leisure  intervals.  In  order,  therefore, 
to  have  a  clean  start  for  his  own  work  he  opens  an  error  account  and 
charges  or  credits  to  same  the  amount  of  the  difference  between  the  debit 
and  credit  columns  of  the  trial  balance.  He  will  then  adjust  by  journal 
entry  such  errors  as  may  be  found  from  time  to  time  in  the  work  of  the 
preceding  book-keeper,  charging  or  crediting  error  account  until  it  is  ex- 
tinguished. 

An  adjustment  account  sometimes  carried  to  which  are  debited  the 
differences  on  the  trial  balance  until  the  errors  are  discovered. 

(47)     expense  account. 

Expenditures  which  are  not  directly  remunerative,  and  are  therefore 
charged  direct  to  profit  and  loss.  Thus  labor  employed  in  manufacturing 
is  termed  productive  expense  as  against  office  labor,  which  is  not  directly 
productive,  although  it  shares  in  the  general  organization  of  the  going  busi- 
ness and  should  share  in  the  credit  of  building  up  and  maintaining  that 
business  as  a  going  concern. 

Different  kinds  of  expenditures  should  not  be  dumped  into  a  general 
expense  account  any  more  than  different  kinds  of  purchases,  sales,  goods 
returned,  etc.,  should  be  dumped  into  a  merchandise  account.  The  intelli- 
gent merchant  requires  a  comparative  record  of  the  different  classes  of  his 
expenditures  which  will  show  if  they  are  justifiable  considering  the  volume 
of  business,  or  if  they  are  excessive  and  the  result  of  a  careless  and  lax 
administration. 

Separate  accounts  should  be  kept  with  advertising,  postage,  salaries, 
express,  selling  expenses,  etc.,  so  that  the  fact  of  their  being  normal  and 
not  extraordinary  may  be  ascertained  at  any  time  without  the  trouble  of 
analyzing  the  expense  account  by  drawing  off  lists  of  the  different  items 
under  their  separate  headings. 

Where  a  business  is  divided  into  departments,  the  cost  of  administra- 
tion may  be  pro  rated  according  to  the  volume  of  business  done.  If,  for 
instance,  certain  employes  are  engaged  in  working  for  separate  depart- 
ments and  an  accurate  account  cannot  be  kept  of  the  time  spent  by  each 
employe  in  each  department,  then  the  cost  of  their  services  may  be  pro 
rated  according  to  the  amount  of  turnover  of  each  department.  Such  per- 
centages are  frequently  computed  on  gross  sales,  but  it  is  considered 
preferable  and  more  equitable  to  compute  them  on  the  turnover. 

35 


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American  Business  and  Accounting  Encyclopedia 


47 


For  the  proper  distribution  of  expense  to  trading  and  profit  and  loss 
accounts  see  "Trading  Account"  and  "Profit  and  Loss  Account." 

Where  the  distribution  of  expense  to  different  accounts  would  necessi- 
tate a  large  number  of  separate  accounts,  the  following  method  has  some- 
times been  adopted,  although  the  advantages  of  such  a  system  do  not  seem 
particularly  obvious,  as  in  the  one  case  the  distribution  is  made  m  the 
ledger  by  means  of  separate  accounts,  and  in  the  other  case  the  distribution 
is  made  in  an  auxiliary  record  book  involving  duplication  of  entries  and 

"In  planning  books  for  a  manufacturing  concern  29  sub-heads  have 
been  found.  To  open  29  accounts  in  the  general  ledger,  would  mean  a 
heavv  burden  on  the  book-keeper,  and  a  columnar  arrangement  of  the 
cash 'book  with  a  column  for  each  sub-head  would  be  too  unwieldy. 

"The  plan  adopted,  therefore,  in  this  case  is  as  follows : 

"There  is  but  one  'expense'  column  in  the  cash  book,  the  footings  of 
which  are  carried  along  and  posted  but  once  a  month  to  the  expense  account 
in  the  general  ledger.  This  makes  it  easier  for  the  trial  balance,  by  far, 
than  as  if  there  were  29  separate  expense  accounts.  Then  there  is  a 
separate  book  for  the  'distribution  of  general  expense,  etc.,'  which  is  a 
sort  of  voucher  record  minus  the  voucher  feature,  and  with  this  difference, 
that  the  names  of  accounts  are  printed  one  below  the  other  at  the  left- 
hand  margin  of  the  page,  instead  of  being  printed  across  the  top  of  the 
page.  The  rest  of  the  page  is  ruled  in  columns,  a  column  for  a  day,  into 
which  the  items  are  entered  daily  opposite  the  proper  names,  and  a  daily 
footing  made  which  must  agree  with  the  amount  by  which  the  expense 
account  in  the  cash  book  has  been  increased. 

"When  the  page  is  full  a  cross-addition  is  made  of  each  account  and 
the  grand  total  proved  by  adding  the  several  totals  of  columns  on  the 
page  The  totals  are  forwarded  to  the  next  page,  and  at  the  end  of  the 
month  transferred  to  the  back  of  the  book  to  columns  headed  January. 
February,  etc.  At  the  end  of  the  year  a  grand  summary  is  made  by  cross- 
addition.    The  monthly  totals  must  agree  with  the  expense  account  in  the 

general  ledger.  ,  •  i  i         j 

"With  a  little  practice  one  can  add  across  the  page  as  quickly  and  as 

accurately  almost  as  down  the  page." 

The  following  advantages  are  claimed  for  this  book : 

First.    The  work  is  condensed  and  a  large  proportion  of  the  space  )S 

"^^  ^  S^econd.    The  printer  does  most  of  the  work.    The  book-keeper  must 

only  fill  in  the  figures.  .  . 

Third     It  is  much  easier  than  posting  to  separate  accounts,  with  none 

of  the  disadvantages  and  securing  all  the  results  of  a  separate  account 

^^^^pfurth  It  shows  the  expense  statistics  in  tabular  form  week  by  week, 
month  by  month  and  year  by  year,  and  any  desired  reference  or  comparison 
can  be  made  almost  instantaneously. 

36 


47-5:3 


American  Business  and  Accounting  Encyclopldia 


Acc. 


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(48)       ESTABLISHMENT    EXPENSE    ACCOUNT. 

A  term  sometimes  used  to  designate  an  account  containing  a  record 
of  indirect  or  overhead  manufacturing  expense. 

(49)  GUARANTEED  ACCOUNTS. 

Those  accounts  the  full  amount  of  which  is  guaranteed  for  realization 
when  the  sale  of  a  business  is  affected  or  a  consolidation  of  one  or  more 
businesses  is  made.  In  this  case  every  deduction,  rebate,  discount,  or  un- 
collectible account  must  be  charged  to  the  guarantors  and  made  good  by 
them. 

(50)  IMPAIRMENT  ACCOUNT. 

A  term  sometimes  used  to  designate  a  special  account  to  which  is 
transferred  a  portion  of  the  balance  of  the  profit  and  loss  account,  after 
which  this  amount  is  included  in  the  balance  sheet  as  an  offset  to  capital, 
or  as  a  fictitious  asset  to  be  gradually  written  off  as  opportunity  offers. 

If  the  capital   stock  is  afterwards  reduced,  capital   stock  account  is- 
debited  with  the  amount  of  the  reduction  and  impairment  account  credited. 

(51)         IMPERSONAL  ACCOUNT. 

An  account  which  represents  conditions,  and  records  the  profits, 
losses,  receipts,  expenditures,  assets  and  liabilities  of  a  business,  but  does 
not  represent  persons. 

Examples :  General  expense,  manufacturing  expense,  freight,  discount, 
interest,  repairs,  advertising,  postage,  adjustment,  or  controlling  accounts. 

(52)       INCOME  AND  EXPENDITURES  ACCOUNT. 

An  income  and  expenditure  account  is  a  statement  showing  total  in- 
come received,  or  earned,  and  total  expenditures  disbursed,  or  incurred, 
during  a  specified  period  exclusive  of  capital  receipts  and  payments.  These 
would  be  included  in  a  special  statement  of  receipts  and  payments. 

These  forms  of  accounts  are  frequently  used  in  making  statements  of 
the  financial  affairs  of  public  institutions  for  publication.    The  income  and 

37 


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American  Business  and  Accounting  Encyclopedia 


&Z 


expenditure  account  verifies  the  surplus  appearing  on  the  balance  sheej, 
and  the  receipts  and  payments  account  verifies  the  amount  shown  as  being 
in  the  hands  of  the  treasurer. 

Examples  are  hereto  appended: 


INCOME  AND  EXPENpiTUKE  ACCOUNT. 


Dr. 


Cr. 


Management  expenses: 

Salaries    $2,500  00 

Insurance    . .     . .       80  00 
Commission    ....     250  00 

Postage    825  00 

Stationer^',    etc...     475  00 


Subscriptions    

Donations     

Interest   and  dividends. 


.$4,400  00 

.  3,000  00 

442  00 

$7,842  00 


-^,130  00 


Benevolent  account: 

Provisions     $1,145  00 

Coals,    etc 1,457  00 

Cash     650  00 


Surplus  as  per  bal- 
ance  sheet    


3,252  00 


460  00 


$7,842  00 


RECEIPTS    AND   PAYMENTS   ACCOUNT. 


On  hand  Jan.  1,  1900 $  478  50 

Legacies    500  00 

Subscriptions    3,750  00 

Donations    3,000  00 

Interest    and    dividends 320  00 


Management    expenses    . . .  .$3,-670  00 

Benevolent   fund    3,252  00 

"Industrials"    investment. . .  1,000  00 
On  hand  Jan.  1,  1901 126  50 


$8,048  50 


BALANCE  SHEET. 


$8,048  50 


ASSETS. 

Cash  in  hands  of  Treas...$   126  50 

Investments    5,000  00 

Real   estate   and    building. .  8,750  00 

Furniture  and  fixtures 2,465  00 

Supplies   on  hand 362  50 

Accounts  receivable  (unpaid 
subscriptions  and  divi- 
dends)           600  00 


UABILITIES. 

Accounts  payable    $  901  00 

Capital  account  (accumulat- 
ed surpluses)    15,943  00 

Surplus  for  year  1900 460  00 


$17,304  00 


$17,304  00 


New  York  C.  P.  A.  Examination — ^January,  19(X).  John  Doe  ex- 
pends $100,(X)0  in  the  erection  of  a  business  block;  at  the  end  of  the  year 
he  finds  that  the  rents  of  the  stores  in  the  block  have  amounted  to  $7,500 
and  of  the  offices,  $3,750.  The  expenses  of  the  year  have  been  janitor,  and 
care  taker,  $750;  repairs  and  alterations  to  suit  tenants,  $500;  water  and 

38 


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62  American  Business  and  Accounting  Encyclopedia  Acc. 

gas,  $400;  taxes,  .01975  on  a  valuation  of  $87,000;  various  incidentals,  $150. 
Make  up  a  statement  showing  the  result  of  the  year's  enterprise  and  per 
cent  of  profit  on  investment,  after  charging  five  per  cent  interest  on  the 
capital  invested  and  $2,500  for  depreciation. 

SOLUTION. 

STATEMENT  OF   INCOME  AND  EXPENDITURES    INCOME. 

Property  situated  at  ,  value $100,000.00 

Rents  of  stores    '.  .$7,500 

Rents  of  offices   3,750 

11,250.00 

EXPENDITURES. 

Repairs   and  alterations    $     500.00 

Water  and  gas    400.00 

Taxes     1,718.25 

Depreciation,  2^  per  cent  on  property  2,500.00 

5,118.25 

Gross  profits    $6,131.75 

Janitor's    services    $   750.00 

Incidental    expenses    150.00 

900.00 

Net    profits    $5,231.75 

Allocation  of  Net  Profits — 

Interest  on  capital,  5  per  cent 5,000.00 

Balance,  unappropriated,   carried  forward 231.75 

BALANCE  SHEET. 

Property     $100,000.00 

Less  2  J/2  per  cent  depreciation 2,500.00 

$  97,500.00 

Cash 7,731.75 

$105,231.75 

Capital  Account  '. $100,000.00 

Interest,  5  per  cent 5,000.00 

Profits    231.75 

$105,231.75 

V  CASH    ACCOUNT. 

Store   ren^s    ." $    7,500.00 

Office  rents    3,750.00 

$  11,250.00 

Janitor's    services    $  750.00 

Repairs  and   alterations    500.00 

Water  and  gas 400.00 

Taxes     1,718,25 

Expenses     150.00 

Balance    7,731.75 

_  $  11,250.00 

Per  cent  profits  on  investment=,0023175. 

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(53)  individual  account. 

A  name  applied  to  customers,  creditors,  or  other  personal  accounts. 

(54)  insurance  account. 

To  this  account  is  debited  premiums  paid.  It  is  closed  into  profit  and 
loss  at  the  end  of  the  year,  less  unexpired  portion  at  date  of  closing,  the 
latter  being  included  in  the  balance  sheet  as  an  asset,  and  carried  forward 
on  the  ledger  as  a  balance. 

(55)  inventory  account. 

A  general  ledger  asset  account  which  records  the  value  of  commodities 

or  other  assets  on  hand. 

The  inventory  of  commodities  although  a  general  ledger  debit,  is  a 
credit  to  the  trading  account,  the  old  inventory  being  debited.  (See 
trading  account.)  The  amount  of  the  inventory  is  debited  to  inventory 
account  at  the  close  of  each  month  and  treated  in  the  same  manner  in  the 
general  ledger  as  the  balance  of  cash  account. 

(56)  investment  account. 

An  account  representing  moneys  expended  in  property  outside  of  the 
regular  order  of  business.  Thus,  a  surplus  is  sometimes  invested  in  out- 
side enterprises  or  in  stocks,  bonds,  etc. 

An  account  or  accounts  in  which  is  carried  by  single  proprietors  or 
partnerships  the  net  worth  of  the  business. 

(57)      JOBBING  account. 

Personal  accounts  which  include  both  sales  and  purchases,  i.  e.— a 
customer's  account  to  which  sales  are  debited  and  purchases  credited. 

On  account  of  the  difficulty  found  in  obtaining  correct  statistics,  while 
this  method  is  followed,  it  is  more  usual  to  carry  separate  sales  and  pur- 
chase accounts  in  which  to  record  transactions  of  this  nature. 

(58)       LABOR  account. 

A  general  ledger  account  in  which  is  recorded  the  amount  of  wages 
paid.  This  account  usually  belongs  to  manufacturing  or  trading  account 
as  being  part  of  the  cost  of  production. 

(59)     lease  accounts. 
In  the  instalment  business  the  contracts  entered  into  with  customers 
are  frequently  termed  ''leases,"  and  the  lease  account  assumes  the  same 
function  as  a  sales  account  in  an  ordinary  business. 

(60)      LIVE  STOCK  ACCOUNT. 

A  general  ledger  account  which  records  the  value  of  live  stock  owned 
by  a  business. 

(61)      LIQUIDATION  ACCOUNT. 

An  account  kept  by  liquidators  of  businesses  or  estates.  A  liquidator 
of  an  estate  is  usually  employed  by  executors  to  settle  up  the  various  assets 

40 


61  American  Business  and  Accounting  Encyclopedia  Acc 

and  liabilities  of  a  deceased  proprietor  or  owner.  In  a  liquidation  account ' 
the  liquidator  debits  himself  with  all  assets  turned  over  to  him  and 
credits  himself  with  all  liabilities  to  be  paid  out  of  the  estate.  As  amounts 
are  realized  and  liabilities  paid  oflf  he  credits  himself  with  disbursements 
so  that  the  liquidation  account  will  ultimately  show  the  difference  between 
the  amount  for  which  the  liquidator  is  responsible  and  the  amount  realized 
and  disbursed  by  him  to  the  proper  parties  entitled  to  same. 

EXAMPLES. 
New  York  C.  P.  A.  Examination,  June,  1898.    A  and  B,  partners  in 
a  mercantile  business,  share  profits  and  losses  equally.    At  the  end  of  five 
years  the  partnership  terminates  by  limitation  and  the  balance  sheet  shows 
the  following: 

LIABILITIES. 

Creditors    $30,000.00 

Bills  payable   10,000.00 

Capital : 

A   $30,000.00 

B     15,000.00 

45,000.00 

$85,000.00 

ASSETS. 

Plant  and  machinery  $15,400.00 

Invenetory    36,000.00 

Accounts    receivable     28,000.00 

Cash  in  bank  5,600.00 

$85,000.00 
Subsequently  the  business  as  it  stands  (except  cash  in  bank)  is  sold 

for  $30,000.     Make  final  adjustments  and  closing  entries,  and  show  the 

amount  each  partner  receives. 

SOLUTION. 

JOURNAL    ENTRIES. 
1. 

Realization  and  liquidation  account  $79,400.00 

To  plant  and  machinery   $15,400.00 

To    inventory    36,000.00 

To  accounts  receivable 28,000.00 

To  close  ledger  account. 

2. 

Creditors    $40,000.00 

To  realization  and  liquidation  account $40,000.00 

To  close  open  ledger  accounts. 

3. 

A's  capital    $  4,700.00 

B's  capital    4,700.00 

To  realization  and  liquidation  account $  9,400.00 

Partner's  losses  equally  divided. 

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American  Business  and  Accounting  Encyclopedia 

SEALIZATION    AND    UQUlDATION    ACCOUNT. 

Assets    $79,400.00 

Except   cash    $5,600.00 


61 


$79,400.00 
.$40,000.00 


Liabilities     »- 

Per  balancce  sheet. 

Cash 30,000.00 

Loss  on  realization  $  9,400.00 


A  V2  share $4,700.00 

B  V2  share  : 4,700.00 


AS  CAPITAL. 

Yi  loss  on  realization $  4,700.00     Investmenet 

Cash    25,300.00 


9,400.00 
$79,400.00 

.$30,000.00 


$30,000.00 

b's  capital. 

V2  loss  on  realization $  4,700.00     Investment 

Cash    10,300.00 


$30,000.00 
.$15,000.00 

$15,000.00 


$15,000.00 

CASH    ACCOUNT. 

On    hand    $5,600.00     A's   capital    $25,300.00 

Realization  and  loss  acct. .  30,000.00     B's   capital    10,300.00 


$35,600.00  $35,600.00 

New  York  C.  P.  A.  Examination,  January,  1905.  The  Metropolitan 
Book  Company,  a  corporation,  goes  into  voluntary  liquidation  and  the 
directors  of  the  company,  three  in  number,  are  designated  trustees  in  liqui- 
dation. 

Below  is  a  trial  balance  of  the  Book  Company  as  of  July  1,  1903,  the 
date  when  its  affairs  are  turned  over  to  the  trustees: 

1  Capital  stock  $20,000  00 

2  Cash    $     553  69 

3  Office  furniture  1,666  92 

4  Meter    deposit    60  00 

5  Accounts    receivable 26,153  95 

6  Rogers  &  Co.  moneys  collected  for  their  account 

7  Notes  payable   

8  Accounts  yayable   

9  Merchandise   purchases    27,404  74 

10  Merchandise  sales    

11  Expenses   '^^^^^  ^'^ 

12  Surplus  (deficit)   7,962  80 


14,738  00 

27,573  50 

4,197  22 

8,045  35 


$74,554  07     $74,554  07 


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63  American  Business  and  Accounting  Encyclopedia  Acc. 

Value  of  merchandise  on  hand  $20,183.86;  other  assets   (items  3,  4 
and  5)  valued  as  in  ledger. 

Trustees'  cash  receipts  and  payments  are  as  follows : 

RECEIPTS. 

Balance  on  hand  $     553  59 

Meter   deposit   go  00 

Office  furniture  sold 437  90 

Accounts  receivable  collected  22,872  75 

Additional  collections  for  Rogers  &  Co.  (in  full) i,965  24 

Sales  of  merchandise  22  090  70 

Commissions  received  from  Rogers  &  Co \ 6,703  24 

$54,733  52 
PAYMENTS. 

Notes  paid   $37573  5^ 

Accounts  paid 4  ^97  22 

Merchandise  bought  • 552  55 

Expenses 5597  01 

Remitted  to  Rogers  &  Co.  in  full 16,703  24 

$54,733  52 

Accounts  receivable  not  collected  are  worthless.    Prepare  the  account 
of  the  trustees  in  liquidation. 
Trustees'  Realization  and  Liquidation  Account  of  the  Metropolitan  Book  Company. 

SOLUTION. . 

BALANCE  SHEET  AS  AT  JULY   1,   1903. 

Assets. 

^^^   $     553  69 

Office  furniture j  egg  92 

Meter  deposit  gg  00 

Accounts  receivable  26 153  95 

Inventory    20,'l83  86 

Surplus  deficit    17,890  30 

$66,508  72 
f  *  Liabilities. 

^^P'*^^    $20,000  00 

Rogers  &  Co 14733  qq 

^°*^^    27,573  50 

Accounts  4197  33 

$66,508  72 
REALIZATION  AND  LIQUIDATION  ACCOUNT. 

Assets  to  be  Realized. 

Office  furniture  $  1,666  92 

Meters  deposit qq  qo 

Accounts  receivable  26  153  95 

Merchandise  stock  20,183  86    $48,064  73 

43 


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Ace.  American  Business  and  Accounting  Encyclopedia  61-64 

Liabilities  Liquidated. 

Notes $27.573  50 

J.  1Q7   92 

Accounts    *'^^'  -" 

Rogers   &  Co l^''^^  24      48,473  96 

Supplementary  Charges. 

Purchases  and  inventory   $20,746  41 

Expenses    ^.697  01      26,443  42 

$122,982    11 

Liabilities  to  be  Liquidated. 

Rogers&Co $16,703  24 

Notes 27,573  50 

Accounts    4'197  22     $48,473  96 

Assets  Realized. 

Office  furniture  $     ^^"^  ^^ 

Meter  deposit   ^0  00 

Accounts  receivable • 22,872  7a 

Merchandise  stock  20,183  80      43,604  51 

Supplementary  Credits, 

Sales       $22,090  70 

Commissions*"*.*" 6,703  24      28,793  94 

Loss  on  realization  2,109  70 

$122,982  11 

FINAL  B.\L.\NCE  SHEET. 

Deficit   $17,890  30 

Loss  on  realization  2,109  70 

$20,000  00 
Capital  $20,000  00 


(62)      LOAN  ACCOUNT. 

An  account  representing  money  invested  on  loans  with  or  without  col- 
lateral security. 

(63)     machinery  account. 

A  fixed  asset  account  to  which  is  debited  cost  of  machinery  purchased, 
or  manufactured  by  a  concern  for  its  own  shop,  frequently  included  in 
plant  account. 

(64)     maintenance  account. 

An  account  or  series  of  accounts  representing  cost  of  repairs,  renewals 
and  replacements. 

The  maintenance  accounts  of  an  electrical  railroad  company  are  as 
follows : 


64-67  American  Business  and  Accounting  Encyclopedia  Acx;; 

REPAIRS. 

WAY   AND  STRUCTURE, 

Track  and  roadway. 
Electrical  line. 
Buildings  and  lixtures. 

EQUIPMENT. 

Steam  plant. 

Electrical  plant. 

Cars. 

Electrical  equipment  of  cars. 

Miscellaneous  equipment. 

Machinery  and  tools. 

DEPRECIATION. 

WAY  AND  STRUCTURE. 

Track  and  roadway. 
Electrical  line. 
Buildings  and  fixtures. 

EQUIPMENT. 

Steam  plant. 

Electrical  plant. 

Cars. 

Electrical  equipment  of  cars. 

Miscellaneous  equipment. 

Machinery  and  tools. 

(65)       MANUFACTURING  ACCOUNT. 

An  sK.count  to  which  is  debited  raw  material,  general  supplies,  wages 
and  shop  expense.  As  work  is  being  performed  in  the  factory,  raw  ma- 
terial, general  supplies,  wages  and  shop  expense  accounts  are  credited. 
After  the  job  is  completed  manufacturing  account  is  credited  and  finished 
goods  account  debited.  By  this  method  the  balances  of  raw  material  and 
supplies  accounts  indicate  the  inventories  should  be  on  hand  in  the  stores 
rooms. 

(66)       MATERIAL    ACCOUNT. 

A  general  ledger  account  recording  value  of  material  on  hand  in  a 
manufacturing  establishment  available  for  use  in  the  processes  of  pro- 
duction. It  is  customary  to  distribute  material  into  separate  accounts  with 
the  most  important  kinds  used  so  that  an  efficient  check  may  be  maintained 
on  the  factory  record. 

(67)       MERCHANDISE    ACCOUNT. 

An  account  intended  to  represent  the  trading  transactions  of  a  busi- 
ness and  to  exhibit  gross  profit  made  on  same. 

Merchandist  account  is  debited  with  inventory  at  commencement  of 
fiscal  period,  debuej  with  purchases,  credited  with  sales,  and  credited  with 
inventory  at  close  ct  fiscal  period,  the  balance  being  transferred  to  profit 
and  loss.    It  is  thtis  an  incomplete  trading  account.    It  is  usually  the  ca.se 


44 


45 


Ace.  American  Business  and  Accounting  Encyclopedia  67-75 

however,  that  sales  returns  and  allowances  are  debited  to  merchandise 
account,  and  purchase  return  and  allowance  credited  thereto,  which  makes 
the  account  useless  for  any  statistical  purpose  until  the  items  are  readjusted. 

Merchandise  account  is  no  longer  found  in  the  more  progressive  com- 
mercial houses,  separate  sales  and  purchase  accounts  being  substitutes 

(68)     negative  account. 

An  account  which  reduces  the  value  of  another  account.  Thus  returns 
is  a  negative  to  sales,  and  treasury  stock  a  negative  to  capital. 

(69)      NOMINAL  ACCOUNT. 

An  impersonal  or  representative  account. 

An  account  in  name  only,  representing  profits,  losses,  or  statistics. 

(70)       OPEN   ACCOUNT. 

A  running  account.     An  unsettled  or  unpaid  account. 

(71)     organization  account. 

An  account  to  which  the  preliminary  costs  of  organization  or  pro- 
motion of  a  corporation  are  debited,  this  account  being  duly  can-ied  as  a 
fictitious  asset  and  gradually  extinguished;  the  reason  being  that  these 
expenditures  represent  outlays  that  have  been  carried  for  the  benefit  of 
the  business  in  future  years. 

(71a)      OVER  AND  SHORT  ACCOUNT. 

An  adjustment  account  to  which  untraced  differences  found  in  bal- 
ancing the  cash  are  charged  and  credited. 

(72)       PERSONAL    ACCOUNT. 

An  account  which  records  the  transactions  of  a  business  with  the 
customers,  creditors  or  debtors. 

An  individual  account. 

An  account  representing  indebtedness  of  or  liability  to  a  person. 

An  account  containing  charges  on  which  no  profits  are  made,  such  as 
personal  accounts  for  salaries,  dividends,  traveling  salesmen,  etc.,  as  dis- 
tinguished from  accounts  with  customers  or  creditors. 

(73)       PLANT  ACCOUNT. 

A  general  ledger  asset  account  in  which  is  recorded  the  costs  of 
buildings,  machinery,  wagons,  etc.  While  in  some  businesses,  plant  ac- 
count includes  the  various  items  mentioned,  it  is  more  usual  to  open 
separate  accounts  with  each  kind  of  asset. 

(74)  POSTAGE   ACCOUNT. 

A  general  ledger  account  in  which  is  recorded  expenditures  in  con- 
nection with  the  use  of  postage  stamps. 

(75)  PRIVATE  ACCOUNT. 

A  term  used  to  signify  the  personal  account  of  a  partner  as  distin- 
guished from  his  capital  or  investment  account. 
An  account  carried  in  a  private  ledger. 

46 


American  Business  and  Accounting  Encyclopedia 


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(76^       PROFIT    AND   LOSS    ACCOUNT. 

An  account  showing  excess  of  revenue  over  expenditures,  the  balance 
of  which  will  exhibit  net  income,  this  balance  being  thereafter  transferred 
to  surplus,  capital,  dividend,  undistributed  profit  account,  etc.,  according 
to  the  nature  and  requirements  of  the  business  and  decision  of  the  directors 
or  proprietors. 

Not  long  since  the  manufacturing  and  trading  expenses  were  incor- 
porated in  the  profit  and  loss  account,  and  the  innovation  of  a  separate 
trading  statement  was  vigorously  opposed  by  a  large  number  of  account- 
ants This  phase  of  accountancy  is  fully  described  under  the  heading  of 
trading  account.  The  approved  practice  now  seems  to  be  that  the  profit 
and  ,loss  account  should  be  sedulously  preserved  from  all  items  m  any 
way  appertaining  to  the  manufacture,  purchase,  or  sale  of  goods,  the  gro.?s 
profit  on  sales  being  the  starting  point  of  the  profit  and  loss  account.  The 
American  Accountants'  IManual  goes  so  far  as  to  say  that  the  inclusion  of 
manufacturing  expense  under  any  circumstances  in  the  general  profit  and 
loss  account  is  a  technical  error  occasioned  by  an  insufficient  appreciation 
of  the  science  of  accounting  and  the  statistical  knowledge  to  be  obtained 
thereby.  The  relation  of  the  trading  account  to  the  profit  and  loss  account 
is  illustrated  on  the  preceding  Working  Balance  Sheet. 

It  is  desirable,  wherever  possible  to  follow  the  trading  account  by  a 
section  of  profit  and  loss  showing  separately  all  selling  expenses  of  the 
business,  carrying  the  gross  profits  from  this  section  into  a  general  profit 
and  loss  account,  which  includes  running  and  administrative  expense. 

Special,  or  extraordinary  profits,  or  losses,  which  have  no  connection 
with  the  regular  business  should  be  established  in  a  fourth  section,  the 
object  being  to  show  the  actual  profits  or  losses  made  on  the  legitimate 
or  staple  business  carried  on. 

Thus,  if  a  business  is  sold  on  an  exhibit  of  profits  made  by  some  ex- 
ceptional transactions,  the  price  being  based  on  the  profit  made  on  those 
transactions,  such  a  sale  would  be  illegal,  and  the  vendors  would  be  liable 
to  an  action  for  recovery  of  the  amount  paid  in  purchase. 

The  current  profit  and  loss  account  should  contain  nothing  but  cur- 
rent items,  and  items  which  relate  to  gains  and  losses  made  in  a  previous 
fiscal  period  should  be  otherwise  disposed  of— by  transfer  to  surplus 
account,  or  any  similar  representative  account.  If  not  so  transferred,  then 
the  profit  and  loss  account  of  a  given  year  should  stand  by  itself  until  it 
can  be  closed  out.  This  latter  is  by  no  means  an  uncommon  arrangement 
and  there  is  often  seen  on  a  well-ordered  trial  balance  the  items,  "Profit 
and  Loss,  1S99,-  and  -Profit  and  Loss,  1900,"  etc.,  etc. 

An  absurd  idea  of  some  book-keepers  that  the  title  "Profit  and  Loss" 
is  wrong  because  profit  comes  before  loss  in  the  ti.le,  while  in  the  account 
the  losses  appear  in  the  left-hand  column  and  the, gains  in  the  right,  is 
referred  to  here  only  as  a  curiosity. 

48 


i 


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American  Business  and  Accounting  Encyclopedia 


Ace 


extract   from   STANDARD    WORK. 

"A  good  arrangement  which  is  applicable  to  most  businesses  is  to  have 
the  profit  and  loss  account  divided  into  four  sections,  the  first  section  be- 
ing the  trading  account,  which  brings  out  the  gross  profit  on  trading  after 
charging  all  expenses  connected  with  sales.  The  second  section,  which 
may  be  termed  the  ordinary  business  profit  and  loss  account,  will  have 
on  the  credit  side  the  gross  profit  carried  from  the  first  section,  together 
with  any  income  not  directly  connected  with  sales,  such  as  rent  of  premises 
held  by  the  firm,  while  on  the  debit  will  appear  fixed  charges,  such  as 
rent,  taxes,  salaries  of  office,  and  other  expenses  which  are  not  directly 
connected  with  sales,  and  which  do  not  vary  with  a  rise  or  fall  of  the 
turnover.  The  balance  on  this  section  will  then  be  carried  to  the  third 
section,  which  may  be  termed  the  net  profit  account.  On  the  credit  side 
of  this  section  appears  the  balance,  if  any,  brought  from  the  previous  sec- 
tion, and  such  income  as  interest  on  investment,  interest  earned,  and  cash 
discounts,  which  depend  on  the  capital  in  the  concern.  This  section  is 
debited  with  charges  connected  with  capital,  such  as  interest  on  loans. 
The  fourth  section,  which  may  be  termed  the  profit  and  loss  appropriation 
account,  is  credited  with  the  balance,  if  any,  from  the  third  section,  to- 
gether with  the  balance  of  unallocated  profit  from  the  previous  year.  On 
the  debit  side  is  shown  how  this  profit  has  been  allocated,  whether  in  the 
form  of  interest  on  partners'  capital,  share  of  profit  allocated  to  capital, 
or  profit  reserved  for  any  special  purpose.  If  the  business  is  that  of  a 
public  company,  the  dividend  paid  on  the  shares  is  debited  to  this  account, 
together  with  any  sum  carried  to  the  reserve  fund,  and  the  balance  un- 
appropriated is  carried  forward,  and  appears  in  the  next  profit  and  loss 
appropriation  account. 

"The  form  of  the  account  given  below  should  be  carefully  studied,  but 
its  utility  can  only  be  appreciated  in  practice.  By  the  use  of  such  divisions, 
and  by  comparing  the  accounts  of  one  year  with  another,  any  looseness 
in  the  management  of  a  business,  or  anything  w^hich  might  endanger  its 
stability,  can  as  a  rule  be  at  once  detected,  and  measures  taken  to  prevent 
further  loss." 

PROFIT  AND  LOSS  ACCOUNT. 

Expenditure.  Income. 

To  cost  of  goods  used   (including  By    sales    (alter    deducting  purely 

carriage   inwards,  and   after   de-  trade  discounts)    $ 

ducting  purely  trade  discounts). $ 
To  Expenditure  directly  connected 
with  sales,  or  which  reduces  the 
price     realized     for    the    goods, 
such  as — 
Commission    and     salaries    of 
travelers,  and  travelers'  ex- 
penses     

Wages  of  salesmen • 

Wages  of  porters 


49 


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Ace. 


American  Business  and  Accounting  Encyclopedia  76-77 


Carriage    outwards    of    goods 

sold    

Cash      discount     allowed      on 

sales    

To    balance    carried    down,    being 
gross   profit    


To  fixed  charges  not  directly  con- 
nected with  sales  and  not  vary- 
ing much  with  the  turnover, 
such  as — 

Rent,    rates,    taxes $ 

Repairs  and  upkeep  of  offices. 
Salaries    of    office    staff    and 

management    = 

Depreciation     

To  business  losses,  such  as — 

Bad    debts    

Defalcations    

To  balance  carried  down,  being 
profit  on  ordinary  business ...... 


$ 


To  expenses  connected  with  capi- 
tal, such  as — 

Intereft  on  loans $ 

To    balance    carried    down,    being 
net  profit 


To  allocation  of  profit — 

Interest  on  capital  $ 

Profit  allocated  to  capital 

Profit  a!located  to  reserve 

To   profit    unappropriated,    carried 
forward    

$ 


By   balance   brought    down,   being 

gross   profit    $ 

By  income   not   directly  connected 
with  sales  such  as — 

Rent  of  stores  or  premises  be- 
longing to  the  business  let  to 

tenants    

Revenue  from  royalties  


By   balance    brought    down,   being 
profit  on  ordinary  business $ 

By  income  connected  with  capital, 
such  as — 

Revenue  from  investments.. 

Interest  earned  

Cash  discounts  obtained, 
which  depend  upon  the 
amount  of  capital  in  the 
business    

i> 
■? 

By   balance   brought    down,   being 
net  profit  $ 


(77)      PROMOTION   ACCOUNT. 

See  organization  account,  paragraph  71. 

•   50 


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American  Business  and  Accounting  Encyclopedia 


Ace. 


(78)     purchase  account. 

A  representative  account  showing  the  amount  of  material  or  merchan- 
dise purchased. 

(79)     purchase  ledger  controlling  account. 

See  controlling  account,  paragraph  14. 

(80)      RAW  MATERIAL  ACCOUNT. 

See  material  account,  paragraph  66. 

(81)       REAL  ACCOUNT. 

An  account  which  represents  the  values  of  actual  assets  or  the  amount 
of  actual  liabilities,  such  as  real  estate,  machinery,  loans,  mortgages. 

(82)      RECEIPTS  AND  PAYMENTS  ACCOUNT. 

A  summarized  account  of  actual  cash  receipts  and  expenditures  dur- 
ing a  given  period,  starting  with  the  cash  balance  at  date  of  commence- 
ment of  account  and  ending  with  cash  balance  at  close  of  period  covered 
by  the  account. 

(See  income  and  expenditure  account,  paragraph  52.) 

(83)       RENT  ACCOUNT. 

A  general  ledger  account  in  which  are  recorded  the  amounts  paid  or 
received  on  account  of  rent. 

(84)       REPRESENTATIVE   ACCOUNT. 

An  account  (preferably)  whose  function  is  to  complete  the  double 
entry  by  representing  the  transactions  described  or  recorded  by  personal 
accounts.  Thus,  sales  account  furnishes  the  double  entry  for  customers' 
account  and  purchase  account  that  for  creditors'  accounts.  Real  estate 
account  represents  the  value  of  investments  in  real  estate,  etc. 

(85)  REVENUE    ACCOUNT. 

A  term  sometimes  used  to  designate  profit  and  loss  account. 

(86)  REVENUE  ACCOUNTS. 

Those  accounts,  the  balances  of  which  are  transferred  at  closing 
periods  to  the  debit  or  credit  of  profit  and  loss  account,  as  distinguished 
from  capital  accounts  which  relate  exclusively  to  assets  and  liabilities 
belonging  to  the  balance  sheet. 

(87)  ROYALTY    ACCOUNT. 

An  account  representing  amounts  paid  as  royalty. 

In  books  designed  for  use  by  manufacturers  it  is  generally  very  im- 
portant that  they  should  be  so  planned  that  the  proprietor  can  readily 
•deternnine  the  totals  of  various  items  of  cost  or  sources  of  profit,  so  as 
to  ascertain  their  relative  influence  on  the  business  done. 

Among  such  items  either  of  cost  or  profit,  royalties  paid  or  received 
constitute  a  factor  of  more  or  less  importance,  according  to  circumstances. 

Most  manufacturers  have  to  pay  to  owners  of  patents  for  the  privilege 
of  making  goods  under  such  patents,  paying  at  a  certain  rate  or  ratio  for 

61 


Ace.  American  Business  and  Accounting  Encyclopedia  97 

articles  as  manufactured  or  as  sold.  The  terms  of  the  contracts  vary,  but 
the  essential  thing  to  a  royalty  is  that  it  is  a  payment  contemplated  at  a 
definite  ratio  to  product— although  it  may  be  commuted  so  that  a  fixed 
amount  is  agreed  upon  in  lieu  of  a  varying  sum. 

Royalties  may  be  divided  into  two  classes,  those  paid,  and  hence 
entering  into  cost  of  product,  and  those  received,  and  hence  entering  into 
profits  of  business. 

ROYALTY   income   ACCOUNT. 

Let  us  take  the  less  frequent  account  first.  Competing  manufacturers 
wish  to  use  a  patented  article  or  process  and  agree  to  pay  to  its  owner 
for  the  privilege.  He  uses  the  article  himself,  but  derives  an  mcome  or 
profit  by  allowing  others  also  to  use  it.  Such  items  should  be  credited  as 
earned  to  royalty  income  account,  and  represented  in  the  profit  and  loss 
account  as  an  item  of  profit  apart  from  the  gross  profit  on  sales. 

The  same  remarks  would  apply  of  course  when  a  manufacturer  own- 
ing or  controlling  a  patent  was  paid  by  others  to  abstain  from  using  it, 
as  is  done  by  some  of  the  associations. 

Also  to  a  case  where  a  m'anufacturer  controls  patents  which  he  does 
not  use  but  from  which  he  receives  the  royalty  income.  In  fact  to  any 
class  of  arrangements  by  which  the  manufacturer  derives  an  income 
specially  attributable  to  his  controlling  certain  patents  or  similar  privileges, 
which  income  bears  a  direct  or  estimated  ratio  to  some  basis  of  production. 

ROYALTY   expense  ACCOUNT. 

Frequently,  however,  the  manufacturer  is  the  source  of  the  revenue 
rather  than  its  recipient.  In  many  cases  the  rights  involved  are  controlled 
by  some  private  person,  who  temporarily  yields  some  or  all  of  them  m 
exchange  for  the  payments  agreed  upon. 

Such  expense  should  be  charged  as  earned  to  royalty  expense  account, 
and  where  departments  are  used  to  the  royalty  expense  account  of  the 

proper  department. 

As  to  the  proper  disposal  of  the  royalty  expense  accounts  there  seems 
to  be  room  for  difference  of  opinion.  Some  accountants  contend  that  it 
should  be  included  in  the  costs  of  manufacturing,  but  stated  as  a  separate 
item,  so  that  such  cost  would  be  composed  of  material,  labor,  manufactur- 
ing expense  and  royalty  expense. 

Other  accountants  seem  inclined  to  treat  it  as  an  account  negative  to 
sales  always  to  be  stated  as  a  separate  item,  showing  that  total  sales  were 
so  much,  and  after  deducting  royalties  payable  the  net  sales  were  so  much. 

Although  the  latter  course  is  open  to  criticism  it  has  one  point  of  ad- 
vantage over  the  other  method,  under  which  plan,  if  a  large  amount  was 
naid  for  royalties,  the  average  cost  of  output  would  be  unwarrantedly  in- 
creased although  in  fact  labor,  material  and  general  manufacturing  expenses 
might  be  less  than  in  other  periods. 

It  is  not  generally  speaking,  a  profit  and  loss  account,  because 
applicable  only  to  a  special  part  of  the  business,  and  besides  under  ordinary 

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circumstances  is  distinctly  a  manufacturing  account. 

The  least  objectionable  course  then  will  be  to  class  royalty  expense 
account  as  contra  to  sales  account,  considering  the  net  sales  to  be  only 
the  amount  remaining  after  royalties  have  been  deducted. 

It  should  be  borne  in  mind  in  this  connection  that  while  royalties 
make  it  necessary  to  increase  the  selling  price  of  goods,  they  do  not,  to 
any  extent,  increase  the  cost  of  manufacturing  or  selling  them.  Therefore, 
so  that  the  item  shall  not  disturb  other  comparisons  which  should  be  made, 
royalties  should  be  kept  distinct  in  books  and  statements  from  expenses 
of  manufacture  or  of  sale.  To  do  this  readily  the  items  must  be  kept  m 
royalty  expense  account  as  previously  stated  and  exhibited  on  statements 
as  negative  sales  so  that  net  sales  will  then  mean  gross  sales,  minus 
returned  goods  and  royalty  expense. — F.  Lines. 

(88)       SALES   ACCOUNT. 

A  representative  account  in  the  general  ledger  recording  amount  of 
sales  to  customers  and  returns  and  allowances  in  connection  with  same  and 
belonging  to  the  credit  side  of  the  trading  account. 

Goods  sold  to  other  manufacturers  at  cost  (as  an  accommodation)  or 
to  employes  at  a  nominal  profit  should  not  be  credited  to  the  regular  sales 
account,  as  statistical  comparisons,  and  deductions  therefrom,  would  there- 
by be  seriously  interfered  with  were  the  amounts  at  all  large.  Such  sales 
should  be  carried  in  a  separate  account  and  not  included  in  the  trading 
statement  of  a  business  as  though  sold  at  the  regular  rate  of  profit. 

(89)       SALES   LEDGER   CONTROLLING   ACCOUNT. 

See  controlling  account,  paragraph  14. 

(90)       SAMPLE    ACCOUNT. 

A  special  account  usually  carried  with  a  salesman  which  records  the 
cost  of  the  samples  furnished  him  for  exhibition  to  customers.  (See  travel- 
ing salesmen's  accounts.) 

(91)       STOCK  ACCOUNT. 
STORES   ACCOUNT. 


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An  account  kept  in  the  factory  with  goods  and  supplies  received  and 
distributed,  and  balances  on  hand. 

(92)       SUMMARY  ACCOUNT. 

An  account  dealing  with  totals  and  not  with  items.  As  the  use  of 
columnar  cash  books,  journals,  and  auxiliary  record  books  increases,  the 
number  of  summary  accounts   tends  to  outnumber  itemized  impersonal 

accounts.  - 

Controlling  or  adjustment  accounts  are  good  types  of  the  summary  account. 

(93)      SUNDRIES  ACCOUNT. 

An  account  into  which  are  posted  all  charges  to  temporary  customers 
who  are  not  expected  to  purchase  again. 

The  ordinary  sundry  account  is  a  source  of  considerable  trouble  to 
the  book-keeper.  When  the  credits  are  posted  opposite  to  the  debits,  the 
same  annoyance  in  obtaining  the  correct  balance  of  the  account  arises  as 
in  the  case  of  bills  receivable  account  when  kept  in  a  similar  manner. 
Several  expedients  have  therefore  been  devised  to  obviate  this  annoy- 
ance, one  of  which  is  illustrated  below.     The  sundry  debtors'  account  is 

SUNDRY  DEBTORS. 

Page      When  Paid.  Dr. 

Fb    4     J.   A.  Felton    • 41  Feb.  12  25  00 

Feb:   4.    T.  O.  Densmore    41  Feb..  12  25    0 

Feb.   4.     Geo.  Winder    ••.••     41  25  00 

Feb.   4.    Wm.   Wintermute    41  ^^ 

Feb    4.    H.  A.  Merritt  41  Feb.    5  25  00 

Cr. 

Feb'To.    F.    Ulman Cash    22  10  00 

Feb    5     H.    A.    Merritt    Cash    22  25  00 

Feb.'  9.'    Tilman    Jones    Cash    22  5  00 

Feb.l0.     N.    Miller     ^isc.  109  2  00 

Feb.ll.    Geo.  Hanlon  ^^^^^^^^^^^^.CashJ^_^O_0O___ 

treated  as  though  it  were  an  ordinary  account  with  one  person,  both 
credits  and  debits  following  in  order  of  date.  A  special  column  is  provided 
on  the  debit  side,  in  which  is  entered  the  date  of  payment  of  the  account, 
so  that  if  it  is  desired  to  refer  to  J.  A.  Felton's  account  it  will  be  seen 
that  it  was  paid  on  February  12th,  and  the  entry  of  credit  will  be  found 

under  that  date.  ,   . 

Another  method  is  to  carry  all  sundry  accounts  in  a  self-indexing  petty 

ledger.  ,    ,         .  •       *• 

"There  are  arguments  against  using  a  petty  ledger  in  conjunction 
with  a  general  ledger.  Some  claim  that  when  you  want  to  look  for  an 
account  there  should  be  only  one  place  to  find  it,  and  that  is  in  the 
general  ledger.  For  instance,  if  the  book-keeper  is  out  and  the  proprietor 
wishes  to  look  up  an  account,  he  will  at  once  turn  to  this  book  and  find 
it ;  and,  not  finding  it  there,  he  will  use  some  uncomplimentary  terms 
regarding  his  book-keeper  and  where  he  keeps  his  accounts.     He  will 

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forget,  or  perhaps  he  may  be  ignorant  of  the  fact  that  there  is  a  petty 
ledger  in  existence  in  the  office.    But  this  objection  is  a  small  one  when 
the  expediency  of  the  book  is  explained,  as  anyone  can  readily  see  its  ad- 
vantages.    Besides,  in  most  every  business  of  any  magnitude  nowadays 
there  are  used  several  ledgers  and  very  infrequently  only  one  as  formerly. 
"When  no  petty  ledger  is  used  the  general  ledgers  will  contain  a  great 
nxany  ^accounts  with  perhaps  only  one  or  two  entries.     Xow  this  is  a 
waste  of  time  and  ledger  space.    The  experienced  book-keeper  will  readily 
notice  a  name  which  he  will  know  will  require  little  space  in  his  book. 
Perhaps  he  will  not  make  another  entry  to  this  account  during  the  next  two 
years,  or  perhaps  never  again.     Now  is  it  not  better  to  put  spch  accounts 
in  a  small  book  indexed  alphabetically  at  the  sides,  rather  than  waste 
space  with  it  in  the  general  ledger?    The  mere  loss  of  the  page  or  leaf  Is 
nothing,  but  when  you  have,  say,  a  hundred  of  just  such  accounts  the 
trouble  and  annoyance  of  them  is  considerable.    Every  time  a  trial  balance 
is  taken  or  you  go  through  the  ledger  you  must  wade  through  this  useless 
timber. 

"When  an  account  is  in  the  petty  ledger  it  may  be  found  in  an  in- 
stant, and  when  it  is  settled  it  can  be  canceled  in  red  ink.  At  the  end 
of  the  year,  when  the  annual  statement  is  made  up,  all  accounts  in  the 
petty  ledger  can  be  reckoned  in  the  assets  of  the  business  by  deducting  a 
certain  percentage,  and  adding  in  the  amount  to  the  merchandise  on  hand. 
"If  the  account  thus  treated  proves  to  be  more  extended  than  at  first 
supposed,  it  can  easily  be  opened  in  the  general  ledger  and  reference  made 
to  former  entries  in  the  petty  ledger. 

"When  an  account  is  paid  the  amount  is  credited  to  merchandise  in 
the  cash  book  and  reference  is  made  to  the  place  where  the  account  is  kept." 
Still  another  method  is  to  use  a  numerical  or  alphabetical  check  against 
the  debits  canceled  by  payment ;  i.  e.,  by  this  method  J.  A.  Felton's  deb.t 
would  be  checked  "A"  and  J.  A.  Felton's  payment  would  also  be  checked 
"A,"  thus  constituting  quickereference  from  one  entry  to  the  other. 

Still  another  method  is  to  open  a  new  sundries  account  each  month, 
treating  the  account,  and  entering  its  balance  on  the  trial  balance,  as 
though  it  were  an  individual  account. 

Another  method  is  to  open  a  new  account  as  each  page  is  filled  up. 
"The  two  sides  of  the  sundries  account  can  be  footed  when  desirable 
in  small  pencil  or  red  ink  figures  and  the  difference  between  the  two  sides 
placed  between  the  two  columns.  This  will  show  the  net  amount  due  from 
the  sundry  debtors  on  that  page  of  the  ledger  and  it  can  be  verified  at  any 
time  by  looking  down  the  'when  paid'  column  and  taking  off  only  those 
accounts  not  marked  paid.  New  items  can  be  posted  in  from  time  to  time 
till  near  the  bottom  of  the  page,  when  another  general  account  called 
Sundry  Debtors  No.  2  can  be  opened  and  treated  the  same  as  No.  1. 

"When  it  is  desirable  to  transfer  the  account  the  name  and  number 
can  be  transferred  to  another  part  of  the  book,  with  the  unpaid  balance, 
crediting  it  in  red  ink  by  the  balance  so  transferred. 

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"As  many  of  these  general  accounts  can  be  used  as  needed.  If  an- 
other charge  should  occur  to  one  of  the  names  in  the  general  account,  credit 
that  name  by  balance  in  red  ink  and  bring  the  name  down  debit  to  bottom 
of  the  list  on  that  page,  if  there  is  room ;  if  not,  carry  it  to  another  page; 
then  post  in  next  to  it  the  additional  charge.  When  an  item  is  transferred 
write  also  in  red  ink  in  the  'when  paid'  column  where  it  is  carried  to.  If 
part  of  an  item  in  the  general  account  is  paid,  interline  over  the  name  the 
amount  and  give  the  general  account  credit  for  it,  and  instead  of  writing 
the  date  in  the  Svhen  paid'  column  make  an  interrogation  mark  in  it  with 

pencil  that  can  be  erased. 

"When   the  balance  of  the  item  is  paid  erase   the  interrogation  mark 

and  write  in  the  date  of  payment.     The  interrogation  mark  attracts  the 

eye  while  hastily  running  down  the  column  and  calls  attention  to  the 

fact  that  part  of  that  item  has  been  paid." 

(94)  surplus  account. 

An  account  to  which  is  transferred  yearly  the  balance  of  the  profit 
and  loss  account,  thus  providing  that  the  profit  and  loss  account  shall 
only  exhibit  the  current  year's  results. 

(95)  suspense  account. 

A  summarv  account  to  which  are  transferred  the  balance  of  doubt- 
ful accounts  from  the  customer's  ledger,  and  in  which  they  are  retained 
nutil  such  time  as  they  can  be  definitely  disposed  of.  In  this  way  they 
are  not  lost  sight  of,  and  can  be  estimated  in  the  balance  sheet  at  their 
proper  value. 

(96)      TRADING  account. 

There  is  considerable  diversity  in  the  make-up  of  trading  accounts 
constructed   for  different  lines  of  business,   although   the   principles   are 

the  same.  .     j-  -j  j   •  *     *    ^ 

In  the  manufacturing  business  this  statement  is  divided  mto  two 
sections  The  first  section  is  known  as  the  manufacturing  account,  cover- 
ing all  expenditures  in  relation  to  cost  of  production.  The  total  cost  is  then 
transferred  to  the  debit  of  the  second  section  of  the  trading  account.  This 
section  is  credited  with  sales  and  new  inventory. 

In  wholesale  business  no  division  of  trading  account  is  necessary, 
while  in  general  or  department  stores  a  separate  trading  account  is  carried 
with  each  department. 

(97)    treasurer's  account. 

In  many  corporations  and  institutions  an  account  is  carried  on  the 

main  books  with  the  treasurer  instead  of  with  cash  and  bank.     He  is 

debited  with  all  money  received  and  credited  with  all  expenditures.     In 

his  department  he  keeps  cash  and  book  accounts  for  his  own  information. 

(98)      TREASURY   STOCK  ACCOUNT. 

(A)     A  corporation  account  recording  the  amount  of  capital  stock 
unscribed. 

56 


The  question  as  to  whether  it  is  justifiable  to  include  treasury  stock 
on  the  balance  sheet  as  an  asset  is,  we  think,  of  fictitious  importance,  for 
the  reason  that  the  amount  of  treasury  stock  on  the  asset  side  is  always 
offset  by  an  equal  amount  of  stock  in  the  captital  stock  account  on  the 
liability  side.  As  previously  indicated  in  this  Encyclopedia,  we  prefer 
method  adopted  by  foreign  corporations,  of  placing  the  nominal  capital 
in  an  inner  column  and  including  only  paid  up  capital  stock  in  the  actual 
liability  column. 

(B)  Stock  donated  by  subscribers  for  the  purpose  of  sale  in  order  to 
raise  working  capital. 

(C)  Stock,  the  possession  of  which  has  been  acquired  by  purchase 
by  a  corporation  from  its  original  owners. 

(99)       UNDIVIDED  PROFITS  ACCOUNT. 

An  account  representing  the  amount  of  profits  undistributed  by  way 
of  dividend. 

A  surplus  account. 

(100)       VENTURE    ACCOUNT. 

See  adventure  account,  paragraph   15. 

(101)  VESSEL  ACCOUNT. 
VOYAGE  ACCOUNT. 

An  account  carried  with  each  vessel  for  each  voyage  to  which  all 
expenditures  in  connection  with  the  voyage  are  charged  and  to  which  all 
receipts  from  freight  and  passenger  traffic  are  credited.  The  balance 
of  this  account  then  shows  the  profit  on  the  trip. 

(102)  WAGES  ACCOUNT. 

A  general  ledger  account  to  which  is  debited  the  amount  of  wages 
paid. 

(103)       WORK    IN    PROCESS    ACCOUNT. 

A  factory  account  recording  the  value  of  work  on  uncompleted  orders 
and  consisting  of  perpetual  inventory  of  material  and  supplies  issued  from 
stores  room,  wages  on  account  of  labor  performed  up  to  date,  and  per- 
centage of  overhead  or  shop  expense. 

A  good  method  of  providing  for  this  perpetual  inventory  is  through  a 
memorandum  "manufacturing  account,"  to  be  kept  by  the  cost  clerk,  or 
whoever  it  may  be,  whose  duty  it  is  to  attend  to  the  factory  records. 

If  daily  job  cards  are  issued  to  the  workmen,  a  recapitulation  may 
be  made  from  them  with  an  adding  machine,  and  the  total  debited  to  this 
manufacturing  account.  A  recapitulation  is  also  made  of  the  value  of 
material  issued  from  the  requisitions  turned  in  by  the  store-keeper,  and  the 
total  of  this  recapitulation  debited  to  manufacturing  account,  as  the  shop 
orders  are  received  on  account  of  completed  work,  the  value  of  material 
used  and  time  consumed  on  them  will  be  credited  to  manufacturing  account 

This  account  should  be  ruled  on  the  debit  with  two  columns— one  for 
material  and  one  for  labor,  so  that  they  may  always  available ;  and  on  the 

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credit  side  with  two  columns,  the  second  side  providing  for  a  record  of 
unusuer  a  material  returned  to  the  stockroom. 

When  reporting  inventory  of  uncompleted  work  to  the  main  office, 
it  is  only  necessary  to  add  the  proper  percentage  of  factory  expense  to 
the  total  labor,  and  the  balance  of  this  account  then  exhibits  the  required 
amount  of  the  inventory. 

(104)     ACCOUNT  CURRENT. 

An  account  which  runs  indefinitely  as  compared  with  one  regularly  bal- 
anced. Interest  is  usually  charged  at  periodical  intervals,  and  this  subject  will 
be  considered  under  the  heading  of  averaging  accounts. 

(105)     ACCOUNTANT. 

Some  definitions  of  the  duties  and  status  of  the  public  accountant,, 
certified,  chartered,  incorporated,  or  otherwise,  and  the  kinds  of  work  he 
is  expected  to  do  may  be  described  and  quoted  as  follows: 

"The  public  accountant  is  the  consulting  physician  of  finance  and 
commerce.  He  understands  the  anatomy  and  physiology  of  business  and 
the  rules  of  health  of  corporations,  partnerships  and  individual  enterprises. 
He  diagnoses  abnormal  conditions,  and  suggests  approved  remedies.  His 
study  and  interest  is  the  soundness  of  the  world  of  affairs." 

The  kinds  of  work  he  is  expected  to  do  are  thus  described : 

"Auditing  and  reporting  on  the  accounts  of  companies,  corporations, 
public  bodies,  societies,  institutions,  private  firms  and  individuals. 

"Drawing  up  balance  sheets,  states  of  affairs,  schemes  of  division, 

and  other  statements  of  accounts. 

"Investigating  books  and  accounts  with  the  view  of  certifying  as  to 
profits,  accounting  for  losses,  or  tracing  defalcations. 

"Reporting  on  and  unraveling  accounts  under  orders  from  the  courts. 

"Designing  systems  of  book-keeping  and  keeping  accounts,  and  advis- 
ing thereon. 

"Anyone  proposing  to  become  an  accountant  should  pre-eminently 
possess  the  mathematical  mind.  He  must  have  accurate  perception,  strong 
power  of  concentration,  and  clear  and  logical  reasoning  faculties.  So 
endowed,  he  may  be  considered  a  fit  subject  for  the  training  offered  in  the 
office  of  a  practicing  accountant.  In  the  course  of  this  training  he  should 
be  taught  orderly  and  methodical  habits,  and  specially  the  habit  of  verifying 
for  himself  every  figure  or  fact  of  which  he  makes  use,  thus  laying  the 
foundation  of  that  character  for  accuracy  and  reliability  without  which  no 
one  need  expect  to  succeed  as  an  accountant.  In  the  course  of  service  he 
should  acquire  familiarity  with  the  details  of  professional  work,  and  the 
recognized  societies  lay  down  rules  and  prescribe  examinations,  as  here- 
after explained,  for  further  guidance  in  his  professional  education.  But 
withal,  he  will  still  want  something  of  the  equipment  of  the  'perfect  accoun- 
tant.' He  must  be  possessed  of  practical  business  sagacity,  a  demeanor 
such  as  inspires  the  confidence  of  his  clients,  and,  it  need  scarcely  be 
said,  a  character  of  the  strictest  rectitude.     There  are  few  professions 

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where  a  keen  power  of  discrimination  between  the  straight  and  the  crooked 
is  more  frequently  required,  and  where  any  laxity  in  following  sound  prin- 
ciples has  more  far-reaching  consequences. 

"The  professional  accountant,  as  now  recognized,  is  of  quite  recent 
origin.  He  is  not  a  book-keeper,  but  his  duty  consists  in  the  examination 
of  the  work  of  book-keepers  with  a  view  to  establishing  the  accuracy  of 
their  work.  The  official  auditor  of  a  corporation  should  not  be  confused 
with  the  professional  accountant.  Most  large  enterprises  employ  account- 
ants whom  they  term  auditors,  but  such  accountants  have  generally  had 
very  little  of  that  special  experience  which  qualifies  the  professional  ac- 
countant to  examine  the  accounts  of  any  business,  no  matter  what  system 
may   be   employed. 

"The  public  accountant  is  the  consulting  physician  o^  finance  and  com- 
merce. He  understands  the  anatomy  and  physiology  of  ousiness  and  the  rules 
of  health  of  corporations,"  partnerships  and  individual  enterprises.  He  diagnoses 
abnormal  conditions,  and  suggests  approved  remedies.  His  study  and  interest 
is  the  soundness  of  the  world  of  affairs." 

( 106)     ACCOUNTANTS'  ASSOCIATIONS. 

The  American  Association  of  Public  Accountants  in  1908  consists  of 
the  following  state  branches : 

California  Society  of  Certified  Public  Accountants. 
Colorado  Society  of  Public  Accountants,  The. 
Georgia  State  Association  of  Public  Accountants. 
Illinois  Society  of  Certified  Public  Accountants. 
Maryland  Association  of  Certified  Public  Accountants. 
Massachusetts,  Incorporated  Public  Accountants  of. 
Michigan  Association  of  Certified  Public  Accountants. 
Minnesota  Society  of  Public  Accountants. 
Missouri  Society  of  Public  Accountants. 

New  Jersey,  Society  of  Certified  Public  Accountants  of  the  State  of. 
New  York  Society  of  Certified  Public  Accountants,  The. 
Ohio  State  Society  of  Public  Accountants,  The. 
Pennsylvania  Institute  of  Certified  Public  Accountants. 
Tennessee  Society  of  Public  Accountants. 
Washington  Society  of  Certified  Public  Accountants. 
The  Institute  of  Chartered  Accountants  in  England  and  Wales  in  1908 
reported  a  membership  as  follows: 

Fellows    g^j 

Associates  in  practice   ,  j  g28 

Associates  not  in  practice '992 

Members  not  in  England  or  Wales  .! .  . .           255 

"^^^^^    ^6 

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The  latest  report  of  the  Incorporated  Accountants  of  London,  Eng- 
land, quotes  the  membership  as  follows : 

Fellows    

,         .  ,  1,343 

Associates     

Total     ^ 2.194 

From  the  latest  information  published  of  the  Chartered  Accountants 
of  Scotland,  we  find  the  membership  to  be  as  follows : 

The  Society  of  Accountants  in  Edinburgh  '*34 

The  Institute  of  Accountants  in  Glasgow  ^^^ 

The  Society  of  Accountants  in  Aberdeen   • ^^ 

Total    ^^^ 

Branches  of  both  the  Institute  of  Chartered  Accountants  of  England 
and  Wales,  and  of  the  Society  of  Accountants  and  Auditors  of  London, 
England,  have  been  organized  in  the  principal  British  colonies. 

In  the  United  States  a  large  number  of  associations,  consisting  of 
public  accountants,  corporation  auditors  and  book-keepers,  has  been  organ- 
ized, of  which  the  following  are  the  more  important : 

Incorporated  Accountants  of  Maryland. 

Incorporated  Accountants  of  Illinois. 

Incorporated  Accountants  of  Michigan. 

Incorporated  Accountants  of  New  Yorlc. 

Incorporated  Accountants  of  Pennsylvania. 

International  Accountants'  Society  of  Massachusetts. 

New  York  Society  of  Accountants  and  Book-keepers. 

Illinois  Institute  of  Accountants. 

Chicago  Association  of  Accountants  and  Book-keepers. 

Milwaukee  Association  of  Accountants  and  Book-keepers. 

Incorporated  Accountants  of  Indiana. 

Incorporated  Accountants  of  Ohio. 

Cincinnati  Chapter. 

Cleveland  Chapter. 

St.  Louis  Society  of  Book-keepers  and  Accountants. 

THE  UNIVERSITY  OF  ILLINOIS  REGULATIONS   FOR  THE 
CONDUCT  OF  EXAMINATIONS  FOR  CER- 
TIFIED PUBLIC   ACCOUNTANTS. 

1.  The  supervision  of  all  matters  under  the  law  shall  be  in  the  hands 
of  a  committee  under  the  immediate  supervision  of  the  president  of  the 
university,  consisting  of  the  head  of  the  department  of  economics,  the 
professor  of  industry  and  transportation,  and  the  registrar. 

2.  This  committee  shall  receive  all  applications  for  examinations  and 
shall  issue  to  approved  applicants  certificates  of  admission  to  the  examina- 
tions, and  no  candidate  shall  be  examined  who  does  not  present  to  the 

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board  of  examiners  at   the   time   and   place  of  examination,  as  advertised, 
such  certificate  of  admission,  signed  by  the  registrar. 

3.  This  committee  shall  appoint  the  times  and  places  of  examination 
and  shall  advertise  the  same  according  to  the  provisions  of  the  law. 

4.  This  committee  shall  receive  from  the  board  of  examiners  the 
questions  to  be  used  at  the  examinations,  and  shall  print  and  distribute 
these  examination  questions  to  the  examining  board  in  time  for  conduct- 
ing the  examinations  as  advertised. 

5.  This  committee  shall  receive  the  reports  of  the  examinations  from 

the  board  of  examiners,  and  shall  certify  to  the  president  the  successful 
candidates. 

6.  This  committee  shall  receive  and  certify  to  the  president  all  state- 
ments of  expenses  and  fees  of  the  board  of  examiners. 

7.  This  committee  shall  also  examine  the  papers  of  applicants  under 
Sec.  3  of  the  law.  and  shall  certify  to  the  president  the  names  of  those 
who  are  eligible  under  this  section  to  receive  the  degree  of  certified  public 
accountant. 

Board  of  Examiners.  1.  The  board  of  examiners  for  the  examina- 
tion of  candidates  for  the  degree  of  certified  public  accountant  shall  con- 
sist, according  to  law,  of  three  members,  at  least  two  of  whom  shall  be 
skilled  in  the  practice  of  accounting  and  actively  engaged  therein  in  the 
state  of  Illinois. 

2.  The  members  of  this  board  of  examiners  shall  be  nominated  by 
the  president  of  the  university  and  approved  by  the  board  of  trustees. 

3.  Vacancies  on  the  board,  due  to  any  cause,  shall  be  filled  for  the 
remainder  of  the  term  of  office,  at  the  first  meeting  of  the  board  of  trustees 
which  occurs  after  the  occurrence  of  such  vacancy.  Appointments  to  expir- 
ing terms  shall  also  be  on  nomination  of  the  president  for  approval  by  the 
board  of  trustees. 

4.  The  term  of  office  of  these  examiners  shall  be  three  years,  except 
for  the  members  first  appointed.  Of  these,  one  shall  be  appointed  for  three 
years,  one  for  two  years,  and  the  third  for  one  year.  At  the  annual  meet- 
ing of  the  board  of  trustees  of  the  university  in  June,  the  place  of  the 
retiring  member  shall  be  filled  by  action  of  the  board  of  trustees. 

5.  After  July  1,  1904,  no  one  shall  be  appointed  a  member  of  this 
board,  who  is  not  authorized  under  the  law  to  practice  in  the  state  of 
Illinois  as  a  certified  public  accountant. 

6.  Each  member  of  the  board  of  examiners  who  shall  be  engaged 
in  the  duty  of  conducting  examinations  at  the  time  and  place  appointed  by 
the  university  authorities  as  provided  herein,  shall  send  to  the  university 
committee  in  charge  a  statement  of  the  time  actually  spent  in  the  discharge 
of  his  duties  as  a  member  of  this  board  in  conducting  said  examinations, 
together  with  a  statement  of  actual  traveling  expenses  incurred  in  per- 
forming said  duty.    This  statement  shall  be  certified  to  the  president  by 

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the  committee  in  charge  at  the  university  and  no  fees  cr  bills  for  expenses 
of  the  members  of  this  board  of  examiners  shall  be  paid,  excepting  on 
approval  of  the  president  after  this  certification. 

Applications.  1.  Applicants  for  the  degree  of  C.  P.  A.  on  the  basis 
of  previous  practice,  under  Sec.  3,  of  the  law,  shall  file  their  applications 
with  the  university  committee  on  accountancy,  together  with  a  sworn 
statement  setting  forth  their  age,  legal  residence,  the  length  of  time  during 
which  they  had  practiced,  the  place  where  such  practice  was  had,  and 
the  time,  place  and  scope  of  examinations,  if  any,  passed  in  accountancy. 

2.  Applicants  for  examinations  shall  file  their  applications,  and  all 
papers  necessary  to  show  their  qualifications  for  admission  to  the  examina- 
tions, with  the  university  committee  on  accountancy,  as  provided  herein. 
Applicants  must  submit  certificates  of  graduation  from  a  four  year  high 
school,  or  evidence  of  having  had  an  equivalent  education,  together  with 
certificates  of  age  and  good  character.  They  shall  also  submit  the  names 
of  three  suitable  references,  at  least  two  of  whom  must  be  residents  of  the 
state  of  Illinois. 

3.  Applicants  for  examination  or  for  the  degree  under  Sec.  3,  of 
the  law,  shall  send  a  fee  of  $25.  payable  to  the  university,  in  accordance 
with  Sec.  4,  of  the  act. 

Examinations.  1.  Examinations  shall  be  held  by  the  board  of 
examiners  at  the  times  and  places  determined  by  the  university  commit- 
tee in  charge. 

2.  The  time  and  place  of  holding  these  examinations  shall  be  adver- 
tised according  to  the  law  for  not  less  than  three  consecutive  days  in  one 
daily  newspaper  published  in  each  of  the  places  where  the  examinations 
are  to  be  held,  not  less  than  thirty  days  prior  to  the  date  of  each  examine 
tion. 

3.  The  examinations  shall  take  place  as  often  as  may  be  deemed  nec- 
essary in  the  judgment  of  the  university  committee,  but  not  less  frequently 
than  once  each  year.  The  annual  examination  shall  be  held  on  the  first 
Monday  in  May. 

4.  The  examinations  shall  be  in  the  theory  of  accounting,  the  practice 
of  accounting,  auditing,  and  commercial  law  as  affecting  accountancy. 

5.  Each  applicant  for  examination  must  present  to  the  board  of 
examiners,  before  the  examination  begins,  a  certificate  of  admission  to  the 
examination,  issued  by  the  university  committee  on  accountancy.  These 
certificates  shall  be  returned  by  the  board  of  examiners  to  the  chairman 
of  the  university  committee. 

6.  The  period  allotted  to  the  examination  in  each  subject  shall  be 
determined  beforehand  by  the  university  committee,  on  the  advice  of  the 
board  of  examiners,  and  shall  be  printed  on  the  examination  papers. 

7.  Examinations  shall  be  written  in  books  supplied  by  the  university 

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to  the  board  of  examiners  as  provided  for  by  action  of  the  board  of  trus- 
tees in  December,  1901. 

8.  The  examination  books  shall  be  marked  in  plain  figures,  on  the 
scale  of  100,  by  the  board  of  examiners,  and,  together  with  the  certified 
statement  of  the  board  of  examiners  of  the  grades  of  each  candidate  in 
each  subject  in  which  he  is  examined,  shall  be  forwarded  to  the  chairman 
of  the  university  committee.  This  certified  statement  must  be  signed  by 
at  least  two  of  the  board  of  examiners. 

9.  The  list  of  successful  applicants,  as  certified  by  the  board  of 
examiners,  shall  be  certified  to  the  president  of  the  university  by  the 
university  committee  in  charge,  unless,  in  the  opinion  of  that  committee, 
there  exists  some  question  concerning  the  eligibility  or  the  honesty  of  the 
examination  on  the  part  of  the  candidate.  In  that  case,  the  matter  shall 
be  referred  back  to  the  board  of  examiners,  if  it  is  a  question  of  honesty 
in  examination.  If  they,  certify  to  the  honesty  of  the  examination,  the 
name  of  the  candidate  shall  be  certified  by  the  committee  to  the  president. 

10.  In  order  to  entitle  any  applicant  to  a  recommendation  for  the 
degree,  he  must  secure  a  grade  of  at  least  75  per  cent  in  each  subject  on 
which  he  is  examined. 

11.  The  applications  and  credentials  of  applicants  for  the  degree  of 
C.  P.  A.  on  the  basis  of  previous  experience,  under  Sec.  3,  of  the  law,  shall 
be  examined  by  the  board  of  examiners.  If  the  credentials  furnished  by 
such  an  applicant  are  sufficient,  in  the  judgment  of  the  board  of  examiners, 
they  shall  certify  him  to  the  university  committee  for  the  degree  of  C.  P. 
A.  as  in  the  case  of  applicants  who  seek  the  degree  by  examination.  Diplo- 
mas shall  be  issued  in  the  same  way  and  under  the  same  conditions  as  for 
applicants  by  examination. 

Records.  1.  Candidates  who  meet  all  the  requirements  for  eligibility 
and  are  duly  certified  as  above  required,  shall  receive  a  diploma  conferring 
upon  them  the  degree  of  certified  public  accountant  (C.  P.  A.).  This 
diploma  shall  be  issued  in  the  name  of  the  university  and  shall  be  signed 
by  the  president  of  the  university  and  the  secretary  of  the  board  of  trustees. 

2.  The  registrar  shall  open  a  set  of  books  in  which  he  shall  keep  the 
records  of  all  successful  candidates  for  the  degree,  which  shall  set  forth  the 
time  and  place  of  the  examination  at  which  each  candidate  met  the  require- 
ments for  the  degree,  the  grades  obtained  on  the  examinations,  the  num- 
ber of  the  diloma  issued,  and  the  date  of  its  issue. 

3.  The  fees  from  applicants  shall  be  turned  over  to  the  business 
manager  of  the  university  who  shall  keep  a  separate  account  of  all  receipts 
and  expenditures  under  the  law. 

typical  c.  p.  a.  examination  questions. 

Theory  of  Accounts.— (Time  allowed,  three  hours.)    1.    At  the  close 
of  a  fiscal  period,  how  should  consigned  goods  appear  on  the  books  : 
(a)     Of  the  consignor, 

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(b)     Of  the  consignee?  ,      •     i 

2  On  an  independent  appraisement  being  made  of  the  physical  assets 
of  a  manufacturing  corporation,  the  appraisement  shows  appreciations  and 
depreciations,  as  compared  with  the  book  values,  as  follows : 

„     .   ^  .  .  ^.  $20,000 

Real  Estate— Appreciation   • "^  ^'^^ 

Buildings— Depreciation     ' 

Machinery— Depreciation    "' 

_     ,         •         .\.  3,000 

Tools — Depreciation    

The  directors  desire  to  bring  the  book  values  into  agreement  with  the 

appraisement.    Draft  entries  to  show  how,  in  your  opinion,  this  should  be 

done. 

3.  A  wholesale  house  ha  s  on  its  books  200  individual  accounts  with 
creditors.  500  with  city  customers,  and  1,500  with  country  customers, 
besides  about  75  impersonal,  or  representative,  accounts.  Owing  to  the 
methods  of  book-keeping  in  force,  it  is  necessary,  in  order  to  ascertain  the 
amount  of  accounts  receivable  or  payable,  to  take  off  a  complete  list  of  the 
accounts  in  question.  You  are  called  upon  to  advise  as  to  how  this  diffi- 
culty can  be  overcome,  and  also  as  to  whether  the  book-keeping  work  on 
the  accounts  payable  cannot  be  reduced,  having  regard  to  the  fact  that 
the  firm  discounts  all  its  bills. 

Embody  your  suggestions  in  a  brief  report. 

4.  In  order  to  facilitate  the  preparation  of  monthly  profit  and  loss 
statements  by  a  corporation,  how  would  you  recommend  that  the  following 
items  be  treated  on  its  books  from  month  to  month: 

(a)  Interest  Payable, 

(b)  Insurance, 

(c)  Taxes, 

(d)  Depreciation? 

5.  Outline  any  svstem  of  cost  accounts  with  which  you  are  acquainted. 
Classify  the  accounts  in  their  sequential  order. 

6.  Suggest  a  plan  for  recording  and  posting,  with  the  least  possible 
loss  of  time,  the  remittances  received  from  customers  by  a  concern  whose 
ledger  is  in  several  divisions,  with  a  book-keeper  to  each  division. 

7.  Define : 

(a)  Depreciation, 

(b)  Good  Will. 

(c)  Reserve  Fund. 

8.  State  what,  in  your  judgment,  are  the  principal  defects  of  the  pre- 
vailing methods  of  municipal  accounting.  What  is  your  conception  of  the 
information  that  should  be  given  in  the  periodic  statements  of  a  munici- 
pality? In  what  way  would  this  materially  dift'er  from  and  be  an  improve- 
ment upon  the  information  now  commonly  furnished  by  such  statements? 

Practical  Accounting.— (Time  allowed,  four  hours.)  1.  A  and  B, 
who  had  hitherto  been  in  business  separately,  decided  to  enter  into  partner- 
ship on  July  1,  1905.  The  balance  sheets  of  A  and  B  were  on  that  date  as 
follows : 

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A.  LIABILITIES. 

Accounts    Payable    $1,000 

Capital  Account    5,000    $6,000 

assets. 

Furniture    ^ $   750 

Accounts  Receivable  (face  value)    2.500 

Merchandise    2,550 

Cash     200    $6,000 

B.  liabilities. 

Accounts   Payable    $1,500 

Capital  Account   3,000    $4,500 

ASSETS. 

Furniture $   600 

Accounts  Receivable   (face  value)    1,500 

Merchandise     2.000 

Cash 400    $4,500 


Acc. 


It  was  agreed  that  A  and  B  should  make  over  their  respective  accounts 
receivable  at  $200  and  $150  less  than  the  face  value  shown  in  the  balance 
sheets,  these  amounts  to  be  charged  against  their  capital  accounts  and 
carried  on  the  partnership  books  as  a  reserve  for  bad  and  doubtful  ac- 
counts. Of  B's  furniture,  only  $250  was  to  be  taken  over  by  the  partner- 
ship. With  the  above  exceptions  the  assets  and  liabilities  of  the  parties 
were  to  be  taken  over  by  the  partnership  at  the  balance  sheet  figures,  ex- 
cept that  B  was  to  invest  in  the  partnership,  in  cash,  a  sum  which,  after 
making  the  adjustments  above  referred  to,  would  make  his  capital  account 
the  same  as  that  of  A. 

Draw  the  balance  sheet  of  the  A  and  B  partnership  on  July  1.  1905, 
giving  effect  to  the  foregoing  provisions. 

2.  How  would  you  change  a  set  of  books  from  single  entry  to  double 
entry? 

3.  What  do  you   understand  by  the  term  "Perpetual    Inventory?'* 
Give  an  example.  State  what  you  consider  the  advantage  (or  disadvantage) 
of  its  use ;  and  might  there  be  circumstances  in  which  its  adoption  would 
be  impracticable?  and  if  so,  give  an  instance. 

4.  Two  parties,  A  and  B,  have  been  in  business  for  the  three  years 
ending  December  31,  1904,  on  which  date  they  agree  to  dissolve  partner- 
ship. A  takes  over  the  business,  paying  B  $7,500  for  his  share  of  the  good 
will.  A  has  drawn  out  each  year  $2,000  and  B  $3,000.  A's  capital  at  start 
was  $10,000,  and  B's  $12,500,  and  the  profits  of  each  year  have  been  $3,500, 
$4,200  and  $4,600  respectively.  There  was  no  deed  of  partnership  nor  any 
arrangement  as  to  interest  on  capital.  Draft  accounts  showing  A's  capital 
on  taking  over  the  business,  and  the  amount  B  will  receive  on  retiring. 

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5.  X  and  Y  enter  into  partnership,  X*s  capital  being  $20,000,  and  Y's 
$15,000.  Capital  is  to  bear  interest  at  10  per  cent  per  annum ;  profits  are  to 
be  divided  equally  between  the  parties.  The  profits  for  the  first  two  years 
(after  charging  interest  on  capital)  were: 

1st  year    $6,000 

2nd  year  - "^'^UO 

and  the  drawings  of  the  partners  (in  excess  of  salaries)  were: 

1st  year        2nd  year 
X     $1,500  $1,750 

Y    1.200  1.500 

At  the  end  of  the  2nd  year,  Z  was  admitted  to  partnership,  and  put 
into  the  business  the  same  amount  of  capital  as  Y  had  in  the  business  at 
that  time,  and  on  the  same  conditions  as  to  interest  and  division  of  profits. 
The  profits  of  the  business  for  the  third  year  were  $12,000,  and  the  partners' 
drawings  in  excess  of  salary  were: 

X    $1,760 

Y     1.600 

2    \\ 1 , 500 

Construct  the  capital  accounts  of  the  partners  for  each  of  the  three 

years,  showing  the  balance  on  each  at  the  end  of  the  third  year. 

6.  X  receives  from  his  customer,  Y,  a  note  in  settlement  of  his  ac- 
count.   This  note  X  discounts  at  his  bank.    Draft  entries. 

7.  Before  making  the  charges  referred  to  below,  the  profit  and  loss 
account  of  a  corporation  for  the  year  shows  a  credit  balance  of  $60,000. 
The  accounts  receivable  are  $40,700,  and  the  plant  and  the  machinery  ac- 
count is  $55,000.  The  6  per  cent  preferred  stock  is  $50,000  and  the  com- 
mpn  stock  $150,000.  It  is  decided  (a)  to  provide  out  of  the  above  named 
profit  and  loss  balance  7//^  per  cent  depreciation  on  plant  and  machinery; 
(b)  to  write  off  as  uncollectible  $1,500  of  the  accounts  receivable  and  to 
make  a  reserve  of  2  per  cent  on  the  remainder  of  the  accounts  receivable 
to  provide  for  possible  losses  thereon;  (c)  to  provide  for  the  preferred 
stock  dividend  for  the  year;  (d)  to  provide  for  a  bonus  of  $7,500  to  the 
employes;  (e)  to  provide  for  a  dividend  on  the  common  stock  of  15  per 
cent  for  the  year;  and  (f)  to  carry  the  balance  then  remaining  on  profit 
and  loss  account  to  undivided  profits  account. 

Draft  entries  to  comply  with  the  above  provisions. 

8.  A,  B  and  C  were  equal  partners. 

In  the  event  of  the  death  of  either  of  them,  during  the  existence  of 
the  partnership,  the  two  survivors  were,  in  terms  of  the  deed  of  partner- 
ship, to  have  the  prior  right  of  purchase  of  the  deceased  partner's  interest 
in  the  business,  as  at  the  date  of  his  death — the  computation  of  the  value 
of  said  interest  to  be  based  on  two  years'  purchase  price  of  the  average 
profits  of  the  three  years  preceding  the  date  of  his  death. 

The  accounts  were  kept  by  single-entry,  and  were  made  up  half- 
yearly,  to  June  30th  and  December  31st;  and  the  statement  of  affairs  was 
signed  by  each  of  the  partners,  as  acknowledging  their  agreement  as  to 


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the  profits  shown  thereby  to  have  been  earned  during  each  of  these  fiscal 
periods,  respectively. 

The  profits  of  the  six  half-years  to  June  30th,  1905,  were,  as  acknowl- 
edged by  the  three  partners,  as  follows: — 

To   December  31,   1903 $14,200.50 

To  June  30,   1903 16,089.50 

To   December  31,   1903 14,200.50 

To  June   30,   1904    18,006.50 

To  December  31,  1904    13,453.50 

To  June  30,  1905    20,500.00 

A  died  on  October  31,  1905 ;  and  it  is  agreed  that  his  partnership  ceased 
as  at  that  date,  and  that  the  partnership  then  had  as  assets: 

Good   Book   Debts    $41,995.00 

Furniture  and  Fixtures,  worth 3,600.00 

Cash  in  Bank  and  Office 9,450.00 

And  liabilities,  amounting,  in  all,  to   3,250.00 

A's  capital  account  showed  at  the  same  time  $20,000  to  his  credit, 
and  his  personal  account  a  debit  of  $2,165,  (the  latter  forming  part  of  the 
asset  of  $41,995,  for  Good  Book  Debts). 

The  profits  for  the  half-year  during  which  A  died  were  ascertained  at 
the  next  usual  fiscal  term — viz.:  December  31,  1905,  when  they  were 
shown  by  B  and  C  to  be  $26,380  and  the  administrator  of  A's  estate  is 
satisfied  as  to  its  correctness. 

Make  statement  showing  amount  A's  estate  is  entitled  to  receive 
from  B  and  C,  without  reckoning  any  interest  on  the  balances  of  either 
of  the  partners'  capital  or  personal  accounts. 

Auditing.     (Time  allowed,  three  hours.) 

1.  The  entries  on  the  credit  side  of  a  cash  book  which  you  are  audit- 
ing include  payments  by  cash  and  payments  by  check,  it  not  being  the 
custom  of  the  proprietor  to  deposit  all  receipts  in  bank.  How  would  you 
proceed  to  verify  (a)  the  bank  account;  (b)  the  balance  as  shown  by 
the  cash  book? 

2.  At  the  close  of  his  financial  year,  a  contractor  has  a  number  of 
uncompleted  contracts  in  hand.  On  his  balance  sheet  appears,  as  an  asset, 
the  item  "Work  in  progress  $100,000."  and  in  his  profit  and  loss  account 
appears  the  credit  item  "Profit  on  contracts  $20,000."  How  would  you, 
as  auditor,  verify  these  figures?  * 

3.  How  would  you  audit  a  set  of  single  entry  books? 

4.  A  purchases  B's  business  as  a  going  concern,  paying  part  of  the 
purchase  price  in  cash  on  the  date  of  the  transfer  and  giving  interest- 
bearing  notes  for  the  balance.  How  would  you,  as  auditor,  expect  to  find 
the  interest  on  the  notes  treated  in  A's  books? 

5.  (a)  How  would  you,  as  auditor,  satisfy  yourself  as  to  the  value 
of  (1)  accounts  receivable,  (2)  bills  receivable? 

(b)  How  should  "bills  receivable  discounted"  be  shown  on  a  balance 
•^heet? 


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6.  Outline  a  plan  for  the  audit  of  any  mercantile  business  with  which 
you  are  acquainted. 

7.  You  are  instructed  to  make  a  partial  audit  of  a  lighting  company 
in  connection  with  a  proposed  issue  of  bonds.  State  the  points  to  which 
you  would  consider  it  necessary  to  give  particular  attention. 

8.  A  corporation  was  duly  authorized  to  do  business  in  this  state, 
capitalized  at  $100,000,  which  amount  was  fully  subscribed  for  before 
incorporating.  Only  50  per  cent  of  that  amount  was  called  in— viz., 
$50,000;  and,  after  completing  the  first  year's  operations,  it  was  decided 
that  it  would  be  unnecessary  to  call  in  the  balance  of  the  amount  sub- 
scribed for. 

At  a  general  meeting  of  the  members  of  the  corporation,  a  resolution 
was  passed,  unanimously,  and  recorded  in  the  minutes,  reducing  the 
capital  to  $50,000,  and  authorizing  and  directing  the  book-keeper  to  clear 
off  the  balance  of  $50,000  standing  at  the  debit  of  subscription  account. 

As  auditor,  would  you  consider  that  those  entries  called  for  comment? 
If  so,  state  fully  for  what  reason. 

Commercial  Law.     (Time  allowed,  two  and  one-half  hours.) 

1.  With  regard  to  a  corporation ;  what  is  necessary  to  be  done: 

(a)  To  form  and  incorporate, 

(b)  To  increase  capital, 

(c)  To  decrease  capital, 

(d)  To  disincorporate  voluntarily. 

What  rights  and  powers  of  a  corporation  would  be  sustained  by  com- 
mon law,  even  if  they  were  not  expressly  stipulated  in  its  charter? 

2.  What  benefits,  or  disadvantages,  may  obtain  as  between  common 
partnership  and  holding  stock  in  a  corporation?  In  what  respect  does  the 
individual  partner's,  or  stockholder's,  liability  to  creditors  differ?  Are 
there  any  circumstances  under  which  one  of  the  partners  in  an  unincor- 
porated firm  could  limit  his  liability?    If  so,  state  how. 

3.  Describe:     Common  stock. 

Preferred  stock, 
Cumulative  preference  stock. 

4.  Describe:     Personal  property, 

Real  property.  . . 

What  satisfaction  would  you,  as  auditor,  require,  to  prove  validity  of 
transfer  of  (a)  personal,  (b)  real,  property? 

Under  which  of  these  classifications  would  you  place  the  capital  stock 
of  a  corporation  that  exists  only  for  the  purpose  of  selling  its  own  real 
estate;  and  why  would  you  so  classify  it? 

5.  Describe :     Interest, 

Compound  interest. 
Usury. 
What  is  the  legal  rate  of  interest  in  this  state?   Can  a  higher  rate  be 
enforced,   if  stipulated  by  previous  contract,  and  to  what  extent,  if  so? 


106-107      American  Business  and  Accounting  Encyclopedia  Acc. 

If  a  note  were  made  in  this  state,  payable  in  Idaho,  and  assuming  the  legal 
rate  of  interest  to  be  different  in  the  other  state,  which  rate  could  be 
enforced  if  it  were  necessary  to  sue  for  payment  of  interest?  If  a  similar 
note  was  drawn  without  specifying  where  payment  was  to  be  made, 
whether  would  the  Washington  or  the  Idaho  law  govern? 

If  A,  who  obtains  a  loan  from  B,  were  to  agree,  by  definite  and  specific 
contract,  in  writing,  to  pay  therefor  a  rate  of  interest  known  by  both  of 
them  to  be  usurious,  what  would  be  the  result  of  an  action  at  law  if  A 
were,  afterwards,  to  refuse  to  comply  with  the  terms  of  that  contract? 

6.  Define:     (a)     Mortgage, 

(b)  Trust  deed, 

(c)  Equity  of  redemption, 

(d)  Warranty  deed, 

(e)  Quit  claim, 

(f)  Abstract  of  title. 

Why  is  a  trust  deed  irequcnlly  preferred  to  a  mortgage? 

7.  Describe :    Insolvency, 

Bankruptcy — voluntary, 
Bankruptcy — involuntary. 
If  A  makes  an  assignment  to  B  for  the  benefit  of  his  creditors,  of  all 
his  possessions,  is  he,  ipso  facto,  absolved  of  further  liability  if  the  pro- 
ceeds thereof  are  insufficient  to  pay  the  whole  of  his  indebtedness?   if  not, 
wliat  further  steps  must  he  take? 

State  three  reasons  for  which  the  court  might  refuse  to  grant  dis- 
charge in  bankruptcy. 

8.  (a)     Define:     Agreement, 

Contract, 
Bond, 
(b)     Name  a  variety  of  municipal  bonds;  their  rank  in  priority 
and  against  what  treasury  revenues  as  claims;  describe  city's  liability, 
condition  liability  and  non-liability  (if  ever). 

^         (c)     Define  sinking  fund  and  set  out  purposes  thereof. 

i:i07)     ACCOUNTANCY.— (ERRORS  IN  PRINCIPLK)      .... 

Secret  Reserves.  It  is  wrong  to  establish  secret  reserves  for  the  pur- 
pose of  reducing  dividends,  especially  in  the  case  of  a  corporation  whose 
stock  is  sold  on  the  public  market.  The  seller  of  such  stock  is  practically 
defrauded  out  of  a  part  of  the  price  he  should  obtain,  as  the  market  value 
depends  on  the  profits  earned  and  distributed.  It  would  appear  that  there 
should  be  some  legal  remedy  in  cases  of  this  kind. 

Sales  to  Branches.  It  is  wrong  to  charge  branches  at  selling  price, 
as  by  this  process  the  main  office  profits  are  incorrectly  inflated. 

Sales  to  branches  should  not  be  credited  to  the  main  office  sales  ac- 
count at  cost,  as  this  renders  any  statistics,  or  percentages,  in  connection 
with  distributing  expense,  etc.,  entirely  valueless. 


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American  Business  and  Accounting  Encyclopedia      107-108 


Sales  to  branches  should  be  credited  to  a  special  account.  A  good 
plan  to  follow  is  to  open  purchase  and  sales  accounts  on  main  store  books 
for  each  branch.  On  the  purchase  account  charge  them  with  goods  at 
cost  in  one  colunm,  crediting  main  store  purchase  account,  and  provide 
another  column  in  which  to  charge  them  with  the  same  goods  at  selling 
price.  The  difference  between  the  purchase  account  at  the  selling  price 
and  the  sales  account  should  equal  amount  of  goods  on  hand  at  the  branch 
at  selling  price,  and  should  agree  with  the  branch  reports;  while  the 
difference  between  the  branch  purchase  account  at  cost,  less  inventory  and 
sales,  will  show  gross  profit. 

Instalment  Accounts.  These  should  not  be  credited  to  sales  at  full 
price,  as  the  subsequent  expense  of  collection  should  be  taken  into  consid- 
eration. When  the  first  year  is  given  the  whole  of  the  profit  on  the  sale 
without  consideration  of  future  collection  expense,  it  necessitates  an  erron- 
eous showing  of  profits. 

Consignment  Sales.  These  should  not  be  entered  in  the  ordinary 
sales  book,  but  in  a  seperate  record,  from  which  they  may  be  transferred 
as  actual  sales  are  accomplished. 

Freight  and  Cartage.  In  a  manufacturing  business  the  accountant 
should  be  careful  to  discriminate  between  in-freight  and  cartage  and  out- 
freight  and  cartage,  the  former  being  a  part  of  cost  of  production  and  the 
latter  expense  of  distribution. 

Suspense  Account.  It  is  a  very  common  practice  for  business  men 
to  transfer  bad  and  doubtful  debts  to  a  suspense  account,  this  account 
being  included  in  the  balance  sheet  as  an  asset,  so  that  the  transfer  makes 
no  difference  whatever  in  the  business  showing.  The  proper  plan  is  to 
establish  a  reserve  against  bad  debts,  which  will  appear  on  the  liability 
side  of  the  balance  sheet,  the  assets  being  correspondingly  reduced. 

(108)     ACCOUNTANCY,  ETHICS  OF. 

It  is  generally  considered  by  professional  accountants  to  be  opposed 
to  the  best  traditions  of  propriety  for  one  professional  man  to  canvass  the 
client  of  another  for  business.  One  of  the  reasons  for  this  point  of 
etiquette  among  accountants  is  that  information  of  the  most  delicate 
and  momentous  nature  is  frequently  committed  in  confidence  by  the 
client  to  the  accountant,  the  accountant  standing  in  relation  to  his  client 
as  an  advisor  and  confidant,  and  it  may  be  readily  recognized  that  under 
these  circumstances  it  is  to  the  interest  of  the  client  to  restrict  such  con- 
fidences as  much  as  possible  to  one  reliable  person. 

Advertising  is  also  a  violation  of  the  accountant's  code  of  ethics,  but 
there  appears  to  be  a  distinction  drawn  between  direct  advertising  and 
indirect  advertising,  in  the  way  of  an  accountant  keeping  his  name  continu- 
ally before  the  public  as  treasurer  or  auditor  of  philanthropical,  or  chari- 
table, or  other  public  institutions  in  connection  with  which  he  expects  to 
be  brought  into  contact  with  possible  clients.    This  portion  of  the  code 

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of  ethics  is  not  much  respected  in  the  United  States,  where  professional 
men  have  reduced  copies  of  their  photographs,  and  quotations  of  their 
terms,  and  sometimes  even  a  reduced  copy  of  their  certificates  of  member- 
ship in  the  society  to  which  they  may  belong,  on  the  back  of  their  business 
cards.  As  a  rule,  it  is  safe  to  assume  that  the  accountant  who  advertises 
his  business  and  terms  in  this  way,  depends  rather  upon  advertising  than 
upon  the  necessary  qualifications  in  order  to  obtain  clients. 

Touting  is  also  very  strongly  condemned  by  English  accountants,  and 
we  hear  of  chartered  accountants  in  New  York  who  would  not  send  a  man 
across  the  street  to  obtain  business,  if  the  business  could  be  secured  in  no 
other  way.  This  extreme  delicacy  of  feeling  does  not  appear  to  be  suitable 
to  the  conditions  of  the  United  States.  If  accountants  in  this  country 
desire  to  prosper,  it  is  undoubtedly  necessary  to  keep  up  a  persistent  cam- 
paign so  that  the  business  public  may  be  educated  to  the  necessity  of 
efficient  methods  for  keeping  a  record  of  their  accounts,  the  accuracy  of 
which  should  be  unquestioned,  and  this  can  only  be  accomplished  by  a 
certain  amount  of  touting  and  advertising. 

(109)  ACCOUNTANTS'  ACCOUNTS. 

Owing  to  the  peculiarities  of  their  business,  it  is  very  desirable  that 
accountants  should  keep  suitable  books  of  accounts,  particularly  so  as  it 
IS  a  part  of  their  occupation  to  recommend  to  others  proper  and  efficient 
methods  of  accounting.  Example  is  supposed  to  be  better  than  precept, 
but  we  are  afraid  that  if  many  accountants'  clients  could  have  the  oppor- 
tunity to  examine  the  accounting  methods  in  use  by  their  professional 
mentors,  they  would  be  surprised  and  disappointed. 

Accountants  obtain  business  by  contract  and  by  time,  and  it  is  very 
necessary  for  them  to  keep  an  accurate  record  of  the  value  of  time  en- 
ployed  by  themselves  and  their  assistants  in  the  work  performed   as  this 
time  represents  the  same  to  them  as  the  cost  of  production  in  a  manu- 
factory.    By  contract  we  mean  that  the  work  is  done  for  a  certain  pre- 
scribed fee,  whether  per  annum  or  for  the  particular  audit  or  examination 
The  accountant's    day    book    fs    therefore    frequently    represented    by    a 
specially  ruled  diary,  which  contains  each  day's  appointments,  and  against 
these  appointments  are  entered   each  day  the  time  consumed.     Money 
columns  are  also  provided  in  the  diary  for  the  extension  of  the  value  of 
the  time,  and  a  folio  column  is  provided  and  the  various  amounts  charged 
up  to  the  client's  account.    Where  business  is  large,  it  is  customary  to 
have  a  specially  ruled  book  or  sheet,  one  column  being  devoted  to  each 
client's  account.     The  amounts  are  then  entered  each  day  on  this  sheet 
or  sheets,  from  the  diary,  the  totals  only  of  the  columns  being  charged  to 
the  client  s  account  at  the  end  of  the  month.    If  this  method  is  followed 
for  contract  work  as  well  as  time  work,  the  advantage  will  be  that  the 
contract  accounts  will  always  exhibit  the  loss  or  gross  profit  made.  Where 
losses  are  incurred,  the  causes  can  be  investigated  and  precaution  uken 

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to  prevent  a  recurrence.    Such  losses  are  usually  the  fault  of  a  defective 
appreciation  of  the  conditions  of  the  work  to  be  done. 

(110)     ACCOUNTANTS*  INVESTIGATIONS. 

Among  the  principal  duties  of  the  e;cpert  accountant  is  the  examina- 
tion of  books  of  account  for  the  purpose  of  satisfying  clients  as  to  the 
profits  which  have  been  made  in  a  business  they  desire  to  purchase,  and 
the  genuineness  of  assets  and  liabilities  represented  in  the  book  accounts. 
It  is  usual  also  to  make  such  an  investigation  on  the  promotion  of  a  com- 
pany formed  to  take  over  and  develop  an  established  business,  certifying 
to  the  statements  published  in  the  prospectus  of  the  promoters  as  to  the 
profits  earned  and  capital  employed.  The  following  rules  to  be  followed 
in  such  investigations  are  very  complete,  and  will  form  a  very  valuable 
guide  to  those  who  undertake  such  investigations.  They  are  quoted  from 
the  Incorporated  Accountants'  Journal. 

"In  commencing  an  investigation  of  this  nature  it  is  reasonable  to 
expect  that  a  fairly  complete  set  of  books  should  be  in  existence,  as  a 
business  that  cannot  afford  good  book-keeping  is  not  worth  floating  as  a 
company.  Should  the  case  be  otherwise,  it  is  right  to  insist  that  the 
accountant  be  allowed— indeed,  it  is  essential  that  he  should— make  up  a 
complete  set  of  accounts  before  certifying.  It  is  true  it  may  not  be  neces- 
sary to  re-post  everything,  but  the  examiner  must  first  spend  time  in 
learning  from  the  book-keeper  or  proprietor  the  exact  methods  adopted; 
if  he  thoroughly  grasps  these,  and  keeps  in  front  of  him  a  complete  list  of 
books  in  use,  he  should  be  able  to  take  his  own  short  cuts  to  ascertain 
ressults  and  to  insure  against  being  misled." 

The  ground-work  of  every  business  is  "Cash" — and  further,  it  is  a 
commodity  that  leaves  traces  of  its  career,  the  proprietor  will  say  "in 
profit" — and  that  is  just  the  point  to  test. 

If  the  statement  is  that  "everything  goes  in  the  ledgers,"  a  simple 
method  would  be  to  dissect  them,  and  thus,  at  one  stroke,  get  a  check  on 
purchases,  sales,  discounts,  and  bad  debts — but  the  schedules  at  start  and 
finish  must  be  carefully  scrutinized,  also  the  purchases  and  sales  just  prior 
to  and  after  the  beginning  and  ending  of  the  period  to  be  reviewed.  One 
may  find  sales  suddenly  increase  or  purchases  lighten  towards  the  end.  The 
sales  should  be  tested  by  noting  whether  paid  for  at  due  date;  the  record  of 
returns  from  sales  for  the  succeeding  year  should  also  be  examined;  or  it 
may  be  that  an  examination  of  the  purchase  book  for  the  subsequent  period 
may  show  an  increase ;  if  so,  it  would  be  necessary  to  call  for  the  produc- 
tion of  all  invoices  for  the  two  or  three  months  after  the  period  under 
review,  so  that  any  indication  of  goods  having  been  omitted  may  be  cleared 
up.  An  instance  came  under  the  notice  of  the  writer,  in  a  company  of 
which  he  was  not  the  auditor,  where  on  the  last  day  of  the  financial  year  an 
entry  for  goods  to  the  extent  of  some  $50,000  or  more  appeared  in  the  day 
book  with  the  significant  notes  against  a  certain  portion  "for  delivery  in 

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January,"  other  portions  in  February,  March,  etc.  As  a  matter  of  fact, 
they  were  never  delivered,  but  a  credit  appeared  for  the  same  amount  two 
years  after.  Although  not  in  relation  to  an  investigation  for  a  company 
flotation,  it  aptly  represents  what  should  be  disallowed  without  the  long 
subsequent  credit  entry. 

Stock  at  commencement  and  end  should  be  inquired  into.  If  taken  on 
the  same  basis  of  valuation  on  each  occasion?  If  stated  to  be  at  market 
value,  the  state  of  the  market  might  be  noted,  a  sudden  rise,  and  consequent 
appreciation  firmly  resisted;  "cost"  (or  for  damaged  goods  "value") 
should  be  the  watchword.  Before  leaving  what  one  may  call  the  trading 
account  or  search  for  gross  profit,  a  comparison  of  the  amount  and  the 
proportion  the  stock  may  bear  to  the  turnover  can  be  usefully  made;  the 
rate  per  cent  of  gross  profit  should  also  be  worked  out.  If  normal,  it  is  a 
satisfactory  indication  that  there  has  not  been  much  cooking.  The  pro- 
portion of  stock  to  turnover  helps  to  indicate  the  correctness  of  it.  If 
the  stock  be  abnormally  large  it  may  result  from  fraudulent  additions,  or 
by  reason  of  the  prospective  vendor  carrying  a  large  proportion  of  "dead," 
or  non-active  stock  which  it  is  sought  to  sell  to  the  proposed  company  at 
cost,  truly  hanging  a  mill-stone  round  the  neck  of  the  innocent  infant." 

A  word  as  to  "work  in  progress"  may  well  be  put  in  here:  It  is  per- 
haps the  most  difficult  part  to  test  if  proper  books  have  not  been  kept. 
Where  manufacturing  is  carried  on,  the  cost  record  is  an  essential,  and 
should  be  called  for:  The  percentage  added  for  standing  charges  through- 
out should  be  ascertained,  and  no  greater  percentage  allowed  on  the  cost 
of  works  in  progress  at  the  end  of  the  period,  whilst  it  should  be  seen  that 
no  unusual  amount  of  profit  from  any  uncompleted  contract  at  the  com- 
mencement has  been  brought  in  to  raise  the  average. 

The  accountant  having  thus  dealt  with  and  satisfied  himself  as  to 
gross  profit,  there  remain  questions  of  expense  to  be  looked  carefully 
into.  Every  class  of  business  has  its  own  ratio  of  expense,  and  it  is  diffi- 
cult to  lay  down  any  close  rule,  but  if  the  cash  has  been  dealt  with 
and  tested,  what  has  not  been  exhausted  in  the  personal  trading  accounts 
will  fall  into  capital  expenditure,  expenses  of  business  and  drawings  of 
partners,  and  the  task  here  is  to  see  that  heading  No.  2  (expenses)  gets  its 
proper  share;  in  consequence  all  must  be  looked  at.  In  all  investigations 
it  is  necessary  to  keep  in  view  the  motives  of  those  who  prepared  the 
accounts.  In  the  present  case  it  is  to  show  as  good  a  profit  as  possible, 
consequently  it  may  naturally  be  expected  that  debatable  points  have 
already  been  decided  in  favor  of  the  vendor,  and  unless  the  accountant 
raises  a  protest,  judgment  "goes  by  default."  An  examination  of  the 
various  accounts  showing  a  capital  expended  prior  to  and  during  the  period 
should  first  be  made ;  by  this  means  some  general  idea  of  the  requirements 
of  the  business  will  be  obtained.  Then  each  item  taken  or  the  voucher  or 
invoice  examined  before  the  item  is  passed.     The  outlay  relative  to  the 

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capital  will  indicate  to  some  extent  the  expected  life  of  the  machinery  or 
other  kind  of  plant,  and  be  a  guide  to  the  vexed  question  of  depreciation. 
In  many  businesses  the  partners  are  in  the  habit  of  making  small  payments 
for  the  purposes  or  encouragement  of  trade,  some  are  careless  and  take  no 
heed,  others  compound  the  outlay  and  take  a  weekly  sum  to  cover  it. 
Naturally  it  will  be  wrong  to  omit  these  items  or  allow  them  as  drawings. 
The  expense  account  may  be  made  up  in  two  ways ;  either  passed  through 
the  dissected  invoice  book  or  journal  at  the  time  of  the  liability  is  incurred, 
or  posted  direct  to  the  impersonal  account  from  the  cash  book.  If  the 
latter,  care  must  be  taken  that  those  outstanding  at  the  end  do  not  exceed 
the  items  of  a  similar  character  at  the  beginning,  it  would  be  better  to 
rectify  each  period  or  year,  although  on  average  profit  it  may  be  enough 
to  add  or  deduct  the  difference  between  the  total  wrongly  included  and 
that  left  out  at  the  terminating  date. 

In  the  event  of  the  premises  occupied  by  the  business  being  the  free- 
hold of  the  vendor,  care  must  be  taken  to  see  that  a  charge  equivalent  to 
rent  is  included  if  the  company  should  not  be  purchasing  the  freehold. 
Rents  received  from  underletting  premises,  if  included,  should  be  stated 
separately. 

As  regards  the  question  of  the  accountant's  certificate,  this  should  be 
carefully  framed  to  show  exactly  what  the  profits  certified  to  include  or 
exclude,  or  perhaps  it  might  be  better  to  put  it— what  has  been  excluded 
from  expenses  before  arriving  at  profit. 

In  the  certificate  of  report  what  is  not  said  is  often  of  greater  import- 
ance than  the  actual  phrases  used.  The  accountant  should  strive  to  make 
the  certificate  a  record  of  past  facts  only,  and  set  out  such  facts  so  that 
they  may  come  up  to  the  desideratum  required  in  the  courts  of  justice, 
viz.,  that  they  shall  state  "the  truth,  the  whole  truth  and  nothing  but  the 
truth." 

In  one  respect  the  truth  may  be  told,  and  yet  not  the  whole  truth, 
that  is,  in  a  certificate  of  average  profits  that  does  not  give  the  amount  for 
each  seperate  year.  If  the  profits  are  gradually  increasing  it  seems 
natural  that  the  certificate  should  say  so.  If  they  are  not,  then  a  material 
point  necessary  to  bring  out  the  whole  truth  has  been  suppressed. 

Let  your  certificate  clearly  state  if  and  how  much  depreciation  has 
been  deducted,  and  whether  manager's  or  principal's  remuneration  has 
been  included  in  the  expenses.  It  is  all  very  well  to  certify  to  profits  at, 
say,  $100,000  per  annum,  but  if  there  has  first  to  be  deducted  $10,000  for 
depreciation,  anything  up  to  $5,000  for  manager,  and  perhaps  another 
$5,000  for  directors'  fees,  the  anticipated  dividend  so  glowingly  portrayed 
by  the  company  promoter  is  considerably  reduced.  The  public  too  often 
forget  the  diflFerence  between  the  profit  as  shown  in  a  private  concern  and 
the  profit  of  a  company  available  for  dividend.  We,  therefore,  cannot  insist 
too  frequently  on  pointing  out  the  difference. 


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In  stating  that  the  certificate  must  only  have  regard  to  the  past,  it 
does  not  mean  that  the  accountant  having  the  conduct  of  the  investigation 
must  himself  disregard  the  differing  conditions  under  which  it  may  be 
contemplated  the  business  shall  be  carried  on.  This  leads  up  to  the  amal- 
gamation question,  which  has  lately  been  rather  in  fashion. 

Unless  the  certificate  clearly  shows  that  every  business  is  making  a 
profit  and  how  much,  the  statement  of  a  lumped  total  is  valueless,  whilst 
the  statement  as  to  remuneration  to  proprietors  (whose  number  is  some- 
times legion)  is  even  more  necessary.  Still  worse  is  it  when  the  proposed 
company  has  only  an  option  to  purchase  a  certain  number  of  retail  corners, 
which  option  is  probably  only  exercised  in  regard  to  a  part  of  them,  and. 
if  exercised  by  unscrupulous  persons,  it  may  be  by  a  selection  of  those 
most  profitable  to  themselves  and  most  unfit  for  the  purposes  of  the 
company. 

Transfer  of  Business  Undertaking.  Such  transfers  may  be  of  two 
kinds,  the  client  may  be  purchasing  the  entire  undertaking,  or  he  may  be 
intending  to  join  it  in  the  capacity  of  a  partner;  thus  it  may  be  necessary 
to  make  a  distinction  even  here.  Again  the  chief  anxiety  must  be  to  see 
that  no  legitimate  item  of  expense  is  omitted,  and  that  the  books  are  true 
records.  Not  only  should  the  inner  working  methods  be  inquired  about, 
but  if  it  is  a  ready-money  business  where  there  are  vouchers  or  duplicate 
bills  given  to  customers,  or  the  records  of  a  patent  till,  these  should  be 
examined  as  vouchers  supporting  the  receipts  and  showing  their  nature. 
A  professional  man  should  support  his  gross  earnings  by  diary  or  office 
day  books,  and  so  on.  The  search  for  expenses  follows  the  line  of  an 
ordinary  investigation. 

Another  point  to  be  borne  in  mind  is :  What  diflFerence  will  there  be 
after  the  change  that  would  aflfect  the  results?  For  instance:  Two  part- 
ners may  have  carried  on  a  business  with  no  charge  for  services  of  either, 
the  purchaser,  if  not  intending  to  have  a  partner,  may  be  compelled  to  take 
a  manager,  thus  at  once  eating  into  and  reducing  the  profits  that  the  past 
would  show.  It  may  be  thought  that  private  expenditure  would  be  sacred 
from  the  gaze  of  the  investigator.  I  should  say,  within  reasonable  limits, 
"not  so."  Let  me  suppose  two  cases,  one  where  the  amount  drawn  from 
the  business  is  small  indeed,  evidently  only  enough  to  satisfy  the  most 
moderate  needs,  whilst  in  another  case  the  total  is  large.  I  should  look  at- 
the  surrounding  circumstances,  and  probably  place  no  prying  eye  on  the 
details  of  the  first  supposed  case,  whilst  in  the  latter  I  should  scrutinize 
each  item. 

When  attending  on  one  occasion  I  was  refused  access  to  the  private 
ledger,  except  as  to  purchases,  sales,  discounts,  and  fixed  charges  for 
rent,  etc..  on  the  plea  that  the  other  expenses  are  as  the  purchaser  chooses 
to  make  them.  I  need  hardly  say  I  referred  back  to  my  principal.  On 
another  occasion  I  was  refused  access  to  the  pass  book,  and  as  I  declined 
tc  certify  without,  that  business  was  not  transferred.    Speaking  generally, 

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unless  everything  is  open  to  the  investigating  accountant,  he  should  refuse 
to  certify  It  is  not  so  much  what  is  placed  before  him  that  requires  care, 
as  what  mav  not  be  put  forward.  Our  anxiety  should  be  to  leave  nothmg 
out  Everv  trade  has  its  technicalities,  and  if  we  are  without  a  special 
knowledge 'of  the  particular  trade,  justice  to  the  client  requires  that,  before 
commencing,  we  should  seek  to  learn  all  possible  about  it.  When  it  is  a 
question  of  partnership,  yet  another  danger  has  to  be  looked  for  and 
avoided.  The  actual  position  of  the  person  already  in  the  business  must 
be  ascertained  after  being  satisfied  as  to  the  total  profits  or  earnings.  Not 
only  will  it  be  necessary  to  see  that  the  proposed  capital  of  the  combined 
partnership  is  sufficient  to  enable  the  new  ship  to  float,  but  the  personal 
position  of  the  other  man,  both  in  and  outside  of  the  business,  should  be 
searched  for.  If  he  is  a  man  without  other  means  than  is  already  in  the 
business,  the  client  should  know  that  he  is  not  relied  upon  for  further 
capital  if  the  firm  ever  get  into  a  tight  corner.  Is  he  in  debt  outside  the 
business  Does  he  habitually  overdraw  his  account  of  profits?  If  so 
the  client  should  pause,  if  not  retrace  his  steps  altogether. 

These  are  legitimate  and  necessary  inquiries,  and  to  ascertain  them 
correctly  we  must  of  necessity  look  into  the  private  accounts  where  period- 
ically recurring  payments  specially  require  explanations.  Too  often  a 
partner  retires  with  a  desire  to  get  out  of  a  bad  thing,  not  caring  who  may 
be  drawn  in.  If  possible,  any  information  gleaned  from  the  books  bearing 
upon  his  retirement  may  be  useful. 

Are  the  liabilities  being  paid  as  close  to  due  date  as,  say,  at  the  com- 
mencement of  the  three  years  under  investigation  ?  Are  expenses  increas- 
ing? If  so,  is  the  increase  in  points  which  show  carelessness  or  want  of 
close  supervision  on  the  part  of  the  gentleman  with  whom  the  client  may 
have  to  work?  All  these  and  many  more  (whilst  not  strictly  book- 
keeping) will  be  valuable  information  to  the  client,  and  perhaps  save  him 
from  throwing  away  his  money." 


An  investigation  where  fraud  is  suspected  need  not  necessarily  be  to 
discover  actual  theft.  It  may  be  to  detect  the  falsification  of  the  accounts 
by  a  partner  who  desires  to  inflate  profits  in  order  to  draw  out  a  larger 
proportion  than  is  actually  due  to  him,  especially  if  he  be  paid  partly  by 
commission,  or  receive  a  larger  share  of  profits  in  proportion  to  his  capital 
than  the  other  partner.  Or  it  may  be  that  one  partner  desires  to  reduce 
the  profits  in  order  to  buy  out  the  other  at  a  lower  rate,  and  thus  acquire 
the  business  for  his  sole  use. 

In  such  cases  the  investigation  will  be  similar  to  those  already  men- 
tioned, but  inquiry  should  be  made  on  the  following  points : 

(1)  What  supervision  is  exercised  by  the  principals,  and  do  they 
exert  any  oversight  on  each  other? 

(2)  Is  any  system  of  periodical  returns  in  operation? 

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(3)  Are  all  the  partners  technically  acquainted  with  the  business? 

(4)  Is  the  suspected  partner  a  man  of  reputed  integrity?  Is  he 
steady,  and  what  is  his  private  financial  position? 

(5)  Are  the  terms  of  the  partnership  deed  literally  carried  out? 

If.  however,  the  misappropriation  of  cash  is  suspected,  the  following 
methods  of  fraud  are  the  most  probable : 

Omission  of  Debts  Collected.  In  this  case  the  cash  received  is  either 
entirely  omitted  and  the  debt  written  oflf  as  bad,  or  it  is  entered  on  a  later 
date,  a  subsequent  sum  being  retained  to  meet  the  deficiency. 

Sometimes,  also,  an  entry  will  be  made  through  the  returns  book,  as 
though  the  goods  had  been  sent  back  or  allowed  for. 

The  counterfoil  receipt  book  (if  any)  should  be  checked,  the  date  and 
discount  being  specially  noted,  as  over-statement  of  the  latter  is  a  frequent 
medium  for  fraud;  whilst  a  careful  scrutiny  should  also  be  made  of  the 
sales  ledgers,  the  balances  being  traced,  and  particular  note  taken  of  any 
accounts  in  which  items  appear  as  owing,  although  subsequent  debits  have 
been  paid. 

It  is  often  necessary  for  the  accountant  to  himself  send  out  statements 
to  all  the  customers,  asking  for  a  verification  of  their  accounts,  this  being 
the  best  possible  test  to  discover  any  inaccuracies ;  but  if  this  course  be 
adopted  the  items  included  in  the  statement  should  be  checked  from  the 
journal  and  cash  book  to  the  ledger  on  the  same  day  that  the  statements 
are  dispatched,  or  subsequent  alterations  may  be  made,  and  it  is  desirable 
to  use  a  different  colored  ink  for  checking  each  batch. 

Wages.  The  most  common  methods  adopted  are  "dummy  men," 
errors  in  addition  and  extensions,  and  subsequent  alterations  after  payment. 

An  examination  of  the  wages  book  will  reveal  the  two  latter  pecula- 
tions ;  whilst  to  detect  the  former,  the  time  book  should  be  obtained  and 
compared,  a  list  being  obtained  from  a  responsible  person  of  the  names 
of  all  the  men  then  working  on  the  place. 

Omission  of  Sales.  Copy  invoices  should  be  compared  with  the  order 
book  and  goods  outward  book,  and  afterwards  checked  to  the  sales  journal. 

As  regards  cash  sales  of  "old  machinery,"  it  is  only  possible  to  inquire 
into  the  system  of  internal  check  in  existence,  and  obtain  information  from 
extraneous  sources. 

Fictitious  Payments.  As  false  or  duplicated  entries  may  have  been 
made,  the  bank  pass  book,  counterfoil  check  books,  and  vouchers  must 
be  examined.  If  the  posting  is  to  an  impersonal  account,  the  invoice 
should  be  attached  to  the  receipt,  as  otherwise  the  former  may  have  been 
also  passed  through  the  purchase  journal  and  paid  for  previously. 

Goods  Bought.  The  invoice  price  may  have  been  inflated  either  by 
alteration  or  through  collusion  with  some  person  in  the  seller's  office.  The 
invoice  should  have  been  "passed"  by  the  person  receiving  the  goods, 
and  if  this  has  not  been  done,  or  there  has  been  any  alteration  in  the 
date,  a  satisfactory  explanation  must  be  obtained.     Statements  should  be 

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produced  for  all  unpaid  accounts,  as  any  discrepancies  will  in  this  way  be 
at  once  revealed;  in  fact,  if  receipts  for  payments  have  been  forged,  there 
is  no  other  method  by  which  the  fraud  can  be  discovered. 

Concealment  of  Certain  Books  and  Consequent  Sources  of  In- 
come, A  list  should  be  obtained  of  all  books  in  use,  and  a  sharp  lookout 
kept  for  transfers. 

Deficiency  in  Cash  Balance  or  Misappropriation  of  Securities. 
An  examination  will  reveal  any  discrepancies  in  this  direction. 

Stock  Over-Stated,  or  Over-Valued,  or  Alteration  of  Ledger 
Balances  Already  Checked.  These  methods  are  usually  adopted  .o 
cover  up  defalcations,  in  the  first  case  to  show  a  sufficient  profit,  and  in  the 
latter  to  make  the  books  balance. 

Theft  of  Stock.  This  is  always  difficult  to  trace.  The  first  step  is 
to  thoroughly  examine  the  trading  account,  and  by  ascertaining  the  gross 
profit  which  should  have  been  earned,  taking  into  consideration  the  cost 
of  the  material  sold,  the  approximate  amount  of  the  suspected  deficiency 
can  be  gauged. 

If  the  discrepancy  be  confined  to  one  department,  and  the  goods  sold 
are  capable  of  identification,  stock  accounts  can  be  constructed,  but  if 
such  he  not  the  case,  the  investigation  will  be  confined  to  the  examination 
of  mvoices  for  goods  purchased  with  the  goods  inward  book  and  duplicate 
orders,  and  of  the  copy  sale  invoices  or  sales  journal  with  the  goods  ut- 
ward  book  and  order  book. 

An  investigation  of  this  description  usually,  however,  demands  some 
technical  knowledge,  and  therefore  the  assistance  of  one  of  the  staff  is 
very  desirable. 

In  nearly  every  business  some  form  of  rough  stock  book  or  weekly 
return  is  in  use,  and  these  must  be  obtained  and  compared  with  the  other 
books. 

Manipualtion  of  Commission  Accounts,  Part  of  Overcharge  Being 
Repaid  by  the  Agent.  The  commission  accounts  should  be  examined  and 
the  calculations  checked,  the  rate  being  ascertained  from  the  original 
correspondence  or  agreement  with  the  agent. — Exchange. 

(Ill)     ACCOUNTANTS  AND  SUBSEQUENT  INFORMATION. 

Query.  In  auditing  a  set  of  books  for  one  year  ending  December  31st, 
and  commencing  the  work  in  the  subsequent  March,  is  it  correct  practice 
for  the  accountant  to  take  advantage  of  such  information  on  the  books 
as  at  date  of  audit  w^hich  affects  values  indicated  on  the  books  December 
31st?    Take  bad  and  doubtful  debts,  for  example. 

Solutions.  The  accountant  being  employed  to  audit  the  books  up 
to  a  certain  date,  cannot  take  cognizance  of  any  subsequent  happenings 
in  his  statements  and  reports,  but  he  should  undoubtedly  make  them  the 
subject  of  a  subsidiary  report  For  instance,  after  his  certificate,  he 
should  say,  "It  is  very  important  and  proper  for  me  to  state  that  since 

78 


the  end  of  the  period  covered  by  the  foregoing  audit,  certain  accounts  then 
considered  good,  have  become  of  doubtful  value,  if  not  entirely  worthless, 
•as  per  the  appended  schedule,  etc." 

An  accountant  is  a  man  who  is  supposed  to  possess  tact,  caution, 
firmness,  fairness,  good  temper,  courage,  integrity,  discretion,  industry, 
judgment,  patience,  clear-headedness,  and  reliability. 

The  answer  to  this  query  can  be  Yes,  and  it  can  be  No.  The  answer 
all  depending  a  great  deal  for  whom  the  audit  was  made  and  why  it  was 
made.  If  it  was  made  for  a  client  who  intended  to  invest  money  in  the 
concern,  the  accountant  to  have  the  interest  of  his  client  at  heart,  and 
who  wishes  to  uphold  the  dignity  of  his  profession,  would  undoubtedly 
include  any  subsequent  facts  learned  in  his  report.  It  would  not  be 
necessary  for  him  to  include  it  in  his  report  proper  for  the  period  up  to 
December  31,  but  simply  add  it  as  a  sort  of  foot-note,  or  P.  S.  But,  if 
it  is  for  a  person  who  just  wants  to  know  how  the  company  stood  at  the 
end  of  the  year  and  whether  the  books  are  correct  and  show  the  true  facts 
up  to  December  31,  then  it  would  not  be  necessary  for  him  to  mention 
that  some  accounts  have  become  doubtful  and  bad  since  that  time,  as 
he  would  have  no  means  of  finding  it  out  unless  told  so  by  a  member  of 
the  firm,  or  going  over  the  work  subsequent  to  December  31,  and  this 
he  is  not  asked  to  do. 

But  an  accountant  who  possesses  all  of  the  above  qualifications, 
whether  his  client  asked  him  to  or  not,  should  report  to  his  client  the 
exact  condition  in  which  he  knows  the  company  to  be. 

Take  this  case:  On  December  31,  a  firm  writes  to  you  and  asks 
you  what  you  know  of  a  certain  young  man  who  resides  in  your  town, 
and  who  has  made  application  for  a  position  with  the  inquirer.  For  some 
reason  the  mail  is  delayed  for  several  weeks,  and  when  you  get  the  letter, 
you  look  up  the  young  man's  conduct.  You  find  that  up  to  the  time 
that  you  should  have  received  the  letter,  the  young  man  had  an  apparently 
flawless  reputation,  but  you  find  that  since  that  time  he  has  become  un- 
reliable; would  you  give  this  information  to  the  firm  with  whom  he  made 
application  for  a  responsible  position  ?  I  think  you  would.  Then  why  not 
the  accountant  give  the  same  information  to  a  client  who  intends  to  invest 
probably  a  large  sum  of  money  in  the  business? 

The  accountant  should  include  in  his  report  and  statement,  the  fact 
that  certain  accounts  have  become  bad  or  doubtful  since  the  end  of  the 
previous  year,  for  the  reason  that  the  majority  of  accounts  which  subse- 
quently become  doubtful  do  not  reach  this  condition  in  a  month  or  two, 
rather  is  it  a  process  extending  over  many  months,  perhaps  years;  in 
other  words,  if  an  account  has  to  be  considered  bad  on  March  1st,  it  is 
more  than  likely  that  the  unhealthy  condition  of  this  particular  business 
^was  in  evidence  on  Dec.  31st,  and  just  because  the  creditor  is  unaware 
of  this,  on  Dec.  31st,  is  no  reason  for  not  including  it  in  a  statement  of 
the  business  up  to  this  time,  although  made  out  at  a  later  period. 

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Even  should  an  account  prove  to  be  an  exception  to  the  above  and  a 
solvent  house  become  insolvent  in  the  remarkably  short  space  of  two 
months  or  less,  would  not  common  business  sense  suggest  providing  for 
the  loss  in  the  same  year  in  which  the  profit  would  be  ordinarily  recorded, 
and  would  not  prudence  lead  the  accountant  to  provide  for  the  depreciation 
just  as  soon  as  possible ;  that  is,  in  the  preceding  year's  business,  seeing 
the  books  and  statement  are  not  finally  completed  and  there  is  yet  time 
instead  of  waiting  for  the  end  of  the  next  fiscal  period? 

(112)     ACCOUNTING,  HISTORY  OF. 

A  great  deal  has  been  written  in  regard  to  the  methods  used  by  ancient 
trading  peoples  for  the  purpose  of  recording  their  commercial  transactions. 
A  very  interesting  historical  sketch  will  be  found  in  the  little  book  entitled : 
•The  Antiquity  of  Book-keeping,"  by  John  William  Heaps.  Mr.  Heaps  de- 
scribes discoveries  in  this  direction  in  connection  with  Phoenicia,  Arabia, 
Chaldea  and  China. 

The  development  of  the  Science  of  Accounts,  as  we  know  it,  has 
been  gradual  and  slow,  but  like  many  another  science  it  may  have  been 
discovered,  lost  and  rediscovered  many  times  since  the  world  began.  It 
is  certain  that  mankind  has  always  traded  and  that  trading  necessitates 
the  keeping  of  records,  and  as  accounting  is  so  closely  allied  to  mathe- 
matics there  is  every  reason  to  suppose  it  is  of  most  ancient  origin. 

One  of  the  earliest  actual  traces  of  a  record  of  receipts  and  payments 
appears  to  be  found  in  the  Assyrian  tablets  discovered  by  Sir  Henry  Raw- 
linson,  and  supposed  by  him  to  be  ''personal  expense"  books.  Even  so, 
these  tablets  would  indicate  a  great  familiarity  with  the  subject  of 
accounts,  for  if  a  strict  account  were  kept  of  personal  expenses  there 
would  doubtless  be  more  elaborate  and  thorough  methods  of  dealing  with 
commercial  transactions. 

The  first  record  of  a  sale  in  exchange  for  money  appears  to  be  the 
sale  of  the  field  and  cave  of  Machpelah  to  Abraham  for  four  hundred 
pieces  of  silver,  but  therei  s  no  doubt  that  all  the  great  ancient  trading 
nations  from  Babylon  to  Rome  had  more  or  less  elaborate  systems  of 
book-keeping  or  accounting.  That  the  Babylonians  kept  books  of  account 
is  certain,  as  some  of  their  ledgers  are  now  deposited  in  the  British 
Museum,  London.  They  consist  of  tablets,  each  set  being  deposited  in 
a  separate  jar,  probably  so  that  they  could  be  "balanced  separately"  and 
any  "errors  easily  located."  Here  may,  perhaps,  be  traced  the  origin  of  the 
card  system.  Part  of  the  business  carried  on  was  in  the  real  estate  line, 
the  rent  of  a  moderate  size  house  being  one-third  of  a  shekel  of  silver  per 
year.  As  a  shekel  of  silver  is  valued  at  about  sixty  cents,  we  can  appre- 
ciate  what   we    miss  by  living  in   the   twentieth   century  of  the  Christian 

era. 

The  first  treatise  on  book-keeping  is  said  to  have  been  a  translation 
from  an  Arabian  original,  but  no  copy  is  in  existence.     The  first  actually 


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Acc. 


known  work  on  double  entry  is  supposed  to  have  been  written  by  Lucas 
de  Burge,  an  Italian  friar,  and  was  published  in  Venice,  A.  D.  1495.  The 
first  treatise  on  the  subject  in  the  English  language  was  published  in 
London  by  John  Gowghe  in  1543.  It  was  afterwards  republished  in  1588, 
by  John  Mellis.  The  system  taught  thereby  required  the  use  of  three 
books,  named  the  memorial,  journal  and  ledger.  We  suppose  the 
memorial  to  be  another  name  for  "dav  book."  The  treatise  of  Stevinus, 
published  in  1605,  applied  the  double  entry  system  to  the  accounts  of 
public  or  government  offices.  The  work  of  Mr.  E.  T.  Jones,  of  Bristol, 
published  in  1796,  is  spoken  of  very  highly  as  being  a  long  step  in  the 
direction  of  our  present  practice,  which  appears  to  be  almost,  if  not 
quite,  the  perfection  of  analytical  and  mathematical  science  as  applied  to 
accounting. 

Dr.  Kelly's  "Elements  of  Book-keeping"  may  also  be  mentioned, 
which  appeared  in  1801.  This  work  contains  a  short  history  of  the 
literature  of  book-keeping,  and  is  perhaps  the  most  comprehensive  account 
of  the  subject  to  be  found  in  any  work  on  book-keeping. 

This  work  is  considered  as  the  first  attempt  to  introduce  the  practice 
of  the  counting-house,  or  office,  into  schools,  by  a  person  who  derived 
his  information  on  the  subject  merely  from  the  hints  of  merchants,  with- 
out having  actual  practice.  The  work  is  arranged  according  to  the  methods 
in  use  in  some  counting-houses,  but  no  attempt  has  been  made  to  improve 
or  remedy  any  defect  in  practice. 

Following  Dr.  Kelly  is  Mr.  James  Morrison,  a  Glasgow  accountant, 
who  publishes  his  complete  system  on  merchant  accounts  and  modern 
principles  of  book-keeping  in  1808 ;  this  work  ran  through  several  editions, 
and  was  adapted  for  school  use.  Mr.  Morrison  is  spoken  of  as  being  in 
his  later  editions  one  of  the  best  authorities  on  the  subject,  as  his  work 
was  doubtless  at  the  time  of.  its  publication  the  most  comprehensive  work 
upon  the  duties  required  of  a  merchant's  book-keper,  treating  of  the  vari- 
ous documents  required  in  commercial  transactions,  as  well  as  in  book- 
keeping, by  several  methods. 

(113)     ACCOUNTING  SYSTEMS. 

Practically,  there  are  but  two  systems  of  accounting  in  use  in  the  com- 
mercial world,  viz.,  single  entry  and  double  entry.  These  two  systems  will 
be  described  hereafter  under  their  respective  titles. 

The  difference  in  the  requirements  of  manufacturing,  trading,  and 
non-trading  enterprises  is  so  great,  however,  that  the  system  of  account- 
ing required  varies  greatly  both  in  scope  and  detail,  so  that  it  might  with 
propriety  be  said  of  many  businesses  that  their  accounts  were  arranged 
on  a  special  system.  It  would  be  utterly  impossible  to  attempt  to  set 
down  the  diflferences  to  be  found  by  a  'comparison  of  such  systems,  for 
obvious  reasons,  but  so  far  as  possible  a  number  of  such  systems  will 
be  described  in  detail  as  this    Encyclopedia   proceeds.      The   accountant 

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American  Business  and  Accounting  Encyclopedia      113-115 


will  bear  in  mind  that  the  object  of  all  systems  of  accounts  is  to  exhibit 
the  result  of  the  transactions  of  the  business  during  specified  periods, 
arranged  in  such  a  manner  as  to  inform  the  proprietors  of  the  business  of 
the  amount  of  revenues  and  how  they  have  been  produced,  the  amount 
of  expenditures  and  their  details,  and  the  net  income  remaining".  The 
best  system  of  accounting,  therefore,  is  the  one  which  will  furnish  these 
particulars  in  the  clearest  possible  manner,  with  the  smallest  expenditure 
of  time  and  labor. 

(114)     ACCOUNTS,  SCIENCE  OF. 

The  recording  of  the  transactions  of  a  business  or  industry  of  any 
nature.  The  ability  to  converge  all  transactions  of  a  business  to  a  focus, 
which  shall  embrace  the  whole  and  permit  of  their  proper  comprehension 
and  classification.  The  faculty  of  so  systematizing  accounting  methods 
that  the  best  results  shall  be  attained  with  the  least  labor,  expense,  or  pos- 
sibility of  error  or  fraud. 

Among  the  many  excellent  definitions  of  accountancy  may  be  quoted 
the  following:  "Accountancy  thinks  out,  and  thus  finds  out,  with  logical 
and  mathematical  accuracy,  the  condition  of  affairs  of  any  business  enter- 
prise." 

Accountancy  gives  account,  not  only  of  its  employer's  affairs,  but  of 
its  own  accounts;  so  that  a  manager  or  proprietor,  whether  nation,  muni- 
cipality, company,  body  of  voters,  or  individual,  may  know  how  matters 
stand;  may  render  in  turn  the  same  intelligent  account  to  any  third  inter- 
ested or  disinterested  party;  and  may  keep  a  complete  surveillance  over 
all  the  accountable  agents  of  the  enterprise. 

Accountancy  as  a  profession  is  brought  into  very  close  touch  and 
relationship  with  other  important  departments  of  business  activity,  and 
the  distinction  between  it  and  one  and  another  of  these  is  not  always  clear 
to  popular  apprehension.  The  accountant's  confidential  relation  is  with 
the  administrator  or  proprietor,  and  it  is  only  as  the  representative  or  as 
the  helper  or  advisor,  of  his  client,  that  he  has  to  do  with  the  functions 
of  others.  He  is  not,  for  instance,  the  book-keeper  of  the  concern;  nor 
does  the  expression  "expert  book-keeper"  describe  his  attitude  or  relation 
either  to  that  functionary  or  to  any  other  corps  of  book-keepers,  however 
large  and  important,  much  less  to  the  establishment  or  enterprise  in  its 
entirety.  He  is,  however,  a  book-keeper  in  the  sense  that  he  thoroughly 
understands  the  ins  and  outs  of  that  art;  and  as  the  representative,  for 
the  time,  of  the  business,  he  critically  examines  the  accounts  as  recorded  in 
the  books  in  order  that  he  may  give  to  his  employer  a  scientific  showing 
of  the  financial  condition  of  the  enterprise. 

(115)    ACCRUED. 
Increased   by   effluxion   of  time;   something  added.     In   accounting, 
generally  applied  to  amounts  earned,  but  not  received  or  entered  on  the 


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Act. 


books  (such  as  rent,  wages,  interest,  etc.),  at  any  given  date  on  which 
the  balance  sheet  is  compiled. 

(116)     ACTIVE  PARTNER. 

One  who  has  a  direct  interest  in  a  business  through  investment,  be- 
ing proportionately  responsible  for  the  liabilities,  and  sharing  proportion- 
ately in  the  profits  of  the  business,  and  who  takes  part  in  the  daily  man- 
agement of  such  business, 

(117)     ACTUARY. 

An  official  who  calculates  and  tabulates  for  insurance  companies  the 
average  risks  on  which  all  insurance  premiums  are  based. 

(118)     ADEQUATION. 

The  act  of  equalizing. 

(119)     ADDITIONS  AND  BETTERMENTS. 

A  term  sometimes  used  to  describe  expenditures  which  increase  the 
value  of  equipment,  and  are  not  merely  replacements  or  renewals. 

(120)     ADDITION. 

The  uniting  of  two  or  more  numbers  in  one  sum. 

A  recent  work  on  Higher  Arithmetic  says:  "In  computing,  book- 
keepers whose  business  leads  to  rapid  addition,  omit  much  that  would  seem 
necessary  to  the  ordinary  student,  and  not  infrequently  add  two  columns 
at  once,  a  power  gained  only  by  practice  in  their  profession."  It  is  un- 
doubtedly the  aim  of  every  book-keeper  and  office  man  to  attain  a  high 
rate  of  speed  in  addition,  coupled  with  accuracy,  and  various  methods  have 
been  devised  to  facilitate  both  speed  and  accuracy.  While  methods  for 
effecting  accuracy  will  be  considered  under  the  head  of  "check  figure,"  etc., 
those  which  relate  to  attaining  speed  in  addition  may  appropriately  be  con- 
sidered here. 

The  most  common  method  used  and  recommended  by  experts  in  this 
lin^  is  the  learning  of  combinations  of  figures,  so  that  9-|-8-|-7,  for  instance, 
will  be  read  as  24  by  one  operation  of  the  mind.  Thus,  in  reading,  we  do 
not  say  O-fN-j-E  equals  ONE ;  neither  should  we  say  9+8+7  equals  24. 

Numerous  tables  have  been  prepared  to  aid  the  student  in  making 
himself  thoroughly  familiar  with  the  various  combinations  of  numbers,  and 
some  text  books  furnish  extensive  drill  tables  which  should  be  found  of 
great  assistance.  Drill  tables  are  also  constructed  on  cards,  each  card  bear- 
ing a  combination  of  two  or  more  figures.  By  shuffling  and  reshuffling  these 
cards  the  drill  exercises  are  constantly  varied,  which  is  certainly  an  advan- 
tage over  printed  tables  where  the  relative  position  of  the  combinations 
never  changes. 

The  dropping  of  tens  is  also  frequently  used  by  experts  who  keep 
account  of  the  tens  dropped  in  a  column  with  the  fingers  of  the  left  hand. 
It  requires  considerable  practice  to  become  efficient  with  this  device,  and  at 

83 


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'i 


Adj, 


American  Business  and  Accounting  Encyclopedia      120-123 
W 


first  the  freqiTcHt-  miscalculation  of  the  number  of  tens  dropped  will  be  apt 
to  discourage  the  student.  Another  method  of  dropping  tens  which  will 
perhaps  be  better  for  beginners  to  use  is  to  place  a  dot  against  the  figure 
where  the  ten  is  dropped.    Thus: 

4 

5. 

6 

Another  method  in  considerable  favor  is  the  grouping  cf  figures  above 
10  and  under  20.  By  this  method  8+7  becomes  10+5.  While  this  particu- 
lar principle  does  not  appear  to  be  entitled  to  much  credit  in  single  column 
addition,  there  is  no  doubt  of  its  usefulness  in  double  column  addition.  In 
the  appended  example  the  operator  adds  both  columns  by  the  following 
process : 

46 

sa 

27 
34 
76 


266 


46+80+3+20+7+30+4+70+6 

which  he  reads :  46,  126, 129,  149, 156,  186,  190,  260,  266. 

Proficiency  in  this  method  will  soon  enable  the  student  to  add  double 
columns  without  separating  each  number  as  above  shown,  the  mental 
process  becoming  practically  instantaneous. 

Under  the  heading  of  Amusing  Arithmetic  will  be  found  a  description 
of  some  of  the  tricks  which  have  been  used  to  mystify  the  public. 

(121)     ADJUST. 
To  regulate ;  to  bring  to  a  proper  relative  position. 

(122)     ADJUSTING  BOOKS. 

Preparing  statements  based  upon  data  obtained  from  books  of  account 
which  shall  indicate  and  settle  the  different  interests  of  a  business,  and  to 
which  statements  the  books  must  be  made  to  conform. 


i 


(123)     ADJUSTING  ENTRIES. 

Entries  necessary  for  the  adjustment  of  the  respective  interests  of  a 
business.  A  cross  entry  made  in  the  journal  to  correct  an  error,  or  rec- 
tify an  overcharge,  etc. 

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124-125      American  Business  and  Accounting  Encyclopedia  Adj. 

(124)     ADJUSTING  FIRE  LOSSES. 

See  fire  insurance. 

(125)     ADJUSTMENTS—ACCOUNTING. 

The  following  examples  of  ordinary  business  adjustments  may  be- 
found  of  interest.  They  are  quoted  from  subscribers  to  The  Book-Keepe. 
As  accountant  for  a  certain  railroad  in  Nevada,  I  was  caused  to  do  "some 
tall  thinking,"  which  was  as  follows:  A  certain  old  bridge,  which  was, 
however,  in  good  condition,  was  removed  and  a  steel  one  placed.  The 
original  bridge  was  included  in  cost  of  road. 

In  my  distribution  I  first  charged  the  new  one  and  incidental  expenses 
to  construction,  but  on  thinking  the  matter  over  I  decided  to  charge  the 
"cost  of  road"  account,  for  the  following  reasons : 

This  was  not  an  addition  to  property  as  it  replaced  something  of  value 
which  change  was  not  actually  needed.  It  did  not  enhance  the  value  of  the 
road  to  the  extent  of  its  full  cost,  for  a  railroad's  construction  account 
means  an  addition  to  property.  It  was  not  an  operating  expense  nor 
was  it  a  repair  of  any  sort.  So  after  some  thought  I  adjusted  my  original 
entry  and  charged  the  same  to  cost  of  road.  That  account  means  the  cost 
of  original  construction,  the  additions,  etc.,  going  into  the  construction 
account  and  others. 

The  most  interesting  case  with  which  I've  had  to  deal  was  in  settling 
up  the  work  for  a  firm  of  three  members.  There  was  a  disagreement ;  all 
were  to  separate  and  engage  in  some  line  of  business;  each  desired  the 
original  stand  and  firm  name ;  so  stock,  fixtures,  lease  and  firm  name  were 
put  up  to  be  bid  on  by  the  partners.  The  lease  and  firm  name  up  to  the 
disagreement  was  an  unbooked  value.  As  soon  as  a  price  was  established 
it  was  charged  to  the  successful  bidder  in  a  special  adjusting  account 
opened  to  him  and  credited  to  a  firm  name  and  lease  account.  It  then 
became  an  asset  in  settling  up  the  old  firm's  business.  All  other  items 
such  as  paid  for  advertisement,  stationery,  rent,  interest,  etc.,  for  all 
amounts  extending  beyond  date  of  settlement  were  charged  likewise  to 
this  adjusting  account  aud  credited  to  their  respective  accounts. 

I  had  a  very  interesting  example  of  adjustment  a  short  time  ago.  We 
had  a  boiler  explosion  at  one  of  our  plants  last  fall  which  destroyed  two 
large  boilers,  demolished  the  boiler-room  and  destroyed  several  machines, 
but  fortunately  no  one  was  seriously  hurt.  We  carried  $10,000  insurance 
on  the  boilers.  New  boilers,  engine,  and  machinery  were  bought  to  replace 
that  which  was  destroyed  and  new  engine  house  built.  My  first  move  was 
to  get  the  value  of  everything  destroyed  by  the  explosion  from  old  inven- 
tory book,  then  the  following  journal  entry  was  made: 

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Boiler  Explosion  Account,  Dr.,  Mill  Plant  and  Machinery,  Cr. 
For  value  of  property  destroyed. 

This  transferred  these  items  as  they  stood  on  our  books  before  explo- 
sion, to  the  boiler  insurance  account.  Then  when  insurance  was  paid  this 
account  was  credited  with  the  amount  and  cash  charged.  Explosion 
account  was  also  charged  and  wages  credited  for  labor  of  men  cleaning  up 
debris.  The  balance  of  this  account  then  showed  the  net  loss  on  explosion. 
(No  account  was  taken  of  loss  of  business  while  plant  was  idle  as  the 
owners  did  not  care  to  take  this  into  account.  As  new  machinery  was 
bought  and  engine  house  rebuilt,  these  items  were  charged  to  plant  and 
machinery,  so  that  when  all  had  been  rebuilt  and  new  and  improved 
machinery  installed,  the  latter  stood  on  inventory  at  cost  and  the  old 
charged  ofT  to  explosion. 

The  net  loss  on  explosion  was  $3,500  and  as  it  was  a  pretty  large 
amount  to  be  charged  off  in  one  year,  we  decided  to  charge  one-fifth  of 
the  amount  to  profit  and  loss  each  year  until  the  account  is  closed.  We 
therefore  charged  oflF  $700  and  held  $2,800  as  a  suspense  account  or  passive 
asset  on  our  books. 

The  insurance  covered  old  boilers  and  machines  and  as  the  new  boilers, 
engine,  and  machinery  were  all  of  the  latest  and  best  pattern,  it  seemed  to 
the  writer  that  it  was  best  to  handle  it  as  he  did.  Insurance  account  was 
also  credited  with  old  iron  and  machinery  sold  for  junk. 

A  short  story  publication  set  aside  $50,000  to  pay  for  accepted  manu- 
scripts during  the  year.  Each  month  this  account  is  charged  with  pay- 
ments for  any  accepted  stories,  the  balance  being  brought  down  as  an 
asset. 

(126)     ADMINISTRATORS'  ACCOUNTS. 

See  executors'  accounts. 

(127)     AD  VALOREM. 

A  term  used  to  denote  a  duty  or  charge  upon  goods  at  a  certain  rate 
per  centum  upon  the  cost  or  value  as  specified  in  the  invoice,  as  opposed  to 
a  specific  sum  upon  a  given  quantity  or  number. 

(128)     ADVERTISING  AGENCIES—ACCOUNTING  METHOD  FOR 

(Article  No.  1). — Of  all  the  many  and  varied  lines  of  business  carried  on 
in  the  world,  I  think  that  to  the  majority  of  people,  an  advertising  agency 
is  X — the  unknown.  And  yet,  any  intelligent  person  picking  up  a  magazine 
or  newspaper,  finding  it  consists  more  or  less  of  advertisements,  must 
often  ask  the  question,  "How  in  the  world  is  this  mess  of  advertising 
placed  here?"  Of  course,  a  good  deal  of  it  is  placed  direct  by  the  adver- 
tiser, but  this  constitutes  only  a  small  fraction  of  the  total  advertising 
done.  The  medium  by  which  the  remainder  of  the. advertising  is  placed  is 
known  to  the  business  world  as  an  "advertising  agency."    These  concerns 

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receive  from  the  newspapers  and  magazines  they  insert  their  client's  adver- 
tisements in  certain  commissions. 

An  advertising  agency  charges  a  commission  for  its  services  in  hand- 
ling the  advertising,  and  for  this  commission  makes  up  the  "copy,"  sends 
the  orders  to  the  paper  or  magazine,  sees  that  the  ads  are  run  regularly 
and  properly,  and  pays  the  paper's  bills.  Drawings,  printing  and  such 
like  extras  are  charged  at  cost. 

The  commission  consists  of  a  percentage  on  the  amount  of  advertis- 
ing paid  for  to  the  paper.  Of  late  years,  this  percentage  has  steadily  de- 
clined, owing  to  the  great  cojnpetition  in  this  .nost  profitable  field.  A  few 
years  ago  agencies  were  so  few  and  far  between  that  they  could  charge 
their  clients  almost  anything  they  pleased  without  fear  of  losing  their 
business.  Twenty  and  twenty-five  per  cent  was  about  the  average  com- 
mission charged,  but  there  were  advertisers,  I  should  say  adventurers,  like 
the  old  Louisiana  lottery,  etc.,  whose  profits  were  so  large  that  they  did 
not  object  to  paying  as  high  as  50  and  100  per  cent.  That  sounds  exag- 
gerated, but  it  is  a  fact,  nevertheless,  and  in  spite  of  it,  they  got  rich  and 
prospered  till  they  were  driven  out  by  the  government.  To  compete  with 
its  rivals  today,  an  advertising  agency  must  know  what  the  lowest  com- 
mission is  which  it  can  safely  charge  its  customers  and  still  make  money ; 
but  to  do  this,  it  is  necessary  that  its  expenses  be  kept  on  the  lowest  pos- 
sible level,  and  that  its  books  and  records  show  the  condition  of  the  busi- 
ness. By  keeping  down  its  expenses,  I  do  not  necessarily  mean  that  it 
should  go  out  into  the  streets  and  lanes  looking  for  the  cheapest  help  it 
can  get.  The  success  of  an  agency  depends  in  a  very  large  measure  on 
the  efficiency  and  intelligence  of  its  staff,  and  to  keep  a  lot  of  incompetent 
persons  on  the  pay  roll,  to  the  detriment  of  the  others  who  are  the  life- 
blood  of  the  concern,  is  to  court  disaster,  for  good  men  want  good  wages, 
or  they  go  to  other  agencies  who  are  willing  to  pay  for,  and  are  always 
on  the  lookout  for,  the  best  they  can  get. 

In  regard  to  the  book-keeping  in  an  agency,  it  is  useless  to  state  how 
iilmportant  it  is  that  this  should  be  accurate,  and  it  is  a  fact  that  the 
majority  of  agencies  are  complete  as  it  is  possible  to  make  it,  but  very 
slip-shod  in  their  accounting  methods.  There  are,  and  must  be,  excep- 
tions; but  those  who  have  a  good  system  are  loth  to  describe  their  meth- 
ods to  their  less  fortunate  brethren.  The  system  I  am  about  to  describe 
is,  as  far  as  I  know,  original,  but  is  in  every  way  satisfactory  and  can  be 
carried  on  without  any  hardship,  and  will  give  the  firm  all  the  information 
it  is  in  need  of  to  enable  it  to  compete  with  its  rivals. 

Many  agencies  use  the  monthly  magazine  exclusively,  in  which  case 
the  handling  of  their  accounts  is  as  simple  as  it  is  profitable ;  but  when  a 
firm  has  clients  who  use  every  newspaper  in  the  country  to  the  extent  of 
about  $25,000  a  month,  the  accounting  assumes  more  alarming  propor- 
tions, the   checking  up   of  the   papers  auditing  the  newspapers'  bills  and 

87 


Adv. 


Americax  Business  and  Accounting  Encyclopedia 


138 


making  out  the  customers'  bills  every  month  being  an  enormous  contract 
to  undertake. 

This  accounting  scheme  involves: 

1.  Keeping  a  record  of  insertions. 

2.  Keeping  the  accounts  with  the  papers. 

3.  Keeping  the  accounts  with  the  customers. 

4.  Keeping  the  general  office  accounts. 

The  salesmen  of  an  advertising  agency  are  known  as  solicitors.  They 
should  in  all  cases  ascertain  the  rating  of  their  prospective  customers,  both 
for  their  own  and  the  firm's  protection.  They  should  also  be  well  enough 
acquainted  with  the  business  to  be  able  to  make  the  rates  for  their  clients 
and  show  them  where  their  advertisements  should  be  placed  in  order  to 
bring  results. 

Having  closed  a  contract,  the  solicitor  goes  ahead  and  has  the  "copy" 
drawn  up.  This,  together  with  all  the  information  connected  with  the 
running  of  the  "copy,"  is  sent  to  all  the  papers  his  client  wishes  to  use. 
If  the  paper  accepts  the  contract  at  the  price  stipulated,  they  do  so  on  a 
form  attached  to  the  original  one  sent.  This  is  then  filed  away  for  future 
reference. 

Each  solicitor  and  every  member  of  the  firm  who  is  empowered 
to  make  advertising  contracts,  is  given  a  book  ruled  as  shown,  in  which  he 
enters  all  the  particulars  of  the  contracts  as  denoted  by  the  headings  on 
the  debit  side  of  this  book. 

The  orders  are  sent  to  the  newspapers  on  order  forms,  which  are  made 
in  duplicate  and  punched  for  a  binder. 

Order  for  Insertion. — The  original  is  pink  and  is  sent  to  the  news- 
paper, and  the  duplicate  is  yellow  and  goes  to  the  checking  department. 


Or\<^\r)o\ 


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Short  time  orders  are  sent  to  the  auditing  department  as  soon  as  completed 
and  time  orders  are  sent  out  every  month  end. 

88 


128 


American  Business  and  Accounting  Encyclopedia 


Adv 


bj)|)llC<lIp                                                                                                            j 

No 

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Duplicate  Order  for   Insertion. — Completed  orders  are  filed  in  a 
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89 


Adv. 


American  Business  and  Accounting  Encyclopedia 


128 


to  the  checking  room.  The  total  insertions  and  space,  as  shown  by  the 
columns  on  the  right-hand  side  of  the  checking  card,  are  then  put  in  the 
order  books  under  each  contract.  The  amount  earned  by  the  paper  for  the 
month  is  then  computed,  and  extended  out  into  the  columns  provided  on 
the  credit  side  of  the  order  books.  It  will  be  noticed  that  these  columns 
are  in  blocks  of  six  to  a  month.  The  column  headed  "General"  is  used  for 
extending  the  amount  billed  to  the  customer.  The  columns  headed  "A," 
*'B,"  "C,"  "D,"  "E,"  respectively,  correspond  with  the  letters  used  for  nam- 
ing each  newspaper  ledger.  As  I  said  before,  if  only  magazines  are  used, 
the  book-keeping  is  greatly  simplified  and  one  ledger  would  be  ample  to 
accommodate  all  the  accounts.     But  where  there  are  between  5,000  and 


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10,000  accounts  opened  with  newspapers  it  becomes  necessary  to  have 
several  ledgers  (in  this  case  five  is  the  amount  used),  and  they  are  sec- 
tionaliezd  according  to  states,  each  section  denoted  by  a  letter  of  the  alpha- 
bet, 

Newspaper  Ledger. — The  balance  due  the  paper  at  the  end  of  each 
month  is  brought  forward  into  the  next  month's  column.  The  amounts 
posted  into  these  columns  are  the  same  as  are  extended  in  the  order  book 


! 

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90 


128 


American  Business  and  Accounting  Encyclopedia-         Adv. 


columns  for  the  corresponding  month,  therefore  the  footing  of  the  order 
book  columns  should  equal  the  total  footings  of  these  ledger  columns,  less 
the  balance  brought  forward. 

It  is  obviously  impossible  every  month,  however,  to  draw  off  all  these 
balances  into  a  trial  balance,  so  we  open  an  account  in  the  general  ledger, 
with  each  of  these  newspaper  ledgers,  to  which  at  the  end  of  each  month 
we  post  the  totals  of  the  individual  debits  and  credits  as  shown  by  the 
footings  of  the  columns  provided  in  all  the  books.  We  will  take  the  order 
books  for  example.  We  will  presume  that  all  the  earnings  of  the  news- 
papers are  extended  out  for  January.  This  total  represents  the  amount  we 
are  liable  for  to  the  newspapers,  although  they  may  not  bill  us  for  it  for 
several  months.  Their  accounts  have  received  credit  in  the  ledgers  so 
were  we  to  foot  up  the  total  credits  in  the  ledgers  for  January,  that  would 
be  our  liability  for  that  month.  As  these  credits  in  the  ledger,  however, 
are  each  and  every  one  the  same  as  the  amounts  in  the  January  column  in 
the  order  books,  therefore,  we  take  the  order  books  and  make  a  journal 
entry  as  follows : 

Advertising  account, 
*  To  Ledger  A. 

For  amounts  credited  to  papers  on  advertising  earned  month  of  January 
as  per  footing  of  order  books. 

No.  1 

2 

3 

4 

etc. 

Same  way  with  the  other  ledgers.  This  advertising  account  is  our 
tradmg  account,  and  these  monthly  debits  represent  our  purchases. 

The  next  form  in  order  here  is  the  cash  book.  All  bills  are  paid  by 
check  for  convenience,  with  the  exception  of  amounts  less  than  $1,  for 
which  provision  is  made  by  the  cashier  carrying  a  petty  cash  account. '  All 
cash  received  is  turned  over  to  the  book-keeper  in  charge  of  the  cash  book. 


I 


C^xsf;  l3ooK 


91 


Adv. 


American  Business  and  Accounting  Encyclopedia 


128 


C<jisl^  600K 

belaiU 

4k^ 
No. 

A 

13 

C 

b 

L 

Subs' oi  Ml  &< 

_ 

He  deposits  it,  together  with  all  checks  received,  in  the  bank,  his  slip 
showing  an  itemized  statement  of  amounts  deposited. 

It  will  be  seen  here  also  that  columns  are  provided  for  each  of  the 
newspaper  ledgers.  As  the  newspapers'  bills  are  audited,  a  voucher  is  made 
out  and  sent  forward  for  payment. 

Voucher  (front  and  back).  Reductions  from  bills  are  journalized 
in  a  book  we  keep,  known  as  the  supplementary  journal.  Advertising 
account  is  credited  with  the  amount  so  deducted  and  the  paper  is  charged, 


BocK 


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columns  for  distribution  to  the  various  ledgers  being  provided  in  this  book. 
If  the  paper  does  not  allow  the  deductions,  a  reverse  entry  is  made,  charg- 
ing advertising  and  crediting  the  paper. 

Supplementary  Journal.    At  the  end  of  the  month  the  totals  of  these 
columns  are  journalized  as  follows: 

Sundries, 

To  advertising  account. 

For  amounts  deducted  from  newspaper  bills  as  per   supplementary 

journal. 

Ledger  A 
B 

etc. 

92 


128 


American  Business  and  Accounting  Encyclopedia 


Adv. 


Advertising  account, 
To  Sundries. 

For  amounts  previously  charged  to  papers  and  since  claimed. 

Ledger  A 
B 
C 

etc. 

These  are  posted  to  the  ledger  controlling  accounts,  in  the  same  manner 
as  the  totals  of  the  order  books. 


Ou[5[)l?r\P9r<nry  Jour^^l 


Pol 


aHa 


13 


Li 


After  the  newspaper's  bill  is  passed  over  for  payment,  a  check  Is 
drawn,  and  it,  together  with  the  voucher,  is  handed  to  the  book-keeper, 
who  enters  the  net  amount  of  the  check  paid  in  the  column  headed  for  the 
ledger  to  which  it  is  posted.  The  discount  is  entered  in  the  discount 
column  on  the  debit  side  of  the  cash  book,  and  these  two  amounts  are 
then  posted  to  the  debit  of  the  newspaper  in  the  ledger.  At  the  end  of 
footed  up  and  journalized  thus : 

the  month  the  columns  "A,"  "B,"  "C,"  "D,"  "E,"  in  the  cash  book  are 
Sundries, 

To  Cash. 

For  amounts  paid  newspapers  during  month  as  per  cash  book : 

Ledger  A 
B 
C 
etc. 

The  discount  columns  are  also  footed  up  and  journalized : 
Sundries, 

To  Advertising  account. 

For  amount  of  discounts  received  during  month  as  per  cash  book : 

Ledger  A 
B 
C 


etc 


93 


ADV. 


American  Business  and  Accounting  Encyclopedia 


1^8 


il 


!l 


The  journal  is  now  illustrated,  and  it  will  be  noted  that  the  debit  side 
only  is  ruled  for  distribution  to  the  various  ledgers.  This  is  because  the 
credits  to  the  newspapers  through  this  journal  are  so  few  that  it  is  really 


A 

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b 

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1 

1 

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1 

no  trouble  to  pick  out  the  amounts  at  the  end  of  the  month.    A  closing 

entry  for  this  book  is  then  made. 

Sundries, 

To  Advertising  account. 

For  amount  charged  to  papers  during  month  as  per  journal: 

Ledger  A 
B 
C 

etc. 
Advertising  Account, 
To  Sundries. 

For  amounts  credited  to  papers  during  month  as  per  journal : 

Ledger  A 
B 
C 
etc. 

The  closing  entries  to  the  controlling  accounts  are  now  all  complete 
for  the  month  and  these  accounts  should  show  up  in  the  manner  shown. 

Controlling  Accounts.  Each  month  these  accounts  give  us  the  total 
amount  due  the  newspapers  without  taking  off  each  individual  balance. 

Having  explained  the  method  of  taking  care  of  the  newspaper  accounts, 
it  is  now  in  order  to  take  the  customers'  ledger.  Customers  are  billed 
each  mor.lh  for  the  service  rendered.  The  amount  billed  is  extended  in 
the  "general"  column  in  the  order  book  and  the  total  of  the  bill  posted  to 
the  debit  of  the  customer.  As  contracts  are  put  into  the  order  books  daily 
as  received,  it  follows  that  each  customer's  orders  are  scattered  through 
the  books.  We  therefore  provide  a  working  ledger,  and  treat  it  thus. 
Open  an  account  with  each  customer,  on  the  debit  side  entering  the  date 
and  the  order  bock  page  only.    When  we  come  to  make  out  a  bill,  turn 

• 

94 


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American  Business  and  Accounting  Encyclopedia  Adv. 


to  the  customer's  account,  which  gives  us  the  folios  in  the  order  book 
from  which  to  make  out  our  bill.  The  amounts  billed  on  each  order  book 
page  are  entered  in  the  ledger  in  pencil,  unless  we  bill  out  the  full  amount 
of  the  contract.  As  the  contracts  expire  and  are  billed  out,  we  ink  in 
the  total  amount  billed  out  on  that  contract  When  the  bill  is  complete, 
we  credit  the  working  ledger  account  with  the  total  amount  of  the  bill  and 
transfer  it  to  the  debit  of  the  customer  in  a  small  ledger  we  keep  for  the 
purpose.  This  small  ledger  is  the  one  we  use  when  taking  off  the  balances 
each  month  and  from  which  we  make  up  the  customers'  statements. 

Many  people  subscribe  to  the  magazines  through  the  advertising 
agencies.  In  order  to  ascertain  the  profit  on  this  branch,  a  subscription 
account  is  opened  in  the  ledger,  debiting  it  monthly  with  the  total  amount 
paid  out  on  subscriptions  as  shown  by  the  column  provided  in  the  cash 
book.  The  account  is  credited  with  the  bills  rendered  to  the  customers 
for  these  subscriptions,  and  the  balance  shows  the  gross  profit.  In  regard 
to  the  other  columns  in  the  cash  book  (credit  side),  I  would  say  that  after 
providing  columns  for  the  various  ledgers  and  subscription  account,  the 
other  columns  can  be  headed  as  necessary  for  any  accounts  to  which  there 
are  a  great  many  postings  each  month.  By  doing  this  it  is  only  necessary 
to  post  the  amounts  once  a  month,  and  the  more  of  these  columns  can  be 
•   provided  the  more  the  book-keeper  will  find  his  work  simplified. 

It  is  advantageous  to  the  heads  of  an  advertising  agency  to  know  how 
each  solicitor's  customers  are  paying  up.  For  that  reason,  the  columns 
of  the  cash  book  debit  side  are  placed  there.  As  many  customers  are 
allowed  cash  discount  for  early  payment  of  their  bills,  a  column  is  ruled 
for  these  deductions.  The  gross  amount  of  the  bill  paid  is  entered  in  the 
solicitor's  column,  the  discount  is  entered  in  its  column  and  the  net  amount 
of  check  received  entered  in  the  total  column.  An  account  showing  balance 
of  this  account  shows  the  amount  of  sundry  purchase  bills  unpaid.  The 
total  amount  credited  to  newspapers  on  order  books,  having  been  charged 
to  advertising  account,  we  have  now  to  credit  advertising  account  with 
the  total  amount  billed  out  (or  sales)  during  the  month.  As  many  adver- 
tising managers  prefer  that  they  be  billed  at  the  gross  figure,  instead  of 
the  paper's  net,  plus  the  commission,  it  follows  that  besides  the  '^commis- 
sion" column  in  the  journal,  the  order  books  show  a  difference  between  the 
paper's  net  and  the  amount  charged  the  advertiser.  By  posting,  therefore. 
these  amounts  to  advertising  account  we  show  a  credit  on  that  account.' 
Having  now  posted  all  our  debits  and  credits  to  advertising  account,  that 
account  appears  somewhat  as  indicated. 

Advertising  Account.  The  balance  of  this  account  represents  gross 
profit,  but  no  disposition  is  made  of  it  until  the  end  of  the  year.  It  is 
included,  however,  in  the  trial  balance  each  month. 

Having  now  taken  care  of  the  checking  room,  the  newspaper  accounts 
and  the  customers'  accounts,  it  only  remains  to  take  care  of  the  general 
office  accounts.    Practically  all  expenditures  in  an  advertising  agency,  other 

95 


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Adv. 


American  Business  and  Accounting  Encyclopedia 


128 


Advertisipq  Account 


Cr 


boTf 


Li^jiflTnDrfirrRQQKs 


bfToih 


SiMlfi^fi^tmryJourr^nl 


/fliiri)/il 


Kiunnr>KNf<]>utf^ 


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Af^oui^T 


bntf 


Jfli^^ 


bftoil! 


Fol  • 


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hisfoni^ts  recpivd 


\lQiirpfll 


rnr\p^isstQi^s 


'  C}r<\er  I^QoKs 


Al^OUI^t 


than  those  recharged  to  customers,  are  expense,  and  consist  mainly  of 
salaries,  rent,  telegraph  and  telephone  service,  postage  and  expressage, 
printing  and  stationery,  including  typewriter  supplies,  traveling  expenses, 
and  sundries  such  as  laundering  towels,  soap,  ice,  etc.  For  all  these  charges 
I  recommend  a  distribution  journal  ruled  as  shown. 

Distribution  Journal.    As  it  is  not  necessary,  in  my  opinion,  to  open 
accounts  with  everyone  from  whom  we  purchase,  but  to  carry,  as  I  men- 


bislribuTioi;)  uovr^a\ 

bnlf 

No 

• 

Tolol 

Ke^T 

PojTfl^ 

Ejt^TfUIJf 

rnvfllif^ 

Svfirifk 

Fiir()f»rf 
FuNrti 

1 

1 

_ 

tioned  before,  an  account  known  as  sundry  accounts  payable.  Doing  this, 
we  would  dispose  of  the  entries  in  the  above  journal  as  follows :  the  amount 
of  business  being  done  by  each  solicitor  is  carried  in  the  ledger.  To  this 
is  debited  the  amount  of  the  footings  in  the  order  book,  and  is  credited 
with  the  total  cash  received  during  the  month  as  shown  by  each  column 
in  the  cash  book.  The  balances  of  these  accounts  show  how  much  is  owing 
by  each  solicitor's  clients,  and  the  total  of  these  should  agree  with  the 
total  accounts  receivable.  These  solicitors'  accounts  are  carried  for  con- 
venience only,  not  as  any  essential  of  the  advertising  accounting.    At  the 

96 


128 


American  Business  and  Accounting  Encyclopedia  Adv. 


end  of  each  month   the   discount  deducted  column  is   footed  and  disposed 
of  by  posting  it  to  the  debit  of  advertising  account. 

On  the  debit  side  of  the  journal  we  have  a  column  headed  "advertising 
account."  Its  use  need  not  be  explained— suffice  to  say  that  its  total  at 
the  end  of  the  month  is  debited  to  the  account  it  represents.  The  miscel- 
laneous columns— debit  and  credit— in  the  journal  need  not  be  explained 
either.  They,  however,  are  posted  in  detail,  not  in  total.  The  credit  column 
headed  "commission"  is  used  for  the  percentage  charged  the  customer.  For 
instance,  we  charge  Smith  ten  per  cent  on  the  paper's  net.  Make  the 
journal  entry: 

Smith, 

To  Commission  account. 

So  on  all  through  the  month.  The  total  of  this  column  is  credited  to 
advertising  account. 

The  credit  column  in  the  journal  headed  "purchase  accounts  payable" 
is  also  posted  in  total.  All  sundry  purchases  charged  to  customers,  such 
as  electrotypes,  printing,  etc.,  are  entered  in  this  column,  but  as  we  pay 
these  sundry  bills  every  month,  it  is  unnecessary  to  open  an  account  with 
each  person  from  whom  we  buy  the  goods.  We  carry  an  account  in  the 
ledger  known  as  sundry  accounts  payable,  crediting  it  with  the  total 
purchases  as  shown  by  the  column  in  the  journal,  and  charging  it  with 
the  total  paid,  as  shown  by  the  column  in  the  cash  book  provided  for  that 
purpose. 

Sundries, 

To  Sundry  Accounts  Payable. 
For  purchases  during  month  as  per  Distribution  Journal, 

Rent, 

Telephone  and  Telegraph, 

Postage, 

Etc. 

This  monthly  posting  would  materially  minimize  the  book-keeper's 
work,  allowing  him  more  time  on  more  important  details. 

Cash  accounts  can  be  kept  in  the  ledger  if  desired,  crediting  it  with 
total  cash  paid  out  during  month  and  debiting  it  with  total  received,  the 
balance,  cash  on  hand,  being  included  in  the  trial  balance.  It  is  not 
necessary  for  me  to  illustrate  the  trial  balance,  as  everyone  knows  this  is 
merely  a  summary  of  the  debit  and  credit  balances  in  the  ledger,  the  total 
of  each  side  being  equal  if  all  postings  have  been  correctly  made. 

At  the  end  of  the  year  a  profit  and  loss  statement  is  made  up.  This 
would  be  something  as  follows: 


97 


Adv. 


American  Business  and  Accounting  Encyclopedia 


128 


Cr. 

By  gross  profit  from  Advertising  account. 
By  gross  profit  from  Subscription  account. 


LIABILITIES. 

Accounts   Payable, 
Notes   Payable, 
Capital  Stock, 
Surplus. 


PROFIT   AND  LOSS. 

Dr. 

To  Salaries, 
Rent, 

Telegraph, 
Postage, 
Express, 
Printing, 
Stationery, 
Traveling, 
Sundries, 
Bad  Debts, 
Etc., 
Balance=Net   Profit. 

Then  the  balance  sheet  is  made  up: 

ASSETS. 

Cash, 

Accounts  Receivable, 

Notes    Receivable, 

Accounts  in  Attorney's  Hands, 

Furniture  and  Fixtures. 

The  surplus  can  be  disposed  of  in  any  way  the  partners  desire. — G. 
Farrar. ) 

ARTICLE  NO.  2. 

The  advertising  agent  is  a  middleman.  He  places  his  client's  adver- 
tising with  publishers.  Publishers  charge  the  space  to  the  agent.  The 
agent  collects  from  the  advertiser  and  pays  the  publishers.  The  agent, 
therefore,  has  need  for  a  special  system  of  accounting. 

This  article  deals  only  with  that  part  of  the  system  that  has  to  do 
with  the  ordering  of  space,  the  checking  of  insertions  and  the  rendering 
of  space  bills.  A  more  elaborate  scheme  than  the  one  here  described  will 
be  found  necessary  in  the  case  of  large  agencies,  but  this  has  been  found 
equal  to  the  needs  of  small  agencies,  and  it  has  the  merit  of  simplicity. 

Courts  of  law  regard  books  of  original  entry  as  the  best  evidence 
because  of  the  long-recognized  fact  that  the  more  an  account  is  copied  of 
transferred  the  greater  is  the  likelihood  of  error.  Consequently,  when 
fixing  on  this  plan  for  handling  space  records  and  accounts,  it  was  the 
aim  to  promote  accuracy  and  save  time  by  reducing  copying  and  trans- 
.  ferring  to  a  minimum. 

Fig.  1  shows  the  original  order  sheet,  consisting  of  three  parts  per- 
forated so  that  they  may  be  separated  easily.  The  top  part  is  the  original 
order  and  is  a  little  deeper  than  the  others  so  as  to  give  room  for  the 
printing  of  the  agency  name  and  address. 

When  an  order  is  to  be  sent  to  a  publisher,  memoranda  is  given  the 
stenographer,  who  folds  the  order  sheet  twice,  drops  in  two  small  sheets 
of  carbon  and  makes  the  three  copies  with  one  writing.  If  the  original 
copy  IS  correct  the  order  clerk  may  know  that  the  others  are. 

98 


128 


American  Business  and  Accounting  Encyclopedia  Adv. 


PUBLISHER'S  FILE 

To  Date. 

Please  enter  our  order  (or  advertising  of 


Ordbr  No. 


Space 


iNSERTtONS 


Position 
Gross  Price 
Copy 
Memo. 


Key 


Commission 
Cuts 


Discount 


Net 


1 

2 

S 

4 

5 

tf 

7 

8 

9 

10 

11 

12 

1? 

14 

15 

16 

17 

18 

19 

20 

21 

22 

2S 

24 

25 

2fl 

27 

28 

29 

30 

31 

32 

33 

34 

85 

88 

37 

38 

39 

40 

41 

42 

43 

44 

4S 

46 

47 

48 

"5" 

50 

m" 

W 

Fig.  1 

^^■^^ 

' 

Fig.  2  shows  the  printed  side  of  the  middle  portion  of  the  order  sheet. 
This  part  of  the  order  sheet  shows  blank  in  Fig.  1  because  there  the 
printing  is  on  the  reverse  side. 

The  original   (top  part  of  Fig.  1)   is  mailed  to  the  publisher.     The 


ADVERTISER'S  FILE 

Date,        Nov.   21.     1905. 

To    Jones'  Magazine     55  5th  Avenue,  New  York» 
Please  enter  our  order  for  advertising  of 


Order  No. 


Space 


Quarter  -page 


Position       Right  hand  page 
Gross  Price    $200 


Insertions 


February,  March,  April, 
Kay.  June  and  July, 


Key      122 
Conunission       130       Discount     (10  #I5Q 

Copy    herewith     Cuts  express  tonight  Charge  Advertiser 
Memo.       Pass  out  to  Collier's. 


Fig  2 


memoranda  is  complete  and  ordinarily  there  is  no  need  for  an  accom- 
panying letter. 

One  of  the  duplicates  is  filed,  as  indicated  by  the  heading,  as  a  charge 

99 


Adv. 


American  Business  and  Accounting  Encyclopedia 


138 


memoranda  against  the  advertiser,  and  the  other  is  filed  as  a  credit  slip 
and  also  as  a  check  against  the  service  of  the  publisher. 

Either  a  large  card  case  or  a  loose  leaf  binder  may  be  used  for  the 
filing  of  these  slips.  In  either  case,  all  of  the  charge  slips  against  each 
advertiser  should  be  kept  together,  and  all  the  duplicates  of  orders  to  one 
publisher  should  be  kept  together. 

This  system  saves  much  journalizing.  At  the  end  of  the  month,  a!l 
the  space  charges  against  one  advertiser  are  together,  and  a  typewritten 
bill  may  be  made  up  from  them.  A  carbon  of  this  typewritten  bill  may 
be  made  to  be  kept  as  a  "tickler"  until  the  bill  is  paid,  and  the  total  of 
the  space  bill  for  the  month  may  be  entered  as  one  item  in  the  ledger. 
If  the  book-keeper  keeps  a  "space"  account,  he  will,  of  course,  credit 
"space"  at  the  same  time  he  debits  the  advertiser. 

It  will  be  observed  that  there  is  no  "net"  on  the  duplicate  for  the 
advertiser's  file.  (See  Fig.  2.)  It  is  the  custom  of  most  advertising  agents 
to  regard  net  cost  as  the  proper  basis  for  calculations  and  to  add  the 
commission  to  the  net  cost.  Therefore,  to  avoid  chance  for  error,  the 
word  "net"  is  omitted  on  the  advertiser's  slip,  so  that  the  book-keeper  is 
reminded  to  add  the  regular  commission  and  to  total  the  proper  charge 
directly  opposite  "charge  advertiser."  "Commission"  and  "discount," 
being  given  separately,  facilitate  the  work  of  posting  these  separately  to 
the  fictitious  accounts. 

Turning  attention  to  the  publisher's  file  (see  Fig.  1),  we  find  that 
the  duplicate  filed  there  avoids  the  necessity  for  keeping  a  separate  check- 
ing system.  All  the  particulars  of  the  original  order  are  on  the  face  of 
this  duplicate,  and  when  the  publisher  sends  marked  copies  of  the  issue 
containing  the  ordered  advertising,  it  is  easy  to  see  whether  or  not  insertion 
has  been  given  in  accordance  with  instructions.  All  the  duplicates  for  one 
publisher  being  together  in  the  file,  if  the  agent  has  advertisements  for 
five  or  six  clients  in  one  number  of  a  publication,  they  may  all  be  checked 
at  one  time.  The  spaces  at  the  extreme  bottom  of  the  form  enable  the 
clerk  to  check  any  number  of  insertions  from  one  to  52;  thus  a  year's 
advertising  in  a  weekly  paper  may  be  ordered  and  checked  by  a  single 
order.  Agencies  having  systems  of  this  kind  use  a  series  of  symbols  that 
they  write  in  these  spaces,  one  symbol  meaning  that  the  insertion  was 
given  exactly  as  ordered,  another  that  the  position  was  wrong,  another 
that  the  amount  of  space  was  incorrect,  another  that  the  advertisements 
were  omitted,  and  so  on.    The  symbols  save  much  writing. 

Errors  are  so  frequent  among  publishers  that  it  is  essential  for  every 
agent  to  keep  such  a  checking  system  as  is  here  described  in  order  that 
he  may  make  proper  deductions  before  paying  publishers'  bill  or  be  able 
to  make  just  claims  afterward  if  bills  are  paid  before  the  checking  is  done. 

If  a  "space"  account  is  kept,  the  book-keeper  will,  of  course,  debit 
"space"  for  the  amounts  shown  by  these  publishers'  slips,  while  giving 
corresponding  credit  to  the  publishers. 


128-129      American  Business  and  Accounting  Encyclopedia 


Adv. 


This  system  of  keeping  space  records  and  accounts  has  been  tried 
faithfully,  found  accurate  and  time-saving  and  satisfactory  generally. — 
(S.  R.  Hall.) 

(129)     ADVERTISING   CLIPPINGS. 

(Filing). 

The  clippings  which  will  be  made  from  magazines,  newspapers,  other 
advertisers'  advertising,  booklets,  pamphlets,  etc.,  should  be  placed  in 
envelopes,  each  envelope  carefully  labeled  with  the  particular  lines  of 
matter,  and  filed  in  a  cabinet  with  the  drawers  sufficiently  large  to  take 
the  envelopes  standing  on  their  side.  In  small  indexes,  where  the  subjects 
are  not  so  numerous,  it  is  sometimes  unnecesary  to  have  an  alphabetical 
mdex  of  the  line  of  subjects,  because  the  envelopes  being  arranged  accord- 
ing to  the  alphabet  with  alphabetical  guides  afford  that  index  themselves, 
and  then  there  is  nothing  required  in  the  way  of  a  card  index,  as  mentioned 
above. 


LeTtei 


5^bjecr 

5oi)rc€ 
i)(nTe  Clipped 


Ren\c\rKS>. 


When  a  large  amount  of  matter  is  held  (as  in  wholesale  lines)  it  is 
sometimes  advisable,  instead  of  the  envelopes  arranged  in  drawers,  to 
employ  a  system  of  catalog  filing,  so  that  entire  catalogs  may  be  preserved. 

The  writer  strongly  advises  against  the  use  of  scrap  books  in  connection 
with  advertising  clippings,  for  the  very  simple  reason  that  an  advertising 
manager  can  handle  a  clipping  better  than  he  can  handle  a  scrap-book 
on  his  desk,  and  he  can  often  paste  a  clipping  in  the  copy  he  is  preparing, 
thereby  preventing  either  a  lot  of  unnecessary  dictating,  or  typewriting, 
or  a  tiresome  job  of  handwriting. 

Vertical  files  with  the  ordinary  folder  system  are  not  entirely  satis- 


|i 


^ 


100 


101 


Adv. 


American  Business  and  Accounting  Encyclopedia       129-130 


factory,  for  the  reason  the  clippings  are  easily  lost  out  the  open  ends. 
Vertical  files  may  be  used,  however,  by  substituting  large  envelopes  for 
the  regulation  folders. 

(130)     ADVERTISING  DIRECT. 

The  term  direct  advertising  is  used  to  describe  all  forms  of  advertis- 
ing passing  directly  from  the  advertiser  to  the  prospective  customer  as 
distinguished  from  advertising  in  magazines,  newspapers,  street  cars,  on 
bill  boards,  etc.,  which  is  intended  to  create  a  demand  and  indirectly  in- 
fluence the  sale.  As  usually  understood  in  advertising  circles  the  most 
common  vehicles  for  direct  advertising  are  catalogs,  booklets,  circulars, 
letters  (personal  or  form)  and  similar  direct  appeals  for  business.  This 
form  of  advertising  may  be  mailed  in  response  to  inquiries  received  as  a 
result  of  other  forms  of  advertising,  or  it  may  be  mailed  djrect  to  list  of 
names,  either  with  a  view  to  creating  interests  and  thereby  influencing 
inquiries,  or  for  the  purpose  of  making  immediate  sales. 

Form  Letters.  A  form  letter,  as  soon  as  it  has  passed  muster,  should 
be  placed  in  a  scrap-book,  preferably  a  loose  leaf  scrap-book.  At  the  top 
of  the  letter  should  be  written  the  precise  condition  under  which  the  letter 
has  been  sent  out;  memorandum  of  the  enclosure  sent  with  each  letter, 
and  a  number  should  be  given  the  letter;  this  number  should  not  be  dupli- 
cated. At  the  same  time  the  number  is  given  a  letter,  a  card  should  be 
made  out  for  it.  The  face  of  this  card  shows  the  number  of  letters  sent 
out  each  day,  and  is  ruled  to  accommodate  the  record  for  the  entire  year. 
The  reverse  of  the  card  is  ruled,  as  shown,  and  is  intended  for  a  record  of 
sales  credited  to  this  letter. 

When  this  card  is  made  out,  a  card  index  is  made  out  so  as  to  show 
the  results  from  form  letters  in  a  certain  month  in  order  to  compare  them 
with  months  previous,  and  with  the  same  month  of  a  previous  year. 

If  it  is  desirable,  as  it  may  be  in  a  large  business,  to  keep  1,rack  of  the  ' 
amount  of  work  done  in  each  department,  it  would  be  well  to  make  out 
an  additional  card  called  a  "department  card." 

This  card  is  used  to  show  the  amount  of  work  done  in  the  form  letter 
section  for  any  particular  department  of  the  business. 

Methods  of  Keying  Results.  It  often  happens,  in  handling  form 
letters,  that  the  practice  of  giving  some  small  article  in  order  to  get  re- 
turns, will  result  in  getting  the  order  for  the  small  article  without  any 
additional  compensation.  The  bargain,  or  small  article  mentioned,  will  be 
offered  at  a  distinct  loss,  the  intention  being  to  use  it  as  a  bait,  much  as 
bargains  are  offered  in  the  department  stores,  to  catch  purchasers  for 
profitable  articles. 

It  is  important,  therefore,  that  these  returns  should  stipulate  what  the 
order  was,  and  where  the  orders  are  pro  forma,  i.  e.,  all  for  the  same  thin^, 
they  can  all  be  checked  off  on  the  tally  sheet,  shown  later. 

102 


130 


American  Business  and  Accounting  Encyclopedia 


Adv. 


SALES 

bou 

No    Arvou^T  DflTe     No 

r\i^^j(jT 

bote 

No. 

Ap^oyi 

^■t  bore 

No     At^ourjt 

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n 

, 

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— 

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5 

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rs 

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Joly 

Ao^ 

Set, 

Oct 

Nov. 

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^_ 

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1 

ll 

— 

M09lT)ljy  5tcikr\Ci)tojrorrvLeircrRelDorrs.  ^"^^ 


No  of  Letter 


ToTolScf)t 


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ToTcilCo^r 


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Ref^nr-Ki 


103 


Adv.  American  Business  and  Accounting  Encyclopedia      130-131 

In  order  to  ascertain  what  a  form  letter  produces,  there  are  several 
methods  of  keying  a  letter : 

First — Keying  it  by  the  character  of  the  goods  offered,  that  is  to  say: 
If  you  have  offered  a  particular  line  of  goods  in  no  other  form  except 
through  a  particular  letter,  it  is  reasonable  to  suppose  that  all  orders  for 
that  goods  coming  in  after  the  distribution  of  the  letter  calling  attention 
to  them  should  be  credited  to  the  letter. 

Second — There  is  a  method  of  keying  the  address ;  this  should  be  used 
only  in  case  where  form  letters  are  of  such  a  character  that  you  can  key 
them  by  the  nature  of  the  order  that  would  be  received  through  them. 
For  instance,  where  you  send  a  form  letter  in  response  to  a  request  for  a 
catalog,  even  then  it  is  a  good  idea  to  offer  some  special  thing  to  be  sent 
free  with  an  order. 

Third— Keying  by  departments  is  another  method,  but  in  the  case  of 
a  large  line  of  departments,  it  leads  to  endless  confusion  because  you  may 
send  form  letter  Department  No.  35  one  week,  Department  No.  4  next 
week.  Department  No.  11  the  week  after,  and  so  on;  Department  No.  11 
letter  may  get  mixed  up  in  the  mind  of  the  recipient  with  Department 
No.  35  and  will  lead  to  no  true  reflection  of  the  pulling  power  of  the 

letters. 

Fourth— Keying  by  the  name  of  the  writer.  A  great  many  business 
houses  object  to  this  method  for  the  reason  that  the  United  States  statutes 
make  it  a  penal  offense  for  a  person  even  to  open  "by  mistake"  the  letters 
of  another.  This  is  often  done  in  business  houses,  but  they  require  a  signed 
permission  given  those  who  have  anything  to  do  with  the  correspondence 
of  the  house,  by  which  the  manager  or  any  other  employe  is  permitted  to 
open  mail  personally  addressed. 

The  writer  confesses  to  a  certain  leaning  to  this  method  of  handling 
the  mail  order  proposition.  The  average  mail  order  customer  objects,  in 
a  negative  sort  of  way,  to  dealing  with  an  unknown  person.  When  the 
first  person  singular,  together  with  a  man's  name  attached  to  it,  is  used  in 
a  letter,  the  mail  order  customer  feels  a  greater  degree  of  confidence.  It  is 
one  of  the  psvchological  facts  of  business  that  a  man  feels  more  impressed, 
and  is  more  likely  to  act  upon  his  impressions,  when  he  feels  the  personal 
touch  of  a  particular  person,  rather  than  dealing  with  the  indeterminate 
personality  of  a  company,  partnership  or  corporation. 

( 131 )     ADVERTISING  IN  THE  MAGAZINES. 

Growth  and  development  of  advertising  during  the  past  few  years  has 
been  one  of  the  most  interesting  events  in  the  business  history  of  the 
country.  This  growth,  although  rapid,  has  not  been  of  the  mushroom 
variety,  for  it  has  been  steady,  and  today  advertising  is  no  longer  a  hit  or 
miss  proposition,  but,  as  a  profession,  ranks  high  in  the  list,  as  any  work 
requiring  originality,  initiative,  and  brains  must  rank. 

To  understand  what  advertising  means  today  in  relation  to  business, 

104 


131 


American  Business  and  Accounting  Encyclopedia 


Adv. 


pick  up  the  current  number  of  any  magazine,  or  newspaper,  look  about 
you  on  the  streets,  in  the  street  cars,  at  the  calendars  you  see  in  offices, 
at  your  theater  programs ;  you  cannot  escape  it  anywhere. 

Take  any  periodical  and  compare  it  with  one  of  a  few  years  ago,  and 
three  things  will  strike  you  instantly,  first,  the  improvement  in  appearance ; 
second,  the  decrease  in  price;  and  third,  the  increased  amount  of  adver- 
tising. 

The  natural  question  of  how  a  magazine  can  be  sold  at  such  a  low  price 
is  answered  when  you  look  at  the  amount  of  advertising  carried.  The  sub- 
scription price  of  the  average  magazine  of  today  would  hardly  pay  for  the 
paper  used  in  its  makeup,  the  advertising  is  what  pays.  The  advertising 
section  is  as  attractive  and  widely  read  as  the  magazine  section,  and 
abounds  in  real  art,  literature  and  human  interest. 

Advertising  is  studied  today,  just  as  any  other  profession  is  studied, 
but  at  the  same  time  there  is  a  certain  amount  of  truth  in  the  statement 
that  an  advertising  man,  like  a  journalist,  must  be  born,  not  made.  A  man 
must  have  that  indefinable  something  which  we  might  call  "ad  sense,"  just 
as  a  newspaper  man  must  have  "news  sense,"  if  he  would  be  a  success. 

To  some  extent  advertising  might  be  called  a  form  of  salesmanship, 
but  with  a  difference.  The  salesman  has  the  advantage  of  coming  into  per- 
sonal contact  with  his  man.  studying  his  mood,  able  to  note  what  pleases 
or  displeases  him,  adding  the  magnetism  of  his  voice,  an  inflectioji  there, 
carefully  chosen  words  here,  and  the  sale  is  made. 

The  advertising  man,  on  the  other  hand,  can  not  vary  his  words,  his 
voice,  or  his  inflection.  He  has  to  strike  his  millions  of  readers  with 
exactly  the  same  message,  the  same  illustrations,  and  create  a  desire  for 
the  goods  he  wants  to  sell ;  convince  the  prospective  buyer  that  his  particu- 
lar brand  of  goods,  and  no  other,  is  necessary  to  the  buyer's  peace  and 
happiness  of  mind ;  he  must  impress  the  name  and  quality  of  his  goods  so 
firmly  on  that  unknown  reader's  mind,  that  he  will  never  forget  it,  and 
never  be  content  with  anything  else! 

Of  course  this  means  that  he  must  never  let  the  public  lose  sight  of 
his  subject  for  a  moment.  Take  Ivory  Soap,  Sapolio,  Pearline,  or  a  dozen 
other  well  advertised  goods,  and  the  public  will  cry  for  them,  as  a  baby  does 
for  Castoria,  long  after  all  that  is  mortal  of  the  men  who  originated  the 
advertising  and  made  these  names  famous,  have  gone,  and  been  forgotten. 

Why?  Because  the  public  has  been  educated,  has  been  impressed  with 
the  fact  that  these  goods  are  the  best  in  their  particular  lines,  and  h^s 
never  been  allowed  to  forget  it.  The  public  is  fickle — if  allowed  to  be — 
but  the  point  is,  these  advertisers  never  allow  the  public  to  forget. 

Importance  of  Advertising. — ^The  immense  amount  of  money  spent 
every  year  shows  conclusively  that  manufacturers  everywhere  realize  the 
importance  of  advertising,  and  the  value  of  publicity.  Whether  or  not 
advertising  pays  is  no  longer  a  problem.  That  it  pays,  and  pays  well,  is 
evidenced  by  such  advertisers  as  Cream  of  Wheat,  Ivory  Soap.  Suisine 

106 


Adv. 


American  Business  and  Accounting  Encyclopedia 


131 


Silk,  and  a  host  of  others,  and  the  number  following  in  the  trail  blazed  by 
the  pioneer  advertisers  in  the  time  when  it  was  a  question,  proves  that  the 
problem  was  solved.  Today  the  manufacturer  figures  in  the  cost  of  pro- 
duction the  cost  of  advertising,  just  as  he  figures  the  cost  of  labor,  or  the 
cost  of  material. 

With  this  knowledge  of  general  advertising,  and  its  relation  to  busi- 
ness, it  is  interesting  to  watch  the  advertising  campaign  of  the  manufac- 
turer who  is  seling  his  goods  direct  to  the  consumer.  The  inside  practical 
details  of  his  campaign  can  not  fail  to  be  of  interest. 

Most  large  houses  employ,  in  addition  to  their  regular  advertising 
department  an  advertising  agency,  to  co-operate  with  the  advertising  man- 
ager, and  to  attend  to  the  details  of  placing,  buying  the  magazine  space, 
etc.,  going  on  the  theory  that  two  heads  are  better  than  one,  and  that  men 
who  are  experts,  and  keep  their  fingers  on  the  pulse  of  the  advertising 
situation,  just  as  they  themselves  know  the  pulse  of  the  commercial  end, 
can  give  better  service. 

First  of  all  comes  the  question  of  the  advertising  appropriation,  which 
includes  the  salary  of  the  advertising  manager,  and  his  corps  of  assistants, 
space  in  the  mediums,  together  with  the  incidental  cost  of  drawings, 
plates,  postage,  express,  etc. 

The  selection  of  a  reliable  advertising  agency  to  assist  the  advertising 
manager,  to  advise  with  him  and  to  arrange  the  details  of  the  campaign 
is  usually  the  next  step.  This  being  settled,  the  question  of  mediums  is 
the  important  one,  in  other  words,  the  selection  of  the  magazines  and 
papers  to  be  used  in  letting  the  public  know  where,  and  at  what  price 
his  goods  may  be  purchased,  and  to  create  a  demand  for  this  special  line. 
The  questions  of  whether  other  mediums,  such  as  bill  posters,  street  car 
cards,  or  other  publicity  methods  are  to  be  used  to  reinforce  the  magazine 
advertising. 

In  the  selection  of  magazines  to  be  used,  there  are  several  important 
considerations;  the  class  of  people  most  likely  to  be  interested  in  the 
proposition,  and  to  become  purchasers,  the  section  of  the  country  where 
these  people  live,  and  the  seasonableness  of  the  goods  advertised.  Ivory 
Soap,  for  instance  would  appeal  to  everyone,  everywhere,  while  a  fur 
manufacturer  has  a  line  which  appeals  only  to  a  limited  number  of  people 
living  south  of  the  Mason  and  Dixon  line;  appeals,  generally  speaking, 
only  to  the  middle  or  moneyed  classes,  and  appeals  to  them  only  during 
certain  months  in  the  year. 

Furs,  as  a  line,  appeal  to  men  and  women  alike,  so  in  addition  ta 
the  exclusive,  high-class  women's  magazines,  he  can  use  the  general  and 
men's  periodicals. 

Naturally  he  chooses  the  magazines  having  the  largest  circulation  in 
the  fur-wearing  regions,  and  plans  to  advertise  in  these  during  the  autumn, 
just  as  people  are  beginning  to  plan  on  the  colder  weather. 

106 


131 


American  Business  and  Accounting  Encyclopedia 


Adv. 


In  selecting  his  magazines,  and  deciding  on  the  amount  of  space  to 
use  in  each,  he  is  governed  by  his  experience  of  the  preceding  year. 

The  magazines  which  made  good  are,  naturally,  first  on  the  list,  and 
are  given  as  much  space  as  the  previous  year's  experience  would  warrant, 
usually  increased.  The  clever  advertising  man  studies  the  different 
classes  of  magazine  readers,  and  if  possible,  has  a  little  different  story  for 
each.  If  two  magazines  of  the  same  general  class  seem  to  have  about 
the  same  circulation  in  the  same  class  of  people,  it  is  usually  a  sign  that 
there  is  something  unique  and  characteristic  in  each,  and  it  behooves  the 
advertising  man  to  find  this  difference,  and  cater  to  it. 

When  the  matter  of  space  is  decided,  the  real  hard  work  of  the  cam- 
paign is  begun,  namely  preparing  "copy"  and  illustrations. 

Of  course  it  goes  without  saying  that  "copy"  is  the  great  and  impor- 
tant thing  in  the  advertising  campaign.  It  must  be  as  strong  as  can  be 
written,  with  the  object  in  view  of  making  the  man  or  woman  who  reads 
the  magazines  know  that  here,  in  the  factory,  is  the  very  fur  garment  he 
or  she  wants ;  strong,  convincing  copy,  copy  that  sells  the  goods,  that 
is  what  the  advertising  man  must  write  if  he  is  to  make  good. 

And  in  this  day,  illustrations,  border  designs  and  that  sort  of  thing 
must  be  of  the  highest  class  to  attract  attention,  and  therefore  the  adver- 
tising man  must  see  that  this  end  of  the  work  is  high  class.  One  of  the 
attractive  features  of  a  recent  fur  advertisement,  was  the  border  design 
formed  of  traps,  chains,  and  snow  shoes,  all  appropriate  to  the  subject, 
and  adding  to  the  appearance  of  the  advertising.  The  illustrations  should 
never  be  such  as  would  detract  from  the  central  idea  of  fur  garments, 
although  this  is  a  mistake  which  is  frequently  made. 

You  will  notice  by  the  schedule  (Form  1)  that  he  has  21  quarter 
pages,  six  half  pages,  twenty  28-line  ads,  etc.,  to  write  all  of  which  has 
to  be  planned  and  written  and  illustrated  so  as  to  make  the  best  use 
possible  of  the  space. 

Copy  and  plates  disposed  of,  the  detail  of  keying  the  magazines  is 
attended  to.  Keying  is  a  comparatively  new  method  of  insuring  to  each 
magazine  credit  for  the  inquiries  and  sales  made  through  its  advertising. 
The  ideal  key  is  one  that  is  part  of  the  address,  so  that  the  person  answer- 
ing the  ad  thinks  that  unless  this  number  is  on,  the  letter  will  not  reach 
the  proper  place,  as  for  instance  the  ad  in  one  magazine  says  109  E.  Sixth 
Street,  while  the  Delineator  has  110  East  Sixth  Street,  Harper's  112,  and 
so  on.  Department  numbers,  suite  numbers,  post  office  boxes,  stations, 
etc.,  are  used  in  this  way  and  it  has  been  found  to  answer  much  better 
than  the  old  method  of  saying  "please  mention  this  magazine,"  which 
only  a  limited  number  of  people  remember  to  do.  Giving  the  catalog  a 
different  number  in  each  magazine  is  another  method  which  answers 
very  well.  For  example,  when  Mrs.  John  Jones  writes  in  for  catalog  No. 
10,  her  inquiry  is  immediately  credited  to  the  Woman's  Home  Companion, 
while  Mr.  Smith  asking  for  catalog  No.  8,  is  credited  to  The  Book-Keepee. 

107 


1' 

HI 


Adv. 


American  Business  and  Accounting  Encyclopedia 


131 


SCHEDULE  FOR  ADVERTISING— SEASON  1907. 

Ladies'  Home  Journal—  September. 

^  page   $1,000.00  gross. 

Butterick  Trio — 

M  page    $  954-75 

Harper's  Bazar — 

1  page    r $   224.00 

Woman's  Home  Companion — 

J4  page   %  450.00 

October. 

Ladies'  Home  Journal — 

14   page $1,000.00 

Butterick  Tria- 
ls   page    %   954.00 

Harper's  Bazar — 

1  page   $   224.00 

Woman's  Home  Companion — 

Y,    page    $  90000 

Munsey's — 

^    page    %   125.00 

The  Book-Keeper— 

1  page   %   132.00 

Collier's — 

28  lines  4  Weeks     $   280.00 

Life— 

28  lines  4  weeks     • $     ^'''•20 

November. 

(Same  as  October)    $3,675.20 

December. 

Ladies'  Home  Journal — 

i^  page   $2,000.00 

Butterick  Trio — 

y^  page   $1,809.00 

Harper's  Bazar — 

1  page    %   224.00 

McClure's — 

1/2    page    %   250.00 

The  Book-Keeper— 

1  page   %  132.00 

Collier's — 

28  lines,  4  issues   $   280.00 

Life— 

54  page,  4  times   $   250.00 

Miscellaneous  papers  for  Xmas ^1,000.00 

$15,532.15 
Additional   for  incidentals    2,000.00  $17,582.15 


The  details  of  rates,  discounts,  and  the  advertisements  as  they  appear, 
are  checked  in  the  advertising  department  before  the  bills  are  sent  in  to 


108 


131 


American  Business  and  Accounting  Encyclopedia 


Adv. 


'he  accounting  department.  Frequently  these  details  are  handled  entirely 
oy  the  advertising  agency,  who  places  the  firm's  advertising. 

When  inquiries  begin  to  come  in,  follow-up  cards  (Form  2),  are 
made  out  for  every  inquiry,  indicating  which  periodical  receives  credit, 
giving  dates  when  follow-up  letters  are  to  be  mailed,  etc. 

For  example,  Mrs.  Jones  writes  in  for  catalog  Xo.  7,  which  is  imme- 
diately mailed  her,  with  a  letter  and  order  blanks,  with  directions  for 
measurements,  etc.,  and  her  card  is  made  out,  showing  that  Everybody's 
is  to  receive  ere  lit  for  the  inquiry,  and  the  date  of  mailing  catalog  is 
noted.  A  week  passes,  Mrs.  Jones  has  not  written,  and  a  second  letter  is 
mailed  her.     In  the  course  of  a  few  days  a  letter  is  received  from  Mrs. 


TOvv^< 

Col um  bus 

5tatc 
Oft  'C 

NAME 

M ft  J'ohn  tlone-t 

Bu»iNESS 

f?  ATif>(& 

RrMAWKS 

\^anti     T?tjsstan^ 

OuOTEo 

Terms 

f^ony    Coat     Y    Muff 

9j    9J- 

C  ^sA^ 

\OM.-r*  m/mote 

Li  re^A  Tu^t 

f*e^.>^.s 

P/3  /    07 

C ai  al oAue 

0  rdared     Coat    "* /^tiff^ 

P/  /»  /  0  7 

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. 

lt/^/07 

Ach.     ord^r 

Skt  tatter's    fecet  9t 

/»/  7y*.7 

SA  if^ed. 

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S  ( 

Form  2. 

Jones,  who  wants  to  know  if  a  certain  change  can  be  made  in  a  model 
given  in  the  catalog,  and  what  the  change  will  cost.  A  letter  is  immediately 
dispatched  to  her  advising  her  that  the  change  can  be  made  as  suggested, 
and  the  coat  will  then  cost  ^S,  instead  of  S>75.  Another  week  and  an 
order  is  received,  and  Everybody's  receives  credit  for  the  sale. 

After  the  goods  are  shipped,  and  an  express  receipt  is  received,  Mrs. 
Jones'  card  reads  like  Form  3. 

Mrs.  Blank,  of  Ohio,  wants  catalog  Xo.  10,  which  is  sent  to  her, 
with  the  usual  letter.  Xo  reply.  The  second  and  third  follow-up  letters 
are  sent,  with  the  same  result.  For  the  remainder  of  the  season  all  adver- 
tising matter  is  sent  to  her,  as  her  first  inquiry  showed  some  interest  and 
perhaps  at  the  January  sale  she  purchases  a  set  of  furs.  H'er  card  shows 
these  details.     Of  course  there  are  a  number  of  people  who  never  go  any 

farther  than  writing  for  the  catalog,  and  while  the  number  who  write  in 
reduce  the  cost  per  inquiry  for  the  magazine  which  they  read,  they  make 
no  reduction  on  the  cost  per  sale. 

Of  course,  in  the  case  of  this  fur  manufacturer,  a  large  number  of 
women  do  buy,  sending  measures,  money,  etc.,  knowing  that  the  house 
is  a  thoroughly  reliable  one.  This  is  another  of  the  important  points  in 
the  advertising  campaign  of  today;  every  first-class,  high-grade  periodical 

109 


Adv. 


American  Business  and  Accounting  Encyclopedia 


131 


P2>BUCAT10N. 
AD0RE56 


PAID    PAPER 

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CR.  ADVERTiaCR 


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protects  the  possible  purchaser  to  the  fullest  extent  by  being  extremely- 
particular  in  regard  to  the  class  of  advertising  carried,  and  absolutely 
refuses  to  take  advertising  from  any  concern  who  fail  to  do  as  they  agree, 
upon  positive  knowledge  of  that  failure,  consequently  every  purchaser 
knows  that  in  addition  to  the  reliability  of  the  firm  advertising,  he  may 
rely  on  the  responsibility  of  the  magazine. 

At  the  end  of  the  month,  or  the  season,  the  cost  of  advertising  is 
figured  up,  the  cost  per  inquiry  and  the  cost  per  sale,  and  a  summary  is 
made  up  and  filed  as  a  guide  for  future  advertising. 

This  summary  (Form  4)  shows  that  certain  periodicals  pay  better 
than  others,  that  the  cost  per  inquiry  was  lower  on  some,  and  the  cost 
of  sales  lower  on  others;  that  some  papers  brought  in  no  inquiries;  also 
that  there  are  a  scattering  few  which  can  not  be  traced  exactly. 

This  tabulated  result  of  the  season's  advertising  gives  a  small  idea  of 
the  amount  of  money,  and  work,  involved,  the  system,  and  detail  work 
which  enters  into  modern  advertising. 

There  is  such  keen  competition,  so  many  in  the  field  there  is  no 
room  for  theory,  nothing  counts  but  results,  and  in  making  out  the  list 
for  next  year,  the  mediums  which  do  not  show  results  are  cut  out,  and 
the  merry  war  goes  on,  advertising,  the  right  kind,  with  the  right  mediums, 
being  the  power  that  delivers  the  goods— results.— (R.  McBride.) 


110 


131-133      American   Business  and  Accounting  Encyclopedia 


Adv, 


U^iLyKcconD   or  Rt^Lir*     rnoM    Anvf pxiama    rno    Moiy-r«     or                &^p"t?i^b*.»               i^aj 

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(132)     ADVERTISING,  CHECKING  INSERTIONS  OF. 

In  the  advertising  departments  of  all  concerns  placing  a  considerable 
volume  of  advertising,  one  of  the  most  vexing  details  is  that  of  checking 
insertions.  Unless  the  work  of  the  department  is  thoroughly  systematized, 
bills  for  advertising  are  continually  being  received  which,  it  is  impossible 
for  the  advertising  manager  to  O.  K.,  simply  because  he  has  no  positive 
record  of  the  insertion  of  the  ad  as  ordered. 

Too  often  this  is  not  due  to  the  absence  of  proper  systems  of  record 
in  the  advertising  department,  but  rather  to  the  failure  of  others  in  ttie 
office  to  lend  necessary  co-operation.  The  writer  has  known  of  cases 
where  it  was  almost  impossible  for  the  advertising  manager  to  check 
insertions  for  the  reason  that  he  never  received  the  publications.  The 
person  opening  the  mail  or  perhaps  someone  else  having  access  to  the 
mail  before  it  is  opened,  would  take  advantage  of  the  opportunity  to 
secure  free  reading  matter  and  carry  away  all  the  popular  publications. 
An  advertising  manager  who  uses  The  Book-Keeper,  recently  requested 
that  an  extra  copy  of  the  publication  be  sent  to  his  home  address,  stating 
that  he  seldom  saw  the  copy  coming  into  the  office  as  some  other  depart- 
ment manager  invariably  found  something  of  interest  in  each  number  and 
carried  it  home  with  him. 

Of  course  the  sending  of  copies  of  the  publication  to  the  home  address 
of  the  advertising  manager  will,  in  a  measure,  overcome  the  difficulty, 
but  this  should  not  be  necessary.  In  a  well-regulated  office  all  publications 
received  should  go  first  to  the  advertising  department  with  the  under- 
standing that  those  which  are  of  permanent  value  will  be  kept  on  file  in 
that  office  where  they  can  be  secured  by  others  on  request. 

A  reader  who  has  had  to  contend  with  this  difficulty  sends  us  a 
sample  of  the  record  form  which  he  is  using  for  the  purpose.  This  form 
which  is  on  a  card,  is  illustrated  herewith.  One  card  is  used  for  each 
publication  and  as  the  firm  in  question  use  only  monthly  magazines,  the 
form  provides  for  a  record  extending  over  a  period  of  one  year.  Each  ad 
used  by  the  firm  is  known  by  a  number.  To  accommodate  the  pages  of 
different  publications,  the  sam.e  ad   may  be  set  in   different  size,  i    e.. 


Ill 


r 


Adv. 


American   Business  and  Accounting  Encyclopedia       13'2-133 


a  56-line  ad  in  one  publication  may  make  a  62-line  ad  in  another.  Imme- 
diately below  the  lines  showing  the  number  of  the  ads  is  a  record  showing 
the  number  of  lines  occupied  by  that  ad  in  the  publication  in  question. 
On  the  next  line  is  given  the  key  for  each  ad  then  opposite  the  month  and 
under  the  proper  number  the  check  mark  shown  at  the  bottom  of  the  card 
and  indicating  that  an  insertion  has  been  ordered,  is  placed.  A  glance  at 
the  card  shows  just  what  advertisements  have  been  ordered  for  each 
month. 


Year 

Publication                          City                            State 

A0U8KB 

Fsm- 

<ONAL 

1IXA»- 

xn 

No. 

1 

No. 

1 

No. 

9 

Mo. 

No. 

s 

No. 

• 

No. 

T 

No 

a 

HoLmmes 

Key 

Han. 

Feb 



A«  Insertion  OmssRCft 


V«In«crtion  O.K.      O.OwiTTfil) 


When  publications  are  received,  they  are  sent  immediately  to  the 
advertising  department  when  the  ad  is  compared  with  copy  furnished  and 
checked  for  correct  key  numbers.  The  proper  check  marks  are  then 
placed  on  the  card  indicating  that  it  has  been  inserted  as  ordered  or 
omitted.  These  cards  are  filed  alphabetically  according  to  the  name  of 
the  publication  and  the  record  enables  the  advertising  manager  to  promptly 
O.  K.  bills  and  also  to  know  just  what  advertising  has  been  running  in 
each  publication.  A  comparison  with  the  records  showing  the  returns 
from  advertising  will  then  indicate  which  copy  pulls  best  in  any  given 
medium. 

(133)     ADVERTISING  SYSTEM  FOR  A  MONTHLY 

PUBLICATION. 

On  the  co-operation  given  the  field  force  by  the  advertising  depart- 
ment in  the  home  office  of  a  publication  depends  much  of  the  success  ol 
the  advertising  department  as  a  whole.  It  is  necessary  therefore  that  the 
records  in  the  home  office  shall  be  so  complete  that  no  information  of  value 
to  the  field  representatives  shall  be  overlooked.  The  field  force  should  be 
kept  in  constant  touch  with  what  is  being  done  by  the  home  office ;  but  it 
is  also  equally  important  that  the  home  office  know  what  is  being  done  from 
day  to  day  by  the  field  force.  The  records  here  described  are  in  successful 
operation  in  the  office  of  a  leading  monthly  magazine,  and  have  been 
devised  to  meet  the  particular  requirements  of  that  publication. 

Solicitor's  Report.  That  the  home  office  may  keep  in  touch  with  the 
work  of  the  field  representative  a  solicitor's  report  or  a  blank,  like  the 

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form  shown,  is  used.  Each  day  the  solicitors  report  every  call  made  on 
these  blanks.  The  blanks  are  made  in  triplicate,  two  copies  being  mailed 
to  the  home  office,  and  one  retained  by  the  solicitor.  When  received  at 
the  home  office  they  are  carefully  examined  by  the  head  of  the  department, 
who  notes  on  each  report  the  day  when  it  should  again  receive  attention. 
If  the  report  is  may  in  May,  and  shows  that  contracts  are  placed  October 
1st,  the  date  indicated  for  attention  will  be  about  August  15th,  and  the 
report  itself  will  be  filed  under  that  date  in  an  ordinar\'  office  tickler.  On 
the  first  and  15th  of  each  month  all  reports  filed  under  that  date  are  again 
brought  to  the  notice  of  the  head  of  the  department,  who  mails  them 
direct  to  the  solicitor,  making  on  the  report  such  comments  as  he  deems 
advisable.  No  matter  whether  or  not  the  solicitor  keeps  a  systematic  file 
of  future  prospects,  these  reports  will  automatically  come  to  light,  and  he 
will  receive  them  at  the  time  when  he  should  begin  a  vigorous  campaign 
to  secure  the  business. 

Mailing  List.  For  the  mailing  list  an  envelope  printed  as  shown  is 
used.  In  this  envelope  is  placed  the  second  or  duplicate  copy  of  the 
solicitor's  report,  as  well  as  clippings  of  ads  from  other  publications. 
These  envelopes  are  filed  in  ordinary  card  files  indexed  by  states  and 
towns,  the  states  being  arranged  to  conform  with  the  territory  covered 
by  each  representative.  Across  the  top  of  the  envelope  will  be  noted  a 
series  of  numbers.  These  numbers  are  used  to  indicate  the  line  of  busi- 
ness in  which  the  advertiser  is  engaged,  or  the  class  of  advertising.  The 
class  of  advertising  is  of  vital  importance  to  the  solicitor,  and  especially 
to  the  home  office,  in  mailing  letters  or  other  literature.  In  knowing  the 
line  of  business  in  which  a  man  is  engaged  we  can  approach  him  with  the 
strongest  argument  for  using  the  publication  in  advertising  his  particular 
product.  As  soon  as  an  order  is  received  the  envelope  of  the  advertiser 
is  immediately  removed  from  the  file.  Reference  to  the  report  in  the 
envelope  shows  to  what  solicitor  credit  should  be  given,  so  that  even 
where  the  business  comes  through  an  agency,  our  own  solicitor  is  given 
proper  credit.  The  envelope  is  now  filed  in  another  compartment  reserved 
for  current  advertisers,  and  there  it  remains  as  long  as  the  copy  runs  con- 
tinuously in  the  magazine,  or  until  the  completion  of  the  contract.  This 
obviates  the  error  of  sending  the  same  soliciting  literature  to  regular 
advertisers  that  is  used  in  plugging  prospective  advertisers. 

Above  we  have  referred  to  the  numbers  on  the  envelope  which  repre- 
sent different  classes  of  advertising.  To  readily  distinguish  these  a  metal 
tab  is  placed  over  the  proper  number ;  thus,  if  an  advertiser  manufactures 
office  furniture,  a  tab  will  be  placed  over  No.  3.  Whenever  there  is  any 
special  reason  for  communicating  with  manufacturers  of  office  furniture, 
all  that  is  necessary  is  to  address  the  names  on  the  envelopes  bearing 
tabs  in  No.  3  position. 

Handling  the  Order.  When  an  order  and  copy  is  received  in  the 
office  the  first  step  is  to  transmit  instructions  to  the  composing  room.    For 

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that  purpose  a  blank  headed  "printing  order"  is  used.  This  order  is  made 
in  duplicate,  the  original  being  attached  to  the  copy  and  sent  to  the  com- 
posing room  with  the  cuts,  while  the  duplicate  is  filed  under  the  name  of 
the  advertiser.  At  the  end  of  the  month,  or  when  the  issue  is  off  the  press, 
these  printing  orders  are  removed  from  the  alphabetical  file,  but  kept  in 
alphabetical  sequence,  and  tied  in  bundles.  They  are  kept  for  two  or 
three  months,  after  which  they  are  of  no  further  use  and  are  destroyed. 

The  next  step  is  to  enter  the  order  on  a  card  like  the  one  shown,  which 
gives  full  particulars  of  the  contract,  months  of  insertion,  date  copy  and 
cuts  are  received,  date  proofs  are  mailed  and  returned,  space,  position,  etc. 
A  white  card  is  used  for  all  advertisers  who  send  their  orders  direct,  while 
a  card  of  another  color  is  used  for  business  coming  through  an  agency. 
The  white  or  direct  cards  are  filed  alphabetically,  while  the  agency  cards 
are  filed  behind  indexes  on  which  are  written  the  names  of  the  agencies. 
As  each  advertising  form  comes  from  the  printing  department  for  check- 
ing, insertions  are  checked  and  the  page  numbers  entered  in  the  page 
column  on  the  cards.  At  the  same  time  these  cards  are  removed  from 
the  file,  and  placed  in  another  file  indexed  in  exactly  the  same  manner. 
When  the  last  form  has  been  checked  all  cards  will  have  been  removed 
from  the  original  file,  unless  an  ad  has  been  omitted,  and  this  in  itself 
gives  a  double  check  upon  the  insertions.  The  numbers  across  the  top 
of  this  card  represent  the  space  occupied  in  inches,  magazine  space  usually 
being  figured  in  inches  rather  than  lines.  Tabs  are  placed  over  the  num- 
bers so  that  we  can  very  quickly  estimate  the  total  space  in  the  magazine 
from  the  tabs  themselves,  and  also  tell  how  many  full  page  or  half  page 
ads  or  any  other  size  space  we  have  each  month.  After  all  insertions  have 
been  checked  the  cards  are  turned  over  to  the  accounting  department,  and 
the  bills  are  made  direct  from  the  cards.  When  contracts  expire  the  cards 
are  filed  away  in  another  file  arranged  exactly  as  in  the  current  file.  In 
order  that  we  may  be  able  to  locate  the  card  of  any  advertiser  whose  busi- 
ness has  come  through  an  agency,  an  index  card  is  made,  which  is  a  3x5 
card,  on  which  is  typewritten  the  name  and  address  of  the  advertiser  and 
the  name  of  the  agency.  These  cards  are,  of  course,  filed  alphabetically 
under  the  name  of  the  advertiser. 

To  keep  the  field  force  posted  on  what  is  being  done  a  daily  report  is 
made,  the  blank  headed  "Advertising  Record,"  which  shows  the  business 
received  from  each  solicitor  for  the  day.  Enough  copies  are  made  to 
supply  each  branch  office  and  each  solicitor. 

A  summary  of  all  advertising  received  from  each  agency  is  kept  in 
loose  leaf  form  on  blank  illustrated.  There  are  twelve  columns,  which 
give  the  total  business  received  from  each  advertiser  during  an  entire  year. 
Similar  sheets  are  kept  for  direct  advertisers  and  also  for  each  solicitor. 

The  totals  of  the  solicitors*  sheets  must  equal  the  total  of  the  agencies 
and  direct  advertisers'  sheets  and  this  total  must  in  turn  agree  with  the 

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total  of  the  bills  made  direct  from  the  cards.     This  provides   a  very 
effective  check  on  the  accuracy  of  the  records. 

While  the  above  described  system  was  designed  especially  for  the 
use  of  a  monthly  publication,  it  could,  with  slight  changes,  be  readily 
adapted  to  the  requirements  of  a  weekly,  or  even  a  daily. — (J.  B.  Griffith.) 

(134)     ADVERTISING  RATE  CARDS. 

By  dint  of  much  education  and  a  large  expenditure  of  money,  the 
publication  that  has  healthy  advertising  in  it  has  been  compelled  to  fix  one 
rate.  Advertisers  have  been  educated  to  understand  that  a  publication 
having  more  than  one  rate  was  likely  to  have  more  than  two.  When  we 
pay  less  than  someone  else,  we  open  up  the  possibility  that  we  are  paying 
more  than  a  third  party,  and,  inasmuch  as  it  is  no  bargain  unless  we  are 
getting  the  lowest  rate  at  which  a  thing  is  sold,  it  is  the  worst  kind  of  a 
proposition  to  buy  space  in  a  publication  which  makes  special  inducements. 

Rate  cards  should  be  filed  with  circulation  information  as  regards  pub- 
lications and,  in  some  cases,  it  is  advisable  to  make  a  simple  digest  on  the 
back  of  the  card  of  any  circulation  information  you  may  have.  As  it  is 
not  necessary  to  handle  circulation  information  in  detail  from  territories 
in  which  you  are  not  interested,  it  is  well  to  have  a  regular  rate-card 
cabinet,  or  section,  if  you  use  sectional  cases,  to  file  your  rate-cards 
according  to  the  name  of  the  journal.  This  is  much  more  preferable  than 
filing  according  to  towns  or  districts,  as  your  town  and  state  indexes  are 
always  at  hand  in  the  shape  of  newspaper  directories  that  are  arranged" 

by  states. 

It  has  been  the  practice  in  some  houses  handling  a  considerable 
quantity  of  advertising  through  journals,  etc.,  to  write  a  confidential  letter 
to  the  advertising  manager  in  other  houses  in  non-competitive  lines,  ad- 
vertising, however,  in  the  same  lines  of  publications,  stating  frankly  the 
amount  they  are  paying  for  space  in  that  publicatibn  and  asking  for  an 
exchange  of  information.  This  is  in  line  with  the  words  "community  of 
interest"  that  is  arising  among  advertisers  using  certain  lines  of  publica- 
tions. . 

Form  shown  has  been  used  successfully  in  obtaining  information  of 

the  above  character. 

Wholesale  Manufacturing  Advertising.  This  is  mainly  trade  paper 
advertising  with  the  follow  up  of  catalogs  and  booklets  for  the  purpose 
of  creating  a  demand  for  a  certain  definite  and  restricted  line  of  goods. 
The  copy  is  primarily  intended  to  reach  a  man  who  is  going  to  sell  the 
goods  again. 

In  preparing  the  copy,  the  main  idea  kept  in  view  is  to  bring  out  the 
salesmanlike  points  that  impress  the  retailer,  or  advertiser,  generally  in  his 
attitude  towards  his  own  prospects.  The  retailer  does  not  care  how  much 
it  costs  to  manufacture,  or  make  goods,  but  he  is  interested  in  knowing 
how  easily  he  can  sell  them,  therefore  the  manufacturer  must  call  the 

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retailers'  attention  to  any  facts  that  will  impress  the  latter  with  the  ease 
with  which  his  line  can  be  handled  to  the  consumer. 

If  the  manufacturer  is  advertising  in  general  mediums  to  create  a 
demand  for  his  product,  this  campaign  should  be  called  strongly  to  the 
retailers'  attention ;  prices  and  discounts  should  be  dwelt  upon  and  a  care- 
ful and  detailed  statement  should  be  kept  of  all  literature  sent  to  such 
possibilities. 


CONFIDENTAL  INFORMATION 


Ward,  Brown  &  Co., 

Philadelphia,  Pa, 

We  are  advertisers  in and  we 

pay  $ per for  our  contract  covering years. 

We  place  our  business 

We  believe  the  circulation  to  be 

Would  you  mind   stating  to  us  in  confidence  your  experience  as 
above  with  the  same  medium? 

We  will  be  glad  to  return  the  compliment  whenever  we  can. 

Respectfully  yours, 

Smith  &  Co. 


In  the  manufacturing  line,  for  instance,  such  as  hardware,  where  wc 
have  a  very  large  distribution  of  small  units,  and  where  the  character  of 
the  demand  is  divided  up  into  widely  different  lines,  it  is  hardly  possible 
to  publish  literature  that  will  be  equally  interesting  to  all  concerned.  The 
only  really  successful  attempt  in  this  line  of  work  has  been  the  house 
organ. 

The  list  of  sales  possibilities  in  the  hands  of  the  sales  department  is 
also  the  advertisers'  mailing  list.  The  advertising  manager  should,  there- 
fore, insist  that  this  sales  list  be  kept  up-to-date  in  every  particular. 

As  the  sales  department  and  the  advertising  department  are  primarily 
interested  in  creating  a  demand,  they  accomplish  this  in  this  system  of 
handling  the  records  by  knowing  at  all  stages  of  the  work  what  a  list  of 
people  have  purchased,  thereby  being  able  to  determine  the  list  of  goods 
they  may  be  approached  upon  for  hitherto  unsold  product. 

(135)     ADVERTISING,  STATISTICAL  REPORTS  OF. 

The  importance  of  statistical  reports  have  been  recognized  for  a  long 
time  by  the  larger  advertisers,  especially  in  the  retail  and  mail  order  fields. 
In  the  mail  order  fields  especially,  the  statistical  report  has  been  carried 
to  its  utmost  refinement. 

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These  statistical  reports  are  to  the  advertising  and  sales  managers 
what  the  statistical  accounting  reports  are  to  the  accounting  manager; 
they  represent  the  very  essence  in  the  results  of  a  campaign,  or  the  present 
tendencies  of  a  campaign. 

It  is  very  difficult  for  the  advertising  or  sales  manager  to  step  outside 
from  his  work  at  hand  and  get  a  general  survey  of  the  condition  of  his 
department  that  shall  at  once  be  shown  accurate  as  to  detail,  and  con- 
servative as  to  general  effects. 

In  the  expenditure  of  thousands  of  dollars  it  is  vastly  important,  and 
in  fact  the  success  of  a  campaign  in  these  days  of  competition  depends 
on  making  every  dollar  count.  The  reason  that  so  much  advertising 
expenditure  finds  its  way  into  the  waste  basket,  or  seems  to  vanish  into 
thin  air,  is  because  there  is  no  check — no  absolute  detailed  check  on 
results ;  the  mere  piling  up  of  inquiries,  or  the  mere  piling  up  of  orders, 
affords  no  accurate  information  of  what  a  campaign  has  accomplished. 

In  the  handling  of  an  appropriation  covering  thousands  of  dollars, 
necessarily  many  different  mediums  are  used.  For  instance,  a  page  ad  in 
"The  Ladies'  Home  Journal,"  run  for  one  year,  would  mean  an  expendi- 
ture of  over  $70,000;  the  same  size  advertisement  run  in  "Munsey's 
Magazine"  would  mean  an  expenditure  of  over  $45,000;  in  "McClure's," 
same  price;  and  so  on  down  the  list  of  the  foremost  mediums,  so  that  a 
total  expenditure  of  $250,000  might  be  distributed  over  ten  or  twelve  of 
the  leading  monthly  papers  in  an  elaborate  system  of  supplementary  work 
to  follow  up  the  inquiries  resulting  from  periodical  advertising. 

Within  a  comparatively  recent  time,  advertisers  have  come  to  realize 
more  expensive  possibility  than  a  $2  a  line  one.  If  out  of  a  $6  a  line 
the  fact  that  the  $6  a  line  magazine  does  not  necessarily  mean  any 
magazine  we  should  receive  two  inquiries  for  every  dollar  we  expended, 
we  would  be  better  off  than  if  we  received  two  inquiries  from  every  dollar 
expended  in  a  $2  a  line  magazine.  We  would  be  better  off — in  fact,  we 
would  be  a  hundred  per  cent  better  off,  so  far  as  inquiries  are  concerned, 
but  suppose,  on  the  other  hand,  however,  every  order  we  get  out  of 
the  $6  a  line  magazine  should  cost  us  $10,  and  every  order  out  of  the  $2 
a  line  magazine  should  cost  us  $5,  we  would  be  better  off  with  the  least 
number  of  inquiries  and  more  orders  in  proportion  with  the  cheaper 
magazine  on  the  given  condition  of  the  quantity  of  advertising  we  use, 
both  in  obtaining  the  inquiries  and  following  them  up. 

The  advertising  manager  must  know,  therefore,  what  his  advertising 
is  doing  in  the  way  of  bringing  in  new  inquiries,  and  he  must  go  further 
than  that  in  the  mail  order  field  and  know  what  kind  of  people  he  is 
attracting  to  his  proposition,  because  in  the  mail  order  field,  the  advertising^ 
manager  is  largely  a  sales  manager  as  well;  he  must  not  only  get  the 
inquiries,  but  he  must  sell  the  goods. 

Advertising  a  proposition,  therefore,  in  the  mail,  order  field,  is  to  ad- 
vertise  it  by  two  processes;  the  original  ad  brings  the  inquiries  with  the 

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sufficient  notation  that  the  ad  had  appeared;  if  the  follow-up  system  fails 
to  land  the  orders,  then  we  must  reform  the  follow-up  system;  or,  after 
carefully  analyzing  the  former,  we  find  that  the  original  advertisement 
has  promised  more  than  we  can  deliver,  we  can  bring  the  original  adver- 
tisement closer  to  realities,  and,  while  obtaining  less  inquiries,  we  obtain 
more  orders  in  proportion.  However,  this  is  largely  a  question  of  adver- 
tising management  rather  than  a  question  of  advertising  system. 

The  method  of  taking  care  of  these  reports  and  digests,  in  the  shape 
of  a  statistical  statement  at  the  end  of  any  given  period,  is  what  concerns 
us  at  the  present  time. 

Taking  the  previous  context  outlined,  we  will  find  in  the  mail  order 
business  that  we  have  the  cost  of  any  particular  department  elaborated. 
Our  mailing  clerk  will  have  given  us,  each  day,  the  number  of  inquiries 
resulting;  the  sales  department  records  will  give  us  the  amount  of  orders 
resulting;  and  by  reference  to  our  sales  list,  we  will  be  able  to  trace  each 
order  to  its  original  source ;  therefore,  in  our  statistical  statement,  we  shall 
show : 

First,  the  name  of  the  journal ; 

Second,  the  amount  of  space  used  ; 

Third,  the  cost; 

Fourth,  the  name  of  the  advertisement  so  as  to  identify  the  copy; 

Fifth,  the  total  number  of  inquiries  received; 

Sixth,  the  cost  per  inquiry; 

Seventh,  the  number  that  received  one  follow  up ; 

Eighth,  the  number  that  received  two  follow  ups ; 

Ninth,  the  number  that  received  three  follow  ups ; 

Tenth,  the  number  tha  rteceived  four  follow  ups; 

Tenth,  the  number  that  received  four  follow  ups ; 

Twelfth,  the  total  cost  of  such  follow  up ; 

Thirteenth,  the  average  cost  per  inquiry; 

Fourteenth,  the  gross  amount  of  business  done; 

Fifteenth,  the  average  of  business  to  each  order; 

Sixteenth,  the  average  of  business  to  each  inquiry.  This  last  is  neces- 
sary in  order  to  find  out  how  much  we  can  afford  to  pay  for  inquiries. 

Seventeenth,  the  total  average  cost  of  each  order; 

Eighteenth,  the  percentage  for  advertising  and  selling  on  the  total 
amount  of  business  done. 

Where  more  than  one  line  of  goods  are  handled,  and  are  handled  in 
departments,  or  where  several  lines  are  handled,  there  should  be  further 
distribution  showing  how  much  each  department  did,  and  the  notations 
should  be  made  to  cover  all  the  different  points  involved  in  the  foregoing, 
for  each  department,  and  then  a  general  statistical  statement  should  be 
made  out  as  follows : 

Total  advertising  done  in  Department  A ; 

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Total  advertising  done  in  Department  B ;  and  so  on,  and  then  in  each 
case  the  following  should  be  looked  after: 
First,  total  business  in  the  department ; 
Second,  total  number  of  orders  in  the  department; 
Third,  total  cost  per  order; 
Fourth,  average  gross  profit  per  order; 
Fifth,  pro  rata  office  expense. 
Sixth,  same  month  last  year. 

Advertising  Pointers  for  the  Retailer. 

How  TO  Prepare  Newspaper  Copy.  The  way  in  which  copy  is  handled 
by  the  compositor  materially  affects  the  returns.  Your  ad  should  not 
only  be  set  in  a  way  to  distinguish  it  from  all  other  ads  in  the  paper,  but 
should  be  graceful  and  in  other  ways  pleasing  to  the  eye.  An  ad  which 
is  in  good  taste  is  not,  however,  necessarily  correctly  set  from  an  advertis- 
ing standpoint.  Those  things  which  are  important,  as  the  names  and 
prices  of  goods,  should  easily  catch  the  attention  of  those  who  merely 
glance  at  the  ad. 

It  would  hardly  be  profitable  to  devote  much  time  in  going  into 
details  of  typographical  composition  in  an  article  intended  to  be  read  by 
the  merchant  himself,  and  not  by  his  advertising  man.  For  the  merchant 
who  has  not  the  benefit  of  some  little  technical  knowledge  of  typography 
probably  the  best  plan  to  insure  good  display  would  be  to  select  from 
some  out  of  town  newspaper  an  ad  set  in  a  distinctive  and  easily  read 
style  and  to  give  instructions  to  have  all  ads  set  as  nearly  as  possible  in 
that  manner.  A  uniform  stylf  by  the  way,  to  be  varied  only  as  the  size 
and  shape  of  the  ads  may  necessitate,  is  good  policy.  Your  ad  should  be 
known  by  all  regular  readers  of  the  newspaper  in  which  it  appears  at  a 
glance.  Thus  whether  the  ad  is  read  or  not  and  even  without  the  necessity 
of  reading  your  name,  your  store  is  suggested. 

Your  name  should  be  particularly  prominent  in  all  your  ads.  The 
best  plan  is  to  have  a  series  of  cuts  made  by  way  of  signature,  suitable  to 
all  sizes  of  space  used.  For  this  purpose  a  very  plain  letter  is  best.  The 
use  of  script  letters,  so  much  in  favor  for  this  purpose  is,  to  my  mind, 
a  mistake,  because  of  loss  of  legibility.  A  very  neatly  drawn  letter  some- 
what on  the  order  of  type  and  without  frills,  is  to  be  preferred. 

In  a  large  city,  if  your  store  is  not  among  the  best  known,  it  is  a 
good  idea  to  supplement  your  street  number  by  reference  to  the  cross 
street  between  which  you  are,  or  to  say  "opposite  The  Public  Library," 
or  in  some  other  way  render  your  location  more  easy  to  identify  than  by 
mere  number.  A  very  large  percentage  of  people  have  little  idea  as  to 
how  the  numbers  of  the  streets  in  their  cities  run,  and  are  put  to  the 
necessity  of  either  making  inquiries  or  running  the  risk  of  getting  off  the 
cir  several  blocks  from  your  store. 

All  headings  should  stand  out.    To  effect  this  it  is  not  necessary  to 

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employ  either  very  large  or  very  black  faced  type,  thus  to  overshadow 
the  -est  of  your  ad  to  its  great  advantage.  Attention  is  neither  caught 
nor  held  by  bigness  and  blackness  so  well  as  by  symmetry  and  neatness. 
A  neatly  displayed  ad  with  sufficient  white  space  to  balance  the  type  will 
gain  more  readers  because  of  its  inviting  appearance  than  will  the  ad  of 
the  man  who  employs  types  that  shriek  their  message.  The  proprietors 
of  a  large  department  store  bearing  their  name,  in  Chicago,  are  second  to 
no  retail  advertisers  in  the  world  in  the  effectiveness  of  their  display. 
Upon  the  theory  that  the  eye  is  more  accustomed  to  reading  lower  case 
(as  letters  that  are  not  capitals  are  called)  they  employ  capital  letters 
for  their  heading  only  as  they  would  be  used  in  the  body  of  text,  as 
for  instance  for  the  beginning  of  sentences  and  for  proper  names.  This 
theory  seems  rather  a  small  matter,  and  yet  there  is  a  good  deal  of  merit 
in  it  as  the  reader  may  ascertain  by  test,  and  in  advertising  taking  notice 
of  small  matters  pays. 

The  sizes  of  type  are  measured  by  "points,"  of  which  there  are  72 
to  the  inch.  Thus  10  point  type  is  10-72  of  an  inch.  For  the  convenience 
of  ad  writers  there  are  tables  published  giving  the  number  of  average 
words  that  will  when  set  in  the  different  sizes  of  type  go  into  the  square 
measurement  of  various  sizes  of  space  beginning  with  a  square  inch. 
Thus  the  copy  writer  may  avoid  overcrowding  his  space  to  an  extent 
which  will  prevent  the  compositor  from  properly  displaying  the  ad. 

Checking  Results.  Accompanying  this  article  is  a  set  of  three  forms 
for  keeping  a  record  of  the  results  of  newspaper  advertising.  They  are 
prepared  with  special  reference  to  the  requirements  of  those  merchants 
for  whom  these  articles  are  written.  In  part  they  are  adaptations  of 
systems  in  use  in  two  widely  known  stores  and,  with  additions  to  or 
omissions  from  them,  the  reader  should  be  able  to  work  out  a  system  to 
suit  his  needs. 

Form  1  is  made  out  by  the  buyer  for  a  department  which  for  con- 
venience is  designated  by  a  section  number.  He  lists  all  the  articles  to 
which  he  wishes  to  call  special  attention,  giving  the  quantity  on  hand,  the 
cost,  the  regular  selling  price  and  the  price  which  he  wants  advertised. 
The  size  of  space  wanted  and  date  of  insertion  are  noted  at  the  top.  This 
form  is  for  the  guidance  of  the  advertising  man,  and  in  the  middle  of  it, 
under  "remarks,"  are  such  descriptions  and  suggestions  as  the  buyer 
thinks  necessary.  A  buyer  with  a  touch  advertising  instinct  will  some- 
times practically  write  the  ad  for  his  department  on  this  form. 

Having  the  cost,  the  regular  price  and  the  advertised  price  before 
him.  the  advertising  manager  quickly  sees  how  important  the  ad  is  and 
decides  upon  the  size  of  the  space  to  be  occupied.  He  gives  greater  or 
less  prominence  to  the  parts  of  that  section  of  his  advertisement  as  the 
nature  of  the  articles  listed  and  their  prices  suggest.  As  a  general  rule 
the  request  for  space  is  greater  than  the  demands  of  other  departments 
will  permit,  and  the  advertising  man  is  compelled  to  cut  the  allotment 

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Frequently  this  cutting  of  space  results  in  temporary  discord,  and  some- 
times in  a  good  deal  of  jealousy,  until  the  buyer  is  shown  by  the  record  of 
past  results,  ever  at  the  advertising  manager's  right  hand,  that  he  has 
been  given  as  much  space  as  his  department  will  stand. 

When  the  advertisement  for  the  entire  store  has  been  set  in  type, 
proofs  are  sent  to  the  buyers  of  the  various  departments  represented. 
The  clerks  in  those  sections  are  then  required  to  take  notice  of  all  the 
articles  mentioned  and  to  keep  track  (with  the  assistance  of  a  special  form 
in  the  backs  of  their  sales  books,  or  in  some  other  convenient  way)   not 


Section 


Date  or  Insertion 


1907 


Size  of  space 


Articles 


Remarks 


Quan- 
tity 


Cost 


Reg. 

PRICE 


ADV 

PRlCt 


Form  1. 

only  of  all  sales  made  of  the  advertised  goods,  but  also  of  all  inquiries 
for  them.  The  firm  of  Marshall  Field  &  Company,  of  Chicago,  keep  a 
record  of  all  inquiries  and  sales  for  a  period  of  one  week  after  the  adver- 
tisement has  appeared.  Of  course,  the  object  in  noting  inquiries,  is  that 
investigation  may  be  made  to  ascertain  the  reason  for  any  exceptional 
disproportion  between  inquiries  and  sales.  This  recording  of  inquiries  is 
a  feature  of  some  considerable  value  in  a  large  store,  where  of  course  the 
ad  man  cannot  keep  in  close  touch  with  the  customers  otherwise. 

At  the  end  of  the  week  the  buyer  sends  in  his  report  to  the  adver- 
tising department  on  Form  2,  with  the  total  amount  of  all  returns  or 
credits  deducted  from  the  sales.  In  the  space  under  "remarks"  various 
notations  are  made  for  the  information  of  the  advertising  department,  as 
for  instance:  "20  per  cent  of  sales  of  articles  not  specifically  mentioned 
is  to  be  credited  to  advertising. 

In  the  meantime  the  advertising  department  has  entered  on  the  loose 
leaf  Form  3,  the  state  of  the  weather  for  the  day  on  which  the  advertise- 
ment appeared,  as  the  weather  of  course  has  a  great  deal  to  do  with  the 
success  or  failure  of  the  advertisement.  Then,  opposite  their  section 
numbers,  the  total  calls  for  the  various  departments  taken  from  Form  2 
are  entered  in  column  two  of  Form  3.  In  column  three  are  entered  the 
sales  as  shown  in  Form  2  after  the  deduction  of  credits.  In  column  four 
is  entered  the  cost  of  the  space  for  every  section  and  the  morning  and 
evening  paper  spaces  are  kept  separate.  In  column  five  is  noted  the  per- 
centage of  the  cost  of  the  space  to  the  net  sales. 

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Then  comes  a  comparison  section  by  section  with  the  results  for  the 
corresponding  day  of  the  year  previous,  and  the  weather  for  the  first  day 
of  the  record  of  the  last  year  is  included.  Opposite  the  sections  are 
entered  such  comments  as  are  thought  likely  to  be  of  value  in  the  future. 


Section 

)907 

Days 

Calls  foi 
ADV 

Sales 

CREDITS 

Remarks 

1 
z 

. 

3 

• 

A- 

5 

e 

Form  2. 

The  small  retailer  may  find  in  these  forms  suggestions  of  value  to 
him  in  planning  a  system  in  keeping  with  his  needs.  For  instance,  the 
man  who  writes  and  handles  his  own  advertising  might  by  combining 
on  one  sheet  Forms  1  and  3  have  at  the  end  of  the  year  a  valuable  record 
at  little  expense  of  time. 

Now  as  to  the  writing  of  the  ad. 

The  novice  in  the  preparation  of  advertising  copy  is  as  a  general  rule 
possessed  of  an  idea  that  the  one  great  thing  is  to  be  strikingly  original, 
and  that  to  attract  attention  is  to  achieve  success.  As  a  matter  of  fact 
a  very  little  experience  will  demonstrate  that  mere  originality  is  of  itself 
of  small  value.  "A  plain  tale  plainly  told"  will  carry  conviction  where 
gymnastic  performances  with  words,  types,  rules,  and  cuts  creats  an 
impression  of  insincerity  only.  Exaggeration  beyond  legitimate  bounds 
does  not  pay  in  retail  advertising,  and  an  ad  so  dressed  that  its  very 
appearance  suggests  exaggeration  is  an  extravagant  salesman  whose  expense 
is  likely  to  be  greater  than  the  margin  of  profit  will  allow.  The  mere  fact 
that  a  method  of  advertising  is  much  talked  of  and  making  a  name  widely 
known  is  no  proof  that  it  is  profitable.  Crazy  men  are  the  most  original 
of  all  men  and  are  reasonably  sure  to  attract  attention  in  almost  any  com- 
pany, but  their  conduct  does  not  beget  confidence.  Just  so  with  advertising 
that  is  "queer,"  and  confidence  must  precede  sales. 

To  make  it  fit  the  store  in  style  and  method  is  the  first  consideration 
in  writing  advertising  copy.  The  store  carrying  high-grade  goods  should 
make  its  advertising  correspond  as  to  both  copy  and  typography.  The 
black  smudge  effect  brought  about  by  heavy  borders  and  extremely  bold 
face  type  (which  frequently  proclaim  theretofore  unheard  of  bargains  in 
auction  sale  language)  has  no  place  in  the  advertising  of  such  a  store. 
Such  things,  however,  seem  to  be  eflfective  in  the  case  of  stores  dealing 


9 

l! 


123 


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II 


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135 


in  job  lots  or  selling  cheap  goods  on  the  instalment  plan.  Your  store 
must  be  known  primarily  as  handling  a  certain  quality  of  goods,  high, 
medium  or  low,  and  while  you  may  successfully  combine  all  three  you 
must  to  some  extent  subordinate  in  your  advertising  either  the  high  or 
the  low. 


ADVERTISING  RECORD 
Weather 

I907 

;Sec 

Calls 

won 

Adv 

Sales 

Cost  of 

5PACE 

PERCENl 
COST 

OF 

SPACE 

WEATHER 
IN    1906 

Remarks 

AM. 

P   M 

Oain 

LOSS 

1 

2 

4 

Form  3. 

In  connection  with  the  idea  of  fitting  the  ad  to  the  store  bear  this 
suggestion  in  mind:  The  small  store,  or  the  large  store  handling,  say, 
only  two  or  three  lines,  may  make  profitable  use  of  "heart  to  heart  stuff," 
as  it  is  called,  that  would  be  ridiculous  in  the  ad  of  a  department  store. 
The  proprietor  whose  business  is  of  such  a  nature  that  he  may  become 
intimately  acquainted  with  every  piece  of  merchandise  carried,  may  talk 
in  his  ads  almost  as  he  would  talk  to  an  inquiring  customer.  He  may 
bring  his  personality  to  the  fore  and  so  long  as  human  nature  is  what  it 
has  been  since  the  beginning  of  history  the  element  of  personality  will 

aid  sales. 

Bearing  in  mind  that  servile  imitation  in  advertising  is  seldom  success- 
ful, you  may  by  the  study  of  newspapers  from  other  cities  than  your  own, 
obtain  many  valuable  ideas  to  assist  you  in  writing  ads.  The  merchant 
who  is  ambitious  to  have  his  advertising  stand  out  from  among  that 
of  all  the  other  users  of  small  or  medium  size  space,  should  subscribe  to 
several  outside  papers.  I  should  suggest  two  Philadelphia  and  two  Chicago 
papers  and  perhaps  a  New  York  paper  or  two.  If  your  study  of  the 
advertising  of  others,  however,  does  not  lead  to  more  than  mere  copying 
of  it,  you  had  best  not  waste  your  time  and  money. 

For  years  one  of  the  large  clothing  stores  in  Chicago  has  been  using 
just  the  sort  of  illustration  and  copy  here  mentioned.  The  illustrations 
are  always  unique  and  always  bear  a  little  touch  of  humor,  but  the  copy 
gets  right  down  to  business— short,  sharp,  and  straight  to  the  point.  The 
illustration  is  changed  with  every  insertion,  but  it  always  possesses  certain 
characteristics  that  give  it  almost  the  value  of  a  trade-mark. 

When  a  Chicagoan  opens  his  morning  paper  and  his  eye  hits  the  cut 
he  does  not  have  to  read  the  type  to  know  whose  ad  he  is  looking  at. 
However,  I  should  not  recommend  the  use  of  similar  cuts  to  any  store  in 

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search  of  ideas.  While  they  probably  serve  their  purpose  well  because 
of  the  long-standing  reputation  of  the  store  using  them  and  the  long 
time  they  have  been  employed,  a  store  about  to  adopt  a  style  will  very 
likely  benefit  by  a  decision  to  absolutely  avoid  all  humor,  so  far  at  least 
as  illustrations  are  concerned.  As  a  general  rule  only  such  cuts  as  illustrate 
the  articles  advertised  should  be  used. —  (].  W.  Egan.) 

Lettering  Signs.  Lettering  of  signs  for  retail  stores  is  not  so  very 
difficult  if  you  possess  the  right  kind  of  devices  to  work  with.  If  you  sit 
down  at  the  desk  or  bench  and  begin  to  letter  off  hand,  you  will  strike 
some  difficult  problems  in  alignment,  proportion  and  effect.  You  will 
produce  some  irregular  letters  and  off-sized  presentations.  You  may  do  a 
little  pencil  or  chalk  work  at  first,  for  lining  up  the  letters  in  form,  but 
this  will  not  always  effect  a  remedy.  Y«u  may  do  some  transparencv  work 
and  imitate  staid  letters,  but  this  makes  you  a  copyist.  Therefore,  in 
order  to  help  out  the  novice  in  the  construction  of  simple  sign  cards  for 
the  retail  store,  we  have  executed  the  accompanying  sketches  for  explana- 
tion of  how  we  do  it. 

First  of  all,  you  need  some  equipments.  To  undertake  to  produce 
even  letters  on  an  uneven  surface  results  in  a  poor  job.  Get  your  platen 
ready.  This  may  be  a  wood  base  or  it  may  be  a  desk  top  ready  formed. 
,Pt  may  be  the  top  of  a  glass  show  case  or  an  empty  dry  goods  box. 
Put  a  thickness  of  bristol  board  on  the  surface  and  place  your  drawing 
card  on  that.  Proceed  to  do  some  drafting.  Working  it  out  on  the 
mechanical  scheme,  so-called,  you  can  utilize  a  combination  outfit  of  the 
character  presented  in  Fig.  1.  This  device  can  be  made  by  you,  or  you 
can  place  your  order  for  the  contrivance  at  the  nearest  woodworkers  or 
dealers  in  artists'  materials.  It  consists  of  the  base  piece  b,  to  which  is 
pivoted  the  angle  piece  c.  The  latter  may  be  adjusted  at  anv  angle 
desired  for  the  planning  of  letters  like  "A,"  "V,"  etc.  The  brass  half 
circle  a,  is  connected  with  thumb  screws  and  slotted  for  the  same,  for 
purposes  of  setting  the  angle.  You  will  be  surprised  at  the  wide  variety 
of  shapes  you  can  describe  with  this  device.  You  can  get  it  marked  off 
with  checking  and  measuring  lines.  The  tri-edge  shown  in  the  upper  right 
corner  of  the  cut,  at  e,  is  another  handy  device  made  of  thin  hardwood, 
which  may  be  employed  in  the  describing  of  defined  angles  for  the  letters 
of  the  tapered  class. 

In  Fig.  3  we  present  a  sketching  of  the  type  of  drawing  instrument 
which  you  will  find  exceedingly  handy  for  defining  lines  straight  up  and 
down  on  the  cardboard.  You  get  your  base  line  first  for  the  bottoms  of 
the  letters,  by  the  use  of  the  long  ruler  g.  Then,  using  this  as  the  base 
rule,  you  apply  the  common  form  of  T-square  f  for  the  perpendicular 
lines  of  the  letters  as  shown  in  siding  the  letter  "T."  You  will  find  it 
very  easy  to  slide  the  instrument  along  the  base  piece,  and  prescribe  the 
lines  for  the  different  letters. 


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l,!..,li.,il  °°nJiiiJiiiil  Tfg^J 


TfgQ 


/no/a  ink. 


'rgS' 


1'^T- 


PRACTICAL 


Of  course  there  are  letters  of  the  "rough"  sort,  on  which  there  are 
no  definitely  described  lines,  as  shown  in  Fig.  4.  It  is  a  good  plan  to 
be  familiar  with  a  little  oflf-hand  work  for  the  execution  of  letters  of  this 
class.  However,  the  general  plan  of  these  letters  is  the  same,  regardless 
of  the  lines  describing  the  sides  and  upper  and  lower  edges.  Therefore 
the  triangle  can  be  employed  to  good  advantage  in  the  manner  shown  at 
h.  This  instrument  can  be  used  with  considerable  freedom  in  defining 
base  lines,  providing  that  a  base  ruler,  like  g.  Fig.  3,  is  utilized  in  con- 
nection therewith. 

The  first  proposition,  of  course,  is  to  get  the  hair-lines  made  on  the 
cardboard  or  wood  surfacing  on  which  you  are  doing  the  lettering.  This 
may  be  followed  up  with  the  filling  in.  The  bold  face  letters  take  well, 
and  show  up  the  effect  to  good  advantage.  But  there  are  many  reasons 
why  the  fine,  delicate  lines  of  the  plain  line  letter  is  more  suitable.  Some 
of  the  lettered  signs  are  left  complete  with  the  execution  of  the  hair-lines. 
In  other  cases  the  letters  are  filled  in  solid  black  or  other  color.  Jet  black 
is  always  considered  the  best,  unless  the  man  happens  to  be  an  expert,  in 

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which  case  he  can  work  out  some  enlivening  and  beautiful  designs  in  tints. 
If  you  run  into  the  tinted  letters,  however,  you  will  soon  take  up 
the  floral  effects.  Then  will  come  the  roses  and  posies,  and  in  time  your 
work  will  be  in  demand.  But  this  is  too  much  of  a  jump.  Months  of 
forking  on  plain,  business  lettered  card  must  come  first. 

And  by  the  way,  even  before  you  go  very  far  on  the  plain  work,  you' 
should  make  or  have  made  a  platen  or  board  of  the  character  shown  in 
Fig.  5.  Supposing  that  there  is  a  solid  or  unmovable  base  board  as  seen 
in  the  cut.  This  base  board  may  be  the  table  or  what  not.  The  project 
is  to  get  a  tablet  which  may  be  tilted  to  the  convenient  position  for  the 
artist.  The  front  of  the  secondary  board,  or  tablet,  may  rest  upon  the 
base  board  as  shown.  A  very  simple  way  to  elevate  the  drawing  tablet 
to  the  right  position  consists  in  putting  two  wood  pins  through  the 
upper  corners  as  shown.  These  pins  can  bind  tight  enough  to  support  the 
tablet  at  any  elevation  desired.  Then  to  the  tablet  you  thumb-tack  your 
sketching  paper,  oilcloth  or  cardboard,  and  you  are  ready  for  business. 
You  can  get  one  of  these  boards  made  for  a  dollar  or  two  at  a  carpenter 
shop.  Or,  if  you  have  a  few  tools,  you  can  knock  down  a  dry  goods  box 
in  the  basement  of  your  store  and  with  plane  and  hammer  make  the  draw- 
ing tablet  yourself., 

Of  course  you  will  go  to  the  dealers  in  artists'  materials  and  get  a 
pair  of  dividers  like  that  in  Fig.  8,  as  you  cannot  do  without  the  same. 
Price  75  cents.  A  lining  or  ruling  pen  at  50  cents  is  also  wanted.  Don't 
bother  with  cake  ink  like  that  in  Fig.  7  because  it  is  too  much  bother  to 
work  it  into  liquid  form  in  these  hurry-up  days.  Get  a  20-cent  bottle  of 
India  ink  ready  made.  You  will  lose  nothing  if  you  invest  a  dollar  or 
two  in  a  partitioned  box  of  the  plan  shown  in  Fig.  6,  in  which  to  store  an 
ink  bottle  and  some  of  the  smaller  tools.  You  cannot  very  well  have  a 
box  for  the  long  base  rulers  or  the  big  T-squares,  but  a  small-sized  apart- 
iqented  box  for  the  smaller  devices  will  serve  as  a  means  for  keeping  things 
together  where  you  can  find  them. — (G.  Rice.) 

The  Requirements  of  a  Successful  Manager — Advertising. 

Let  us  consider  for  a  brief  space  the  requirements  for  a  successful  ad- 
vertising manager  and  we  can  argue  from  these  the  machinery  that  must 
surround  him  in  the  creation  of  a  definite  impression  on  the  possible  cus- 
tomers of  his  house. 

First.  The  successful  advertising  manager  must  know  how  to  put 
into  plain,  forcible  English  and  business  argument  that  a  salesman  would 
use  in  endeavoring  to  sell  the  goods.  He  must  have  the  "pat"  word  at 
the  right  time  to  arrest  and  to  hold  the  public  attention.  For  this  purpose 
he  must  keep  in  constant  touch  with  what  is  being  said  and  done  to 
advertise  a  like  commodity.  He  must,  therefore,  have  a  system  that  will 
keep  track  of  the  advertising  that  is  being  done  by  his  successful  com- 

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petitors,  of  the  odds  and  ends  of  information  that  effect  or  illustrate  the 
selling  arguments  he  may  wish  to  make.  He  must  have  this  information 
so  readily  accessible  that  it  is  virtually  at  his  finger  tips,  for  one  of  the 
great  essentials  of  successful  advertising  management  is  that  an  advertising 
manager  shall  be  able  at  all  hours  of  his  day  to  place  himself  in  instant 
readiness  to  take  advantage  of  a  public  calamity  or  a  public  happening  of 
unusual  importance,  or  some  stroke  of  policy  of  his  house  that  may  result 
in  an  instant  requirement  fdr  advertising  matter. 

Second.  The  advertising  manager  must  know  how  to  plan,  arrange, 
and  execute  his  advertising  matter  in  such  a  fashion  that  it  will  prove 
attractive,  yet  cost  a  reasonable  amount. 

(a)     It  is  safe  to  say   that   the   average   advertising   manager   knows 
little  or  nothing  about  types.     He  may  know  when  a  thing  "looks  nice ' 
to  him,  but  he  does  not  know  why  it  "looks  nice,"  or  why  something  else 
does  not  "look  nice."     What   is   the   result   of   this   condition?     Such    an 
advertising  manager  inevitably  has  to  pay  more    for    printing   matter   he 
may  use  than  the  manager  who,  being   thoroughly    conversant    with    the 
technique    of   printing,  is    able    to    give  the  prmter  a  definite  order  that 
does  not  require  any  re-setting  or  frequent  change  of  composition.       It 
is.  therefore,  necessary  for  the  advertising  manager  to  acquaint  himself 
on  the  artistic  possibilities   of   type   faces,  to   study   the   new   type  faces 
that    come    out    every    month  or  oftener,  to  experiment  at  a  reasonable 
charge  in  the  acquiring  of  a  typographical  personality  for  his  house,  and 
to  obtain  the  most  artistic  results    from    the    standpoint  of  his  possible 
customer.     This  last   qualification   is   required   to   an   exceptional   degree. 
It  has  become  the  acknowledged  rule  that  with  the  small  wage  earner 
of  limited  education  and  lack  of  refinement,  large  displayed  figures  and 
prices  work  to  a  great  deal  better  advantage  than    small    ones.       It  does 
not  require  the  same  refinement  to  sell  goods  to  a  street  cleaner  or  a  street 
cleaner's  wife  as  it  does  to  sell  goods  to  a  college  man  or  a  college  man's 

wife. 

Violent  contrasts,  such  as  big,  black  outlines  and  light  body  types 
are  not  as  refined  as  black  headlines  and  black  body  type  in  harmonious 
arrangement.  Light  headlines  and  light  body  type  also  harmonize,  and 
their  various  gradations  between  the  extremes  of  black  letter  and  hair- 
line letters  result  in  pleasing  combinations.  The  advertising  manager 
versed  in  the  technique  of  the  art  can  diagnose  from  the  appearance  of 
an  advertisement  exactly  the  kind  of  people  it  will  appeal  to.  This  has 
been  proved  in  hundreds  of  cases.  Therefore,  the  advertising  manager 
must  know  the  technical  requirements  of  the  practice  of  his  profession. 
He  must  thoroughly   acquaint   himself   with   the  possibilities  of  its  tools 

and  its  medium. 

(b)  In  addition  to  the  kinds  of  type  and  its  possibilities,  he  must 
be  thorougthly  conversant  with  the  different  papers  and  their  printing 
qualities.     He  must  know  their  approximate   prices   in   the    open  market. 

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He  must  know  how  long  it  takes  a  compositor  to  set  a  required  job.  He 
must  know  what  it  costs  to  produce  printing,  in  order  that  he  mav  know 
whether  a  good  printer  is  overcharging  him  or  not.  because  the  capable 
advertising  manager  understands  perfectly  well  that  printing  is  not  a 
matter  of  competition.  Printing  to  him  is  simply  a  vehicle,— a  means 
to  an  end,  and  the  advertising  manager  makes  a  great  mistake  who  buys 
the  cheapest  vehicle  he  can  obtain  in  order  to  obtain  the  maximum  of 
results.  There  would  be  just  as  much  sense  in  a  man  who  desired  to  get 
to  a  certain  place  in  a  certain  time,  buying  the  cheapest  horse  he  could 
buy,  and  the  cheapest  second-hand  wagon  he  could  lay  his  hands  on.  He 
might  get  there,  and  he  might  get  there  in  the  time  specified,  but  the 
chances  of  his  doing  so  would  be  in  proportion  to  the  amount  he  paid. 
It  is  true  there  is  no  standard  of  price  in  the  printing  business.  It 
is  equally  true,  however,  that  the  successful  advertising  manager  can 
know  within  a  per  cent  the  justness  of  a  price  quoted.  He  must  not, 
therefore,  judge  by  a  comparison  of  prices,  but  he  must  judge  by  a  com- 
parison of  product,  and  the  cost  that  it  will  stand  the  printer.  In  these 
days  of  well  organized  unions  in  the  printing  trade  the  cost  is  nearly  stand- 
ardized. 

So  much  for  the  printing. 

(c)  In  addition  to  the  foregoing,  the  successful  advertising  manager 
must  know  the  prices  of  engraving  and  the  possibilities  of  engraving 
and  papers.  He  must  know  the  kind  of  paper  that  will  take  the  particular 
kind  of  cuts  he  wants  to  use  in  order  to  get  the  greatest  effective  printing 
quality  out  of  them.  He  must  know,  if  he  had  decided  upon  the  quality 
of  paper,  what  kind  of  cuts  will  print  to  the  best  advantage  on  that 
paper.  In  fact,  he  has  to  acquaint  himself  with  the  possibilities  of  wood, 
zinc,  and  half-tone  engravings.  He  must  even  go  a  step  farther,  and 
acquaint  himself  with  the  theory  of  quality  values.  He  must  under- 
stand the  rule  of  proportion  in  the  arrangement  of  pages  in  his  booklets. 
He  must  understand  something  about  art  work  and  media,  as  he  will 
often  have  to  have  drawings  made  for  the  purpose  of  making  cuts.  He 
must  understand  the  possibilities  of  the  dift'erent  media  in  the  making  of 
these  designs.  In  other  words,  he  will  have  to  understand  what  kind  of 
drawings  will  be  reproduced  by  the  zinc  process,  what  kind  can  be  pro- 
duced by  the  w^ood  engraving,  and  the  same  rule  would  apply  to  the 
half-tones,  three-color  work,  lithography,  etc.,  and  in  the  end  he  must 
be  conversant  with  the  ruling  market  prices  on  work  of  all  these  descrip- 
tions. 

For  him  to  attempt  to  shirk  any  portion  of  this  program  of  education 
and  knowledge  is  for  him  to  deliberately  weaken  the  grasp  that  he  may 
have  upon  his  work.  These  requirements  exact  a  constant  and  honest 
application  to  the  details  of  their  respective  progress.  Engraving  is  con- 
stantly progressing,  and  newer,  better,  and  more  satisfactory  results 
are  constantly  being  obtained.      Papers  are  improving.      Artistic  printers 

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are  constantly  discovering  new  possibilities  in  combination  of  inks,  types, 
borders,  papers,  bindings,  etc.  The  type  founders  are  daily  giving  greater 
attention  to  artistic  types  and  conventionalized  ornamentation.  In  no 
branch  of  artistic  work  is  there  greater  progress  than  in  advertising  art., 
because  in  no  branch  of  art  are  the  rewards  so  instant  and  so  generous 
as  they  are  in  advertising  to  those  men  who  hit  the  popular  fancy. 

From  the  foregoing  it  may  be  readily  understood  how  great  are  the 
requirements  of  the  advertising  manager,  and  in  order  to  keep  track 
of  all  the  multiplicity  of  details  that  are  the  natural  outgrowth  of  daily 
progress  in  each  of  these  different  lines  of  technical  education,  a  system 
must  be  devised  that  shall  automatically  care  for  each  part. 

The  Advertising  Department.  Stepping  from  the  matter  of  tech- 
nical detail,  the  successful  advertising  manager  is  confronted  with  the 
requirement  of  looking  after  his  department,  the  work  and  tools  of  which 
are  constantly  growing.  (a)  For  instance,  the  cuts  he  uses  in  his 
advertisements  grow  into  tremendous  proportion  and  bulk  in  the  course 
of  a  year.  The  small  retailer  may  do  daily  advertising.  He  may  have 
a  new  cut  in  every  day's  ad.  At  the  end  of  the  year  he  has  312  cuts, 
and  if  he  does  Sunday  advertising,  365  cuts.  He  must  devise  some  system 
by  which  these  may  be  readily  identified  in  case  he  chooses  to  use  any 
of  them  a  second  time. 

It  is  the  best  practice  to  print  from  electrotypes.  This  requires  that 
a  system  be  used  that  shall  identify  originals  and  electrotypes,  and  have 
them  easy  of  access. 

(b)  Drawings  must  be  filed  away  in  such  fashion  as  to  be  readily 
accessible.  A  drawing  from  which  a  column  cut  may  be  used  today, 
may  require  a  three-column  cut  two  weeks  from  now.  The  drawing  will 
have  to  be  found  in  order  to  make  the  new  cut,  with  the  natural  result 
that  the  time  spent  in  looking  over  the  countless  number  of  drawings  in 
order  to  find  the  particular  one  is  so  much  time  wasted,  whereas  the 
proper  system  would  require  two  minutes  to  make  the  entry,  one  minute 
to  find  the  card,  and  two  minutes  to  find  the  drawing. 

(c)  The  advertising  manager  who  handles  only  local  newspaper 
business  must  have  a  method  of  checking  results,  even  if  his  store  be 
but  a  small  retail  store,  and  he  the  proprietor,  for  let  me  be  understood 
at  this  juncture,  that  in  treating  the  organization  of  an  advertising 
department,  I  do  not  necessarily  mean  that  it  is  going  to  apply  only  to 
a  store  employing  a  high-salaried  specialist.  The  principles  laid  down 
for  a  system  are  the  same  whether  they  be  applied  to  a  store  employing 
5,000  employes  or  one  employing  but  five.  Of  course,  the  systems  will 
be  different,  according  to  the  necessities  of  the  different  size  of  the 
business.  Where  the  sales  are  made  by  a  few  people,  it  is  comparatively 
easy  to  keep  track  of  the  manner  in  which  these  sales  are  handled, 
and  to  whom  they  go.  In  the  larger  establishments,  the  advertising 
manager  will  be  called  upon  to  work  a  system  in  conjunction  with  the 

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clerks  and  heads  of  departments,  in  order  to  make  it  easy  of  operation. 
This  system  will  have  to  be  digested  into  the  system  records  in  his 
own  office  in  a  manner  which  will  be  explained  later. 

(d)  In  the  case  of  handling  weekly,  monthly,  or  yearly  newspaper 
advertising,  the  advertising  manager  will  be  called  upon  to  make  a  most 
concise  system  to  determine  the  efficiency  of  the  plans  and  methods  of 
handling  the  appropriation.  The  mail  order  department  will  have  to  work 
together  with  him  in  establishing  a  system  that  shall  give  a  complete 
return  on  the  advertising  that  he  may  be  doing.  He  must  have  complete 
data  on  the  subject  of  the  rates  in  different  publications  that  shall  afford 
complete  data  relative  to  the  fluctuating  prices  that  may  come  under 
his  eye,  and  the  attitudes  that  different  agencies  assume  towards  different 
publications  should  be  recorded  for  the  purpose  of  comparison  and 
valuation. 

There  is  a  well  defined  idea  among  those  who  have  never  handled 
large  or  effective  advertising  campaigns  that  advertising  men  are  born 
and  not  made.  Upon  closer  analysis  this  phrase  in  its  practical  applica- 
tion is  generally  found  to  mean  entirely  different  things  to  different 
men.  It  is  not  necessary  in  a  paper  devoted  to  the  question  of  advertising 
systems  to  dwell  to  any  great  extent  upon  this  fallacy,  except  to  mention 
one  thing  (the  natural  outgrowth  of  it)  that  the  advertising  man  must 
be  an  expert  mechanic  in  order  to  intelligently  advertise  heaters,  or  must 
be  able  to  run  a  locomotive  in  order  to  advertise  a  railroad,  or  must  be 
able  to  make  cotton  cloth  in  order  to  advertise  sheetings  or  calico,  or 
that  he  must  be  able  to  make  a  hat  in  order  to  tell  people  what  a  good 
hat  it  is. 

Lest  the  writer  be  accused  of  talking  at  random,  it  might  be  well 
to  state  that  it  is  not  his  intention  to  controvert  the  accepted  fact  that  an 
advertisement  devoted  to  a  technical  subject  and  addressed  to  a  technical 
man  must  be  technically  correct.  It  is  equally  true,  however,  that  very 
few  technical  men  understand  either  the  technique  or  practice  of  adver- 
tising. The  natural  consequence  has  been  that  the  advertising  of  technical 
products  in  technical  journals  to  a  technical  constituency  has  been  mainly 
noted  for  its  lack  of  information  and  its  general  weakness,  showing  that 
not  only  do  technical  men  not  know  how  to  advertise,  but  that  a  great 
many  of  them  do  not  know  how  to  write  on  the  subject  with  which  they 
are  supposed  to  be  familiar.  Take  any  technical  trade  journal  of  today, 
and  this  contention  will  be  amply  proved. 

The  advertising  manager,  however,  who  is  thoroughly  proficient  in 
the  practice  of  his  art  is  much  like  the  trained  newspaper  writer  who 
has  that  sixth  sense,  the  ability  to  grasp  the  salient  features  of  a  proposi- 
tion and  to  embody  them  in  conservative,  yet  interesting,  stories.  To 
such  an  extent  is  this  true,  and  to  such  an  extent  is  it  generally  recognized, 
that  some  of  the  most  experienced  engineers  and  technical  men  have 
looked  to  the  trained  writer  in  the  form  of  a  secretary  to  set  down  what 


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they  thought  themselves,  and  many  of  the  articles  appearing  in  magazines 
throughout  the  country  signed  by  technical  correspondents  have  been 
written  by  men  who  had  no  technical  training  whatever  in  the  particular 
subject  treated,  but  have  furnished  the  technical  man  that  ability  to 
translate  technical  ideas  into  clean,  good  English. 

The  advertising  manager,  therefore,  must  realize  to  a  degree  the 
necessity  of  having  facts  and  iigures  as  a  foundation  upon  which  to  build 
the  superstructure  of  productive  advertising. 

He  must  have  this  data  and  information  at  hand  when  it  is  necessary. 
— (E.  St.  Elmo  Lewis.) 

(137)  ACCOUNTING  PROBLEMS,  SOLUTION  OF. 

Prepared  specially  by  Gustave  Jacobsson,  B.  A.  Member  of  the  Ameri- 
can Association  of  Public  Accountants.  New  York  C.  P.  A.  Examination 
—January,  1900.  John  Doe  expends  $100,000  in  the  erection  of  a  business 
block;  at  the  end  of  the  year  he  finds  that  the  rents  of  the  stores  in  the 
block  have  amounted  to  $7,500  and  of  the  offices,  $3,750.  The  expenses 
of  the  year  have  been  janitor,  and  caretaker,  $750;  repairs  and  alterations 
to  suit  tenants,  $500;  water  and  gas,  $400;  taxes,  .01975  on  a  valuation  of 
$87,000;  various  incidentals,  $150.  Make  up  a  statement  showing  the  result 
of  the  year's  enterprise  and  per  cent  of  profit  on  investment,  after  charging 
five  per  cent  interest  on  the  capital  invested  and  $2,500  for  depreciation. 

SOLUTION. 

STATEMENT  OF  INCOME  AND  EXPENDITURES. 

Income. 

Property  situated  at ,  value $100,000.00 

Rents  of  stores $7,500 

Rents  of  offices ^,750 

^$11,250.00 

Expenditures. 

Repairs  and  alterations  $   500.00 

Water   and  gas    • 400.00 

Taxes    1^1825 

Depreciation,  2^^  per  cent  .on  property 2,500.00 

5,118.25 

Gross    profits     $  6,131.75 

Janitor's    services    $   750.00 

Incidental    expenses    150.00 

. 900.00 

Net    profits    $  5,231.75 

Allocation  of  Net  Profits — 

Interest  on  capital,  5  per  cent 5,000.00 

Balance,  unappropriated,  carried   forward $  231.75 

BALANCE   SHEET. 

Property    $100,000.00 

Less  2 J/2  per  cent  depreciation  2,500.00 

$  97,500.00 

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Cash    7,731.75 

$105,231.75 

Capital    Account    i ..  .$100,000.00 

Interest,  5  per  cent   5,000.00 

Profits     231.75  " 

$105,231.75 

CASH    ACCOUNT. 

Store    rents    $    7,500.00 

Office    rents    '. 3,750.00 

1  $  11,250.00 

Janitor's    services    $  750.00 

Repairs  and  alterations   500.00 

Water  and  gas   400.00 

Taxes    1,718.25 

Expenses     . . .-,.... 150.00 

Balance    7,731.75 

« 

$11,250.00 
Per  cent  profits  on  investment  =  .0023175. 

New  York  C.  P.  A.  Examination,  December,  1897.  A  company 
having  assets  consisting  of  real  estate,  $50,000;  plant  and  machinery, 
$75,000;  book  debts,  $36,000;  stock  on  hand,  $42,000,  and  liabilities  con- 
sisting of  bills  payable,  $16,000,  transfers  its  entire  business  January  1, 
1896,  to  a  joint  stock  company  for  $75,000  in  bonds,  $75,000  in  preferred 
stock  and  $75,000  in  common  stock.  iMake  the  necessary  opening  entries 
for  the  above,  and  show  how  the  ledger  accounts  would  stand. 

SOLUTION. 

1. 

Assets    $241,000 

Accounts  receivable   $36,000 

Stock  on  hand   42,000 

Machinery     75,000 

Real    estate    50,000 

Good   will    38,000 

$241,000 

To   vendors    $225,000 

To  bills  payable    16,000 

$241,000 

Assets  transferred  per  contract. 

2. 

Vendors    $225,000 

Payment  of  assets. 

To  bonds    $  75,000 

To  preferred  stock   75,000 

To  common  stock  75,000 

$225,000 

ACCOUNTS   RECEIVABLE. 

To  vendors  and  bills  payable  $36,000 

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MERCHANDISE  INVENTORY  ACCOUNT. 

To  vendors  and  bills  payable  $42,000 

MACHINERY. 

To  vendors  and  bills  payable  $75,000 

REAL  ESTATE. 

To  vendors  and  bills  payable   $50,000 

GOOD  WILL. 

To  vendors  and  bills  payable   $38,000 

VENDORS. 

To  stocks  and  bonds $225,000    By  sundry  assets   $225,000 

BILLS    PAYABLE. 

By  sundry  assets   $16,000 

BONDS. 

By   vendors    $75,000 

PREFERRED   STOCK. 

By    vendors    $75,000 

COMMON    STOCK. 

By    vendors    $75,000 

New  York  C.  P.  A.  Examination,  June,  1897.  A  of  New  York,  B 
of  Chicago,  and  C  of  San  Francisco  enter  into  an  agreement  to  buy  and 
sell  for  joint  account,  each  to  receive  one  per  cent  on  his  purchases  and 
three  per  cent  on  his  sales,  as  commission,  and  to  share  equally  in  the 
net  profits,  usual  interest  at  six  per  cent  (360  days  to  the  year)  to  accrue 
on  all  values  after  due  date. 

March  1.  A  buys  goods  amounting  to  $3,989.50  and  consigns  same  to 
B,  who  renders  account  sales  for  $4,656,  net  proceeds  due  April  15. 

March  15.  B  buys  goods  amounting  to  $5,050  and  sells  same,  render- 
ing account  sales  to  A  and  C,  net  proceeds  $4,365,  due  May  20. 

April  1.  C  buys  goods  amounting  to  $6,060  and  consigns  half  to  each, 
A  and  B.  A  renders  account  sales  for  $3,783,  net  proceeds  due  July  1,  to 
each,  B  and  C.  B  renders  account  sales  for  $2,813,  net  proceeds  due  June 
10,  to  each,  A  and  C. 

Above  purchases  include  one  per  cent  commission  and  the  net  pro- 
ceeds are  the  gross  amount  of  sales,  less  the  three  per  cent  commission, 
selling  charges,  etc. 

Frame  the  necessary  journal  entries  and  prepare  the  accounts  of  A, 
B  and  C,  as  these  accounts  would  appear  on  the  ledger  of  A,  B  or  C. 

SOLUTION. 
March  1. 

JOURNAL  ENTRIES. 

Merchandise  Joint   Consignment   Account $3,989.50 

To  A,  purchase  $3,950.00 

Commission     39.50 

$3,989.50 

B,  sales   $4,800,00 


Less  commission    '. . ,      144.00 


-$4,656  00 


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To  Merchandise  Joint  Consignment  Account $4,656.00 

March  15. 

Merchandise  Joint  Consignment   Account   $5,050.00 

To  B,  purchase $5,000.00 

Commission    : . ; 50.00 

$5,050.00 

B,  sales  $4,500.00 

Less  commission   135.00 

$4,635.00 

To  Merchandise  Joint  Consignment  Account $4,635.00 

April  1. 

Merchandise  Joint  Consignment  Account  $6,060.00 

To  C,  purchase  $6,000.00 

Commission     60,00 

$6,060.00 

A,  sales  $3,900.00 

Less  commission    117.00 

$3,783.00 

To   Merchandise  Joint   Consignment   Account $3,783.00 

B,  sales  $2,900.00 

Less    commission    87.00 

$2,813.00 

To  Merchandise  Joint  Consignment  Account  $2,813.00 

July  1. 
B,- 
Proceeds  account  sales  due  April  15,  $4,656,  two  and  one-half  months, 

6  per  cent    $58.20 

Proceeds    accounts    sales    due    May    20,    $4,365,    one   and    one-third 

months,  6  per  cent   29,10 

Proceeds  account  sales  due  June  10,  $2,813,  two-thirds  month,  6  per 
cent     9  38 

$96.68 
To  interest  account    $96,68 

MERCHANDISE   JOINT    CONSIGNMENT    ACCOUNT. 

March   1— A's  purchase $3,950,00 

1  per  cent  commission    39,50 

March  15 — B's  purchase    5,000.00 

1  per  cent  commission    50.00 

April   1— Cs    purchase    6,000.00 

1  per  cent  commission   60.00 

Profits,  to  Profit  and  Loss  Account  517.50 

$15,617.00 

March  1— B's  account  sales  to  A,  due   April   15th    $  4,656.00 

15— B's  account  sales  to  A  and  C.  due  May  20   4,365.00 

April  1 — A's  account  sales  to  B  and  C,  due  July  1   $  3,783.00 

1— B's  account  sales  to  A  and  C,  due  June   10   2,813.00 

$15,617.00 

Interest  Account    $96.68 

To  Profit  and  Loss 96  68 

135 


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Ace.  American  Business  and  Accounting  Encyclopedia  187 

PROFIT   AND  LOSS   ACCOUNT. 

A— one-third  share     $204.73 

B— one-third  share    ^^'^^ 

C— one-third  share    •  ^^"^^ 

$614.18 

Merchandise  Joint  Consignment  .\ccount  $517.50 

Interest    • •     ^^'^^ 

$614.18 

a's  capital  account. 

Merchandise   Joint    Consignment    Account    $3,950.00 

1  per  cent  commission    ov.oyj 

Profits,  one-third   204.73 

$4,194.23 
a's  account  sales. 

B,  sales   ..$3,900.00 

Less  commission   * 

$3,783.00 
b's  capital  account. 

Merchandise  Joint  Consignment  Account  .' $5,000.00 

1  per  cent  commission 50.00 

Profits,  one-third  • "^^'^^ 

$5,254.73 
b's  account  sales. 

A,  sales  $4,800,  less  commission  $144,  due  April  15 $4,656.00 

A  and  C,  sales  $4,500,  less  commission  $135,  due  May  20 4,365.00 

A  and  C.  sales  $2,900,  lesscommission  $87,  due  June  10 2,813.00 

T  ^        ^ 96.68 

Interest   

$11,930.68 
c's  capital  account. 

Merchandise  Joint  Consignment  Account   ^^'"^60  oo 

1  per  cent  commission  '  ^ 

_*^-  ^,  .    .  204.72 

Profits,  one-third  

$6,264.72 

trial  balance. 

.,  ,  _,  $  3,783.00 

As  account  sales     ,,'  on^o 

^,  ,      ,  11,930.68 

B  s  account  sales   '^^^ 

$15,713.68 

s  capital    ^         ,  .„ 

n,  .,  1  5,254.73 

B's  capital   .'„.«„ 

6  264  72 
Cs  capital    ' 

$15,713.68 

136 


137  American  Business  and  Accounting  Encyclopedia  Acc. 

Comments.  The  interest  is  an  important  factor  in  the  problem.  I 
have  therefore  selected  July  1,  as  a  convenient  arbitrary  date  for  settle- 
ment of  the  account. 

Fairness  would  seem  to  suggest  that  each  partner  was  entitled  to 
credit  for  interest  to  July  1,  from  date  of  purchase,  but  the  problem  is 
sile  on  this  point. 

New  York  C.  P.  A.  Examik.^tion,  January,  1903.  The  A.  B.  Banking 
Co.,  of  New  York,  borrow  £20,000  from  C.  D.  &  Co.,  London,  for  60 
days  at  four  per  cent,  money  being  at  six  per  cent  in  New  York.  The 
rate  of  exchange  is  4.8775,  when  the  loan  is  made  and  4.8825  when  it  is 
repaid.  If  brokerage  is  1-32  per  cent,  cable  charges  $15,  how  much  is 
saved  or  lost  by  borrowing  abroad?  (Interest  on  basis  of  360  days  to 
the  year.) 

SOLUTION. 

£20,000  at  4.8775  equals $97,550.00 

Interest,  4  per  cent  paid  on  $97,550.00,  60  days  equals $650.33 

Brokerage,  1-32  per  cent  paid  on  $97,550.00,  equals 30.48 

Cable  charges  15.OO 

Loss  on  exchange,  viz: 

i20,000  at  4.8825  equals     $97,650 

i20,000  at  4.8775  equals  97,550 

Excess  in  repayment  100.00 

Total  cost   $795.81 

$97,550  at  6  per  cent,  paid  60  days 975.50 

Saved  by  borrowing  in  London $179.69 

New  York  C.  P.  A.  Examin.\tion,  June,  1898.  The  balance  sheet 
of  a  joint  stock  company,  January  1,  1897,  shows  the  following  state  of 
affairs : 

Capital  Stock  $200,000 

Creditors,  open  accounts  16,000 

Bills  payable   30,000 

Profit  and  loss  account 30,500 

$276,500 

Real  estate  $  50,000 

Plant  and  machinery  85,000 

Horses  and  wagons  15,000 

Patents  and  good  will  20,500 

Inventory   49,000 

Accounts  receivable  35,000 

Cash  in  bank  22,000 

$276,500 

137 


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It 

I! 


Acc.  American  Business  and  Accounting  Encyclopedia  137 

A  year  later,  January  1,  1898,  after  an  audit  of  the  books  and  accounts, 
the  balance  sheet  stands  as  follows : 

Capital  stock ^^^'^^^ 

17  000 
Creditors,  open  account  ^  '"" 

-»,  <s&iUUU 

Mortgage    

Profit  and  loss  account: 

Balance  last  year   $30,500 

Profit  this  year ^3^    53,900 

$295,900 

Real   estate    $  52.000 

Plant  and  machinery: 

Balance  January  1.  1897   $85,000 

Less    depreciation    3,500    76,500 

Horses  and  wagons: 

Balance  January  1,  1897  $15,000 

■      Less    depreciation    2,250    12,750 

Patents  and  good  will 20,500 

Inventory    65,000 

Accounts    receivable    • 33,000 

Agency   investments    15,000 

Cash   in  bank    ; 21,150 

$295,900 


From  the  foregoing  it  will  be  seen  that  for  the  year  a  net  profit  of 
$23,400  has  been  earned,  while  the  accounts  receivable  are  smaller,  and 
the'  cash  balance  on  hand  is  less  than  at  the  beginning  of  the  year, 
though  no  dividend  has  in  the  meantime  been  paid.  Prepare  account 
showing  what  has  become  of  the  profits  earned. 


137 


SOLUTION. 

COMPARATIVE  ANALYSIS  OF  BALANCE  SHEETS  FOR  THE  YEARS   1897  AND  1398. 

In 

Assets.                                                              1897.  1898. 

Real   estate    $50,000  $52,000 

Plant   and  machinery    85,000  76,500 

Horses  and  wagons   15,000  12,750 

Patents  and  good  will   20,500  20,500 

Inventories    49,000  65,000 

Accounts    receivable    35,000  33,000 

Cash     22,000  21,150 

Agency    investments    15,000 


crease. 
$  2,000 


16,000 


15,000 


De- 
crease, 
$• .  • .  .* 
8,500 
2,250 


2,000 
350 


Net  increase  of  assets 


$33,000   $13,600 
19,400 


$33,000   $33,000 


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American  Business  and  Accounting  Encyclopedia  Acc. 

Liabilities. 

Creditors    $16,000  $17,000      $  1,000      $ 

Bills    payable    30,000        30,000 

Mortgage    25,000        25,000        


Net  decrease  of  liabilities 


Increase  of  assets  . . . . 
Decrease  of  liabilities 


$26,000      $30,000 
4,000 


$30,000      $30,000 

19,400 

4,000 


Net    gains 


$23,400 


The  analytical  account  may  also  be  prepared  in  the  following  manner: 

TABULATION  OF  CHANGES  IN  THE  BALANCE  SHEETS,   1897-1898. 

Purposes  of  Expenditures — 

Increase  in  real  estate  $  2,000 

Increase   in  inventories    16,000 

Increase  in  investments   15,000 

Decrease  in  bills  payable  30,000 


$63,000 


Sources  of  Funds — 

Decrease  in  plants  and  machinery $  8,500 

Decrease  in  horses  and  wagons 2,250 

Decrease  in  accounts  receivable  2,000 

Decrease  in  cash   850 

Increase  in  creditors    1,000 

Increase  in  mortgage    25,000 

Increase   in   profits    23,400 


$63,000 


New  York  C.  P.  A.  Examination,  June,  1900.  L.  H.  McDonald 
and  J.  C.  Smith  form  a  co-partnership  Jan.  2,  1899,  each  investing  $7,500. 
March  1,  Smith  makes  an  additional  investment  of  $2,400  and  McDonald 
withdraws  $1,200.  July  1  McDonald  invests  $2,500  and  Smith  withdraws 
$2,500.     The  profits  for  the  year  are  $4,800. 

Show  each  partner's  average  investment  and  share  of  profits,  the 
profits  being  divided  in  proportion  to  the  capital  invested  and  the  time 
it  is  employed. 


$7,500  for  12  mos. 
2,500  for    6  mos. 


SOLUTION  NO.  1. 

L.   H.   MCDONALD. 
$90,000 
15,000 


$105,000 


189 


Ace.  American  Business  and  Accounting  Encyclopedia 

Less — 
$1,200  for  10  mos.  =  $12,000 

$93,000  Tf-  12  =  $7,750 
J.  C.  SMITH. 
$7,500  for  12  mos.  =  $90,000 
2,400  for  10  mos.  =    24,000 

$114>000 
Less — 
$2,500  for     6  mos.  =     15,000 

$99,000  -T-  12  =  $8,250 

McDonald's  average  investment   $  7,750 

Smith's  average  investment   8,250 

Total     $16,000 

4800  X  100 

. — • =  30  per  cent. 

16000 

Hence,  $7,750  x  30%  =  $2,325  =  McDonald's  profits 
8,250  X  30%  =    2,475  =  Smith's   profits 

$4,800 

SOLUTION  NO.  2. 

Gains  divided  according  to  average  capital : 

7750       4800 

McDonald    x =2325 

16000         1 
8250        4800 

Smith    X =2475 

16000         1        

4800 

SOLUTION  NO.  3. 
By  proportion: 
93 
99 

192 

93       4800 

McDonald x =2325 

192         1 
♦  99        4800 

Smith     X  -—2475 

192  1         

4800 
SOLUTION  NO.  4. 
By  ratios: 
7750  X  4=31 
8250  X  4=33 

64 

140 


137 


137  American  Business  and  Accounting  Excvclopedia  Acc. 

McDonald 31       4S00 

—  X  =2325 

64    1 

Smith 33   4S00 

—  X  =2475 

64    1    

4800 

New  York  C.  P.  A.  Examination,  June,  1903.  Bowling,  Green  &  Co., 
of  New  York,  consign  goods  to  A.  &  B.  in  Hanava,  Cuba,  rendering  with 
each  shipment  a  pro  forma  invoice  in  which  the  goods  are  charged  at  prices 
in  excess  of  the  cost,  the  cost  of  freight,  insurance,  etc.,  being  added.  Ac- 
counts sales  are  received  from  time  to  time,  the  net  proceeds  being  remitted 
bv  drafts. 

Show  how  the  following  transactions  would  appear  in  Bowling,  Green 
&  Co.'s  ledger: 

(a)  Shipment  of  goods  Jan.  1,  1902,  and  invoice  rendered  to  A.  &  B. 
of  Havana,  for  $9,850,  as  follows : 

Merchandise     $9  000 

Freight 700 

Insurance     j5q 

^<^*^'     $9,850 

The  cost  of  these  goods  was  $8,700. 

(b)  Account  sales  received  March  15,  1902,  for  part  of  the  consign- 
ment, showed  gross  proceeds  $5,400,  less  dock  and  other  expenses,  includ- 
ing commission  $150.  This  account  was  accompanied  by  a  60-day  draft 
for  $5,250. 

(c)  Account  sales  received  June  16,  1902,  for  balance  of  the  consign- 
ment, showed  gross  proceeds,  $5,660,  less  dock  and  other  expenses,  in- 
cluding commission,  $175,  and  was  accompanied  by  a  90-day  draft  for 
$5,485. 

SOLUTION. 

CX)NSIGNMENT    ACCOUNT. 
A.   &  B.,  HAVANA,  CUB.\.  1902. 

1902.  Nov.   15. 

Jan.  1.  A.  &  B.,  Sales  $5,400 

Merchandise     $8,700  June  16. 

Freight    700       A.  &  B.,  Sales  5.660 

Insurance    150 

Nov.  15. 

Commission    150 

June  16. 

Commission     175 

Profits    1,183 

$11,060  $11,060 

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137 


1902. 


July. 


CONSIGNMENT  SALES  ACCOUNT. 
1902. 

March  15. 

A.  &  B.,  HAVANA,  CUBA.  Commission    $   150 

1902.  Bills   receivable    5,250 

March  15.  June  16. 

Consignment  account,   sale3 $5,400        Commission    175 

June  16.  Bills  receivable   5,485 

Consignment    sales    ; 5,660  

$11,060 


$11,060 

BIIXS   RECEIVABLE.  CASH    ACCOUNT, 

1902.  1902. 
March  15.                                                           Jan.  1. 

A.  &  B $5,250        Consignment  account   $700 

June  16.  Consignment  account   150 

A.  &  B 5,485  • 

$850 


$10,735 

TRIAL    BALANCE. 

Bills   receivable    $10,735Consignment  sales  account  $8,700 

Cash    850 

$10,735Profits     1,135 


$10,735 

The  principle  involved  is  simply  this:  increases  in  assets,  and  de- 
creases in  Iiabilities=decreases  in  assets  and  increases  in  liabilities. 

Illinois  C.  P.  A.  Examination,  November,  1903.  A  gas  company 
presents  a  statement  at  the  close  of  its  fiscal  year  of  cost  of  putting  gas 
in  holders  and  whole  cost  of  gas  per  thousand  cubic  feet.  Their  statement 
is  given  in  detail  and  is  made  up  of  the  following: 

ITEMS  OF   COST. 

Cost  of  gas  in  holders   $28,178.92 

Generator    fuel    $  1,063.68 

Gas    coal    13,086.66 

Boiler    fuel    679.51 

Bench    fuel    3,433.72 

Manufacturing    labor    6,838.17 

Manufacturing    supplies    214.13 

Oil     2,054.57 

Purification  labor    168.72 

Purification    supplies    89.82 

Bench    repairs    29.58 

Gas  house  machinery  repairs 520.86 

Distribution     1,887.39 

Distribution    labor    578.57 

Distribution   supplies    60.72 

Street  lamp  operating  216.04 

Repairs  and  renewals  of  meters  102.65 

Repairs  and  renewals  of  services 129.80 

Repairs  and  renewals  of  mains 799.61 

142 


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Ace. 


General    expense    9,267.72 

Salaries  of  officers  3,300.00 

Accounting    department    3,501.66 

General  office  sundries 435.21 

Canvassing    669.00 

Rentals 752.67 

Stationery,  printing,  postage   454.64 

Legal    154.54 

Discount  on  consumers'  bills   10,693.44 

Insurance     1,618.89 

Taxes    1,129.99 

Interest    2,466.68 

The  company  obtained  in  the  process  of  putting  gas  in  holders  certain 
by-products  the  whole  of  which  sold  for  $6,783.26.  There  was  manufac- 
tured, i.  e.,  put  into  the  gas  holders  50,000,000  cubic  feet  of  gas ;  the  meters 
registered  and  there  was  charged  to  consumers  46,000,000  cubic  feet  of  gas. 
The  gas  remaining  in  the  holders  at  the  beginning  and  ending  of  the 
period  being  the  same  in  cubic  feet. 

On  the  books  of  the  Gas  Co.  the  plant  and  distributing  system  is 
stated  in  the  following  accounts : 

Gas  works   (including  land  valued  at  $25,000) $250,000.00 

Mains     100,000.00 

Services     31,000.00 

Meters    12,000.00 

Tools    327.00 

Furniture  and  fixtures    1,850.00 

In  addition  to  which  the  company's  books  show  storeroom  supplies 
$9,341  and  accounts  receivable  $12,605.57. 

Assuming  the  correctness  of  all  the  charges  above,  do  the  items  set 
up  in  the  company's  statement  represent  the  elements  of  cost? 

Prepare  a  detailed  cost  statement  that  you  would  consider  correct, 
giving  the  cost  per  thousand  cubic  feet  of  gas  in  the  holders,  and  whole 
cost  of  manufacturing  gas  per  thousand  cubic  feet.  Where  you  consider 
it  necessary,  act  arbitrarily  in  building  your  statement. 

SOLUTION. 

Gas  manufactured,  cu.  ft 50,000,000 

Gas  sold,  cu.  ft 46,000,000 

Loss  in  transmission  being  8  per  cent  of  product 4,000,000 

COST    PER   1,000    cu.   FT. 

Amount.        Manfd. 

Cost  of  manufacture   $  28,179.42       .563588 

Generator    fuel    $  1,063.68 

Gas  coal    13,086.66 

Boiler  fuel   679.51 

Bench   fuel    3,433.72 

Manufacturing  labor    6,838.17 


I 


143 


1,387.39       .037748 


Acc.  American  Business  and  Accounting  Encyclopedia 


Manufacturing    supplies    214.13 

Oil     2,054.57 

Purification  labor    168.72 

Purification   supplies    89.82 

Bench    repairs    29.58 

Gas  house  machinery  repairs  520.86 

Cost  of  distribution  

Distribution    labor 578.57 

Distribution   supplies    60.72 

Street  lamp  operation  216.04 

Repairs  and  renewals — 

Meters    102.65 

Services     129.80 

Mains    799.61 

Cost  of  administration   

Salaries,   officers    $  3,300.00 

Accounting    department    3,501.66 

Office  sundries    435.21 

Canvassing    669.00 

Rentals 752.67 

Stationery,  printing,  etc   454.64 

Law  expenses   154.54 

Bad    debts    378.17 

87  written  off  oh  $12,605.57 185.00 

Depreciation  10%  on  fixtures  

General   expenses    

Discounts  on  consumers'  bills    $10,693.44 

Insurance    1,618.89 

Taxes    1,139.99 

Interest    2,466.68 


137 


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American  Business  and  Accounting  Encyclopedia 


Acc 


$30,066.81 
9,830.89 


.601336 
.196618 


25,355.75        .507115 


$15,909.00 

Depreciations — 
Gas  works.  $250,000 
Less — 
Value  of  land,  $25,000. 

2J/^  per  cent  $225,000 $  5,625.00 

Mains.  3  per  cent  $100.000 3,000.00 

Services,  2  per  cent  $31,000 620.00 

Meters,  1  per  cent  $12,000 120.00 

Tools,  25  per  cent  $327 81.75 

Gross    cost    $  9,446.75  $65,253.45      1.305069 

Lege    residuals    6,783.26       .135665 


$58,470.19      1.169404 


144 


Add  for  loss  in^ 
Transmission    5,084.36       .101687 

Total  net  cost   $63,554.55     1.271091 

Cost  per  1.000  cu.  ft.  of  gas  in  holders .563588 

Cost  per  1,000  cu.  ft.  of  product 

58470.19  63554.55 

=  1.271091  or  

46000  50000 

Comments.  Cost  in  holders,  I  take  it,  means  "Prime  Cost"  of  gross 
product.  But  net  cost  should  be  based  on  product  actualh'  reaching  the 
consumer.    This  I  have  effected  by  the  item  "loss  in  transmission." 

There  are  two  other  items  not  necessary  to  the  problem,  but  which 
might  be  mentioned  to  show  careful  consideration  of  the  subject. 

1.  Amount  of  gas  used  in  office  and  at  works  for  which  an  arbitrary 
amount  could  be  supposed. 

2.  Gas  paid  for  in  advance  by  the  "slot  machines"  which  gas  com- 
panies now  furnish. 

New  York  C.  P.  A.  Examination,  June,  1904.  Smith  and  Jones 
are  partners,  drawing  equal  amounts  for  services,  and  sharing  profits 
according  to  capital  invested,  after  allowing  five  per  cent  on  capital.  They 
require  additional  capital  and  arrange  to  admit  the  manager  to  the  firm,  he 
to  acquire  a  one-quarter  interest  in  the  business.  According  to  the  balance 
sheet  Smith  has  $12,000  and  Jones  $6,000  invested,  and  good  will  is  valued 

at  $6,000. 

What  sum  must  the  manager  contribute?  How  will  the  partnership 
accounts  appear  after  payment  into  the  firm  of  the  new  capital?  How 
will  profits  be  divided  in  the  future      Show  accounts  in  skeleton  form. 

SOLUTION. 

Good  Will   $6,000 

His  Yz  of  Capital  Gain  to  Smith $4,000 

His  V3  of  Capital  Gain  to  Jones 2,000 

manager's  interest. 

Smith,  capital $16,000 

Jones,  capital 8,000 

$24,000-^(  100— 25)  =75=32000  equals  total  capital  of  new 
partnership;  the  manager's  share  54  =$8,000,  or 
$24,000X25 

=$8,000=manager's  H  interest. 

75 

smith's  capital.  jones'  capital 

Investment     $12,000    Investment    $6,000 

^  Good  Will  4,000  Vi  Good  Will  2,000 

$16,00(J  $8,000 

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137 


manager's  capital.  division  of  profits. 

Cash    $8,000  Smith    H 

Jones    J4 

Manager    54 

Illinois  C.  P.  A.  Examination,  May,  1904.  The  general  ledger 
of  a  county  comptroller  at  the  close  of  the  fiscal  year  shows  the  following 
outstanding  balances : 

Debit  Balances:  ^ 

General   Fund    $3,600,000.00 

To  Balance  Bond  Liability  4,000,000.00 

Cash    950,000.00 

Due  from  Fee  Offices  250,000.00 

Appropriation    Expenditures    3,500,000.00 

Credit  Balances : 

Appropriation    3,600,000.00 

Bonds,  Series  A    500,000.00 

Bonds,  Series  B 750,000.00 

Bonds,  Series  C    600,000.00 

Bonds,  Series  D    1,500,000.00 

Bonds,  Series  E    650,000.00 

Bonds  and  Coupons  due  and  unpaid  30,000.00 

Warrants  Outstanding    559,000.00 

Tavern  License  Fund  5,000.00 

Laboratory  Fund    6,000.00 

General  Tax  Income 2,000,000.00 

Fee  Office  Income  1,600,000.00 

Surplus 500,000.00 

Prepare  journal  entries  closing  operations  for  the  year  and  classified 
balance  sheet  as  at  the  close  of  the  year. 

SOLUTION. 

Dr. 

General  appropriation  account   $3,500,000 

To  appropriation  expenditures  $3,500,000 

2. 

Dr. 

Appropriation  account   $3,600,000 

To  general  appropriation  account  $3,600,000 

3. 

Dr. 

General  appropriation  account   $   100,000 

To  contingencies    $   100,000 

Expenditures  appropriated  but  not  expended. 

4. 

Dr. 

Bond   Commissioners    $4,000,000 

To  Bond  Liability  $4,000,000 

"Commissioners"  are  assumed,  but  possibly  these  bonds  were  issued  for 
property  held  in  fee  by  the  municipality. 

Dr. 

General  tax  income   $2,000,000 

Fee  offices    : . . .  1,600,000 

'i  o  general  fund  $3,600,000 

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Acc. 


Cash    

Fee   offices    

Bond  Commissioners 


.      250,000 
.  4,000,000 

$5,200,000 


balance  sheet. 
.$  950,000      Bonds  and  coupons  due  and 

unpaid     , $     30,000 

Warrants  outstanding 559,000 

Tavern  license  fund   5,000 

Laboratory    fund 6,000 

Contingencies    100,000 

Surplus    500,000 

4.000,000 

Bonds — 

Series  A  $   500,000 

Series  B  750,000 

Series  C  600,000 

Series  D  1,500,000 

Series  E  650,000 


$5,200,0Ci 


$4,000,000 

Municipal  book-keeping  differs  only  in  form  and  detail  from  the 
ordinary  mercantile  methods  of  double  entry. 

Illinois  C.  P.  A.  Examination,  November,  1904.  The  books  of  a 
manufacturing  corporation  at  the  close  of  its  first  year's  business  show 
sales  $241,863.50;  returns  and  allowances  $18,416.38;  merchandise  cash 
discounts  $13,943.87;  merchandise  debit  balance  $69,346.92;  labor  $52,- 
815.33;  fuel  $16,219.46;  shop  expense  $9,247.50;  salaries  $16,214.30;  general 
expenses  $8,342.35;  advertising  $52,371.39;  traveling  expenses  $4,364.28; 
insurance  and  taxes  $6,250.  The  inventory  figures  up  a  total  of  $13,896.12.' 
and  before  the  books  are  closed,  a  sufficient  sum  for  depreciation,  namely 
$5,000,  is  written  off.  The  company  claims  that  conservatively  stated  its 
net  profit  for  the  year  is  $18,142.10. 

Arrange  the  amounts  in  the  form  of  an  income  account,  and  explain 
fully  how  the  company  could  arrive  at  such  net  profit,  and  give  reasons 
therefor. 


SOLUTION. 

INCOME   ACCOUNT. 

Purchases,   net    $  69,346.92 

Labor    52,815.33 

Fuel     16,219.46 

Shop   expenses 9,247.50 

Insurance  and  taxes    6,250,00 

Depreciation    5,000.00 


Sales    $241,863.50 

Less    32,360.25 

Returns    and    al- 
lowances     $18,416.38 

Discounts    13,943.87 


$158,879.21 
Less   inventory    13,896.12 


$32,360.25 


Cost  of  merchandise  sold. .  144,983.09 
Gross   Profits    64,520.16 


$209,503.25 


$209,503.25 


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Salaries   $  16,214.30 

Expenses    8,342.35 

Traveling  expenses  4,364.28 

Advertising  17,457.13 

H  oi  amount  expended. 

Net  profits 18,142.10 


Balance   down   $64,520.16 


$  64,520.16  $  64,520.16 

Comments.  It  is  only  fair  and  in  harmony  with  prudent  management 
that  the  first  year's  advertising  expenditures  should  be  apportioned  over  a 
number  of  years,  in  this  instance,  three  years,  for  this  reason,  the  corpora- 
tion finds  it  absolutely  necessary  to  introduce  its  articles  in  the  market 
through  the  medium  of  extensive  advertising. 

The  whole  burden  of  the  first  year's  advertising  should,  however, 
not  be  loaded  on  the  first  year's  operating  expenses,  because  the  subsequent 
years  draw  the  benefits  of  this  first  year's  outlay  and  should,  therefore, 
stand  their  portion  of  the  total  initial  outlay. 

In  fact,  the  entire  advertising  expenses  for  the  first  year  might  be 
considered  the  good  will  of  the  business,  and  subsequently  written  down 
over  a  number  of  years,  or,  the  business  being  very  prosperous  from  the 
results  of  prudent  advertising,  the  first  year's  outlay  may  remain  intact  on 
the  books  in  the  form  of  a  valuable  asset,  e.  g.,  good  will. 

The  company's  estimate  of  the  first  year's  profits  was  very  conserva- 
tive, indeed. 

Illinois  C.  P.  A.  Examination,  May,  1906.  A  branch  office  busi- 
ness was  started  the  first  of  the  year,  the  head  office  advancing  $5,000 
cash.  During  the  first  year  merchandise  was  shipped  to  branch,  invoiced 
at  $75,000. 

An  auditor,  checking  up  the  business  at  the  close  of  the  year,  finds 
the  following: 

Merchandise  sales  were  $60,000,  with  selling  price  of  goods  20  per  cent 
advance  on  invoice. 

Proper  vouchers  were  on  file  duly  receipted  for  following  payments: 

Rebates  and  allowances  on  damaged  goods $1,500.00 

Salaries  and  other  expenses   4,500.00 

Freights     J,500.00 

Remittances  to  head  office $35,000.00 

Uncollected   accounts    15,000.00 

The  balance  of  the  sales  having  been  realized  in  cash,  less  rebates  and 
allowances   as   noted. 

The  cash  on  hand  and  inventory  of  unsold  goods,  together  with  the 
foregoing  records,  properly  account  for  everything. 

Prepare  statement,  such  as  an  auditor  would  make  in  reporting  to  the 
head  office,  balancing  the  business  of  the  branch  house. 

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SOLUTION. 

1905.  Dr. 

Dec.  31 — Cash    : $5,000 

(Advanced  by  home  office). 

Sales  during  the  year  $60,000 

Less  rebates  and  allowances  1,500 

$58,500 

$58,500 
Less  uncollected  accounts  15,000 

$43,500 

Cash  receipts  from  sales $43,500 

Accounts    receivable    15,000 

Stock  in  trade   35,000 

$88,500 

1905.  Cr. 

Dec.  31. — Cash,  freight   $  2,500 

Cash,  salaries  and  expenses  4,500 

Cash,  remittances  to  home  office  35,000 

Home  office  account  46,500 

Merchandise    $75,000 

Cash    5,000 

$80,000 
Less   remittances    35,000 

$45,000 
Net   profits    1,500 

$46,500 

$88,500 
1905. 

Dec    31 — Home   office    $  5,000 

Sales    43,500 

$48,500 
Dec.  31.— On  hand  $  6,500 

1905. 

Dec.  31. — Salaries  and  expenses   $  4,500 

Freight    2,500 

Home  office    35,000 

Remittances     6,500 

Balance    $48,500 

Cash  on  hand   $  6,500 

Accounts   receivable    15,000 

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Stock   in  trade    ...^ 25,000 

$46,500 

Home  office  account   $46,500 

Balance     .$45,000 

Profits     1,500 

$46,500 
PROFIT   AND  LOSS  ACCOUNT — SHOWING   PERCENTAGES. 

EXPENDITURES — PER    CENT    OF    SALES. 

Cost  of  goods  sold   85.47%        $50,000 

Freight    4.27%  2,500 

Gross   profits    10.26%  6,000 

100.00%         $58,500 

Salaries  and  expenses   7.70%  4,500 

Net  profits    2.56%  1,500 

10.26%  $6,000 

INCOME. 

m 

Per  Cent  of  Sales 

Salaries $60,000        100.00%        $58,500 

Less  rebates   1,500 

Gross   profits    10.26%  6,000 

Balance   down    10.26%  6,000 

New  York  C.  P.  A.  Examination,  January,  1903.  One  of  the 
early  experiences  of  the  firm  of  Gardner  &  Kestin,  Certified  Public 
Accountants,  was  to  make  an  investigation  of  the  books  and  accounts  of 
Evans,  Smart  &  By  ford  (which  firm  had  become  involved  in  business 
difficulties  and  was  compelled  to  stop  payment)  and  to  prepare  from  the 
following  data  a  statement  of  aflfairs,  accompanied  by  a  deficiency  account: 

Unsecured  creditors,  A  $35,000.  B  $27,500,  C  $26,000,  D  $24,500,  E 
$17,500,  F  $15,000,  and  G  $2,000;  creditors  for  rent,  salaries,  etc.,  $1,250, 
of  which  $750  was  preferential;  debtors,  $42,500.  of  which  $37,500  was 
good,  $1,825  doubtful  (estimated  to  produce  $625),  and  $3,125  bad;  bills 
receivable,  H  $3,000,  J  $4,250,  K  $2,500  and  L  $1,500;  land  and  buildings, 
$25,000,  plant  and  machinery  $8,500,  stock  on  hand  $5,000,  furniture  and 
fixtures  $1,500,  cash  on  hand  $15,000,  sundry  profits  $37,500,  sundry  losses 
$30,000,  trading  expenses  $17,500.  Evans'  capital  account  was  $5,000, 
Smart  $3,750,  Byford's  $3,750;  Evans'  drawings  were  $10,000,  Smart's 
$15,000,  Byford's  $17,500. 

Show  how  you  would  have  prepared  the  statements  required  had 
you  been  employed  to  do  the  work. 

SOLUTIONS. 

STATEMENT  OF  AFFAIRS,  EVANS,  SMART  &  BYFOBD. 

As  at  October  27.  1903. 

Form  A. 

Expected 

Liabilities,  as  stated  and  estimated  by  debtors.  to  rank. 

Unsecured  creditors    $147,500 

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137  American  Business  and  Accounting  Encyclopedia 

A    $35,000 

B     27,500 

C 26,000 

^     24,500 

E     17,500 

E 15,000 

G     - 2,000 

Rent     

Preferred  creditors   , 750 

Contra. 


ACC 


500 


$148,000 

Estimated 
Assets,  as  stated  and  estimated  by  debtors.  to  produce 

Debtors,   good    $37,500 

Debtors,   doubtful    625 

$  38,125 

Debtors,   doubtful    1,250 

Debtors,   bad    3,125 

$  4.375 

Bills   receivable 11,250 

H     $  3,000 

J    4,250 

K    : 2,500 

L     1,500 

Land  and  buildings   25,000 

Plant  and  machinery 8,500 

Stock  on  hand 5,000 

Furniture  and  fixtures   1,500 

Cash     15,000 

$104,375 
Less  preferred  creditors   750 

$103,625 
Deficiency 44,375 

$148,000 
Balance  from  statement  of  affairs  44,375 

DEFICIENCY  ACCX)UNT. 

Capital   accounts 12,500 

Evans     $  5,000 

Smart     3,750 

Byford     3,750 

Profits     37,500 

I  

$  94,375 
Drawings    42,500 

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Evans     $10,000 

Smart     15,000 

Byford    17,500 

Losses     30,000 

Trading  expenses    17,500 

Debtors    4,375 

$  94,375 
•         ^        Form  B. 
Descriptions —  Assets.    Liabilities. 

Debtors     $  38,125 

Good    $37,500 

Doubtful     625 

Bills  receivable    11,250 

H     $  3,000 

J     4,250 

K    2,500 

L     1,500 

Land  and  buildings    25,000 

Plant  and   machinery   8,500 

Stock  on  hand   5,000 

Furniture  and  fixtures   1,500 

Cash    15,000 

Creditors   unsecured $147,500 

A     $35,000 

■     B     27,500 

C 26,000 

D     24,500 

E     17,500 

F     15,000 

G     2,000 

Preferred    creditors    750 

Rent    500 

$104,375         $148,750 
Deficit     44,375 

$148,750        $148,750 

Capital  Items —  Dr.  Cr. 

Evan's  capital   $    5,000 

Smart's    capital     3,750 

Byford's   capital    3,750 

Partners'  drawings — 

Evans    $  10,000 

Smart    • 15,000 

Byford    17,500 

$  42,500         $  12,500 
Balance,  deficit  30,000 

$  42,500        $  42,500 

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Profit  and  Loss-items — 

Sundry    profits    $  37,500 

Sundry  losses   $  30,000 

Trading  expenses   •  • 1 7,500 

Debtors    4,375 

$  51,875         $  37,500 
Balance  to  deficit  account  14,375 

$  51,875         $  51,875 
DEFICIENCY  ACCOUNT. 

Balance  of  Capital  items  $  30,000 

Balance  of  Profit  and  Loss  items •  • 14,375 

$  44,375 
Excess  of  liabilities  over  assets  •  • 44.375 


Acc. 


The  statement  of  aflfairs  and  its  appendix,  the  deficiency  account,  is 
presented  in  two  forms,  A  and  B.  Form  A  is  ordinarily  used  in  Great 
Britain,  the  English  colonies  and  this  country,  whereas  Form  B  is  mostly 
in  vogue  in  continental  Europe. 

New  York  C.  P.  A.  Examination,  June,  1905.  You  are  asked  to  pre- 
pare an  account  showing  the  profit  earned  by  a  concern  for  a  certain  period. 
The  books  have  been  kept  by  single  entry  and  you  gather  from  them  the 
following : 

Capital    $19,360 

Cash 2,600 

Accounts  receivable  ■  • 1 5,600 

Merchandise    10,400 

Fixtures 1,650 

Accounts  payable   3,850 

Bills  payable 5,000 

Merchandise  used  by  proprietor  800 

The  capital  above  set  out  is  the  balance  of  the  account  after  $1,500 
withdrawn  during  the  period  and  $1,20  for  salary  have  been  charged  up 
against  it. 

Set  up  profit  and  loss  account. 

SOLUTION. 

ASSETS. 

Cash    $  2,600 

Accounts  receivable  15,600 

Merchandise    10,400 

Fixtures    1,650 

Total  assets  $30,250 

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UABIUTIES. 

Accounts  payable $  3,850 

Bills  payable 5,000 

Capital 19,760 


137 


28,610 


Profits 


$  1,640 

ANALYSIS  OF  CAPITAL  ACCOUNT. 

Balance  at  end  of  period  ." $19,360 

Before  closing  add  salary  account 1,200 


Deduct  proprietor's  merchandise 


$20,560 
800 


Capital  at  closing  $19,760 

Illinois  C.  P.  A.  Examination,  May.  1904.  At  the  close  of  its  fiscal 
year,  December  31st,  1902,  a  manufacturing  corporation  had  a  working 
capital  of  $86,451.78,  consisting  of, — cash  in  bank  $5,200,  accounts  and  notes 
receivable  $79,516.80;  stock  on  hand  $30,48320;  less  unpaid  labor  and 
accounts  payable  $28,748.22.  During  the  year  1903  the  management 
erected  an  addition  to  its  main  factory  building  costing  $18,210.19  and  in- 
stalled therein  machinery  and  equipment  costing  $16,30927,  with  additional 
hand  tools  costing  $3,298.50.  After  inventorying  stock  and  closing  the 
books  to  December  31st,  1903,  a  dividend  of  $45,000  was  declared  out  of 
net  profits  for  the  year  amounting  to  $54,817.96.  The  company  was  obliged 
to  borrow  the  money  to  pay  the  dividend. 

Give  any  reasons  which  occur  to  you  as  to  why  the  loan  was  necessary 
and  the  propriety,  or  otherwise,  of  making  it. 

SOLUTION. 

BALANCE   SHEET. 

Dec.  31,  1902. 

Cash    $  5,200.00      Unpaid  labor  and  accounts 

Accounts  and  notes  receiv-  payable    $28,748.22 

able    79,516.80      Capital  and  surplus 86,451.78 

Stock  on  hand  30,483.20 


$115,200.00 


$115,200.00 

The  problem  requires  answers  to  two  questions: 

1.  The  reason  why  the  loan  was  necessary ; 

2.  The  propriety  or  otherwise  of  making  the  loan. 

To  the  first  the  answer  is  very  simple.  The  company  had  made 
during  the  year  extraordinary  capital  expenditures  in  the  form  of  per- 
manent improvements.  While  its  net  profits  appear  to  have  been  over 
$54,000,  nearly  $38,000  was  thus  expended,  so  that,  unless  there  had  been 
an  extraordinary  realization  on  its  general  assets  during  the  year,  there 
would  not  be  a  sufficient  amount  of  cash  to  pay  $45,000  out  in  dividends. 

The  answer  to  the  second  question  requires  a, careful  consideration  of 
all  the  facts. 

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Here  we  have  a  company  doing  a  very  considerable  busi"ness,  as 
shown  by  the  year's  profits  of  $54,817.96,  while  its  working  capital  con- 
sists mostly  of  accounts  and  notes  receivable  and  stock  on  hand,  with  a 
small  proportion  of  cash.  The  liabilities,  while  not  large,  include  unpaid 
labor,  which  indicates  (if  it  was  more  than  the  usual  current  sum  due 
on  the  pay  roll  for  such  fractional  part  of  a  week,  made  necessary  by 
the  date  of  the  closing)  a  shortage  of  ready  money.  It  is  clearly  the  part 
of  prudence  to  strengthen  the  company  in  this  respect  before  declaring 
a  dividend  of  any  kind. 

However,  we  must  look  a  little  closer.  The  directors  justify  their 
action  by  saying  that  the  company  has  clearly  earned  the  dividend,  and 
that  they  are  entitled  to  reimburse  the  company  for  capital  expenditures; 
that  the  stockholders  are  entitled  to  a  fair  return  on  their  money,  etc. 

We  also  know  from  history  that  while  a  loan  to  pay  a  dividend  is 
seldom  justifiable,  it  may  sometimes  be  warranted  and  often  has  been 
practiced  by  conservative  financiers.  That  if  directors  had  not  in  the  past 
capitalized  improvements,  few  of  the  railroads  in  the  country  would  ever 
have  paid  a  dividend.  This  is  all  probably  true,  yet  it  requires  at  the 
very  outset  a  consideration  of  the  sort  of  loan  proposed,  the  rate  of  cost, 
etc.  If  it  is  to  be  in  the  form  of  bonds  to  run  considerable  time,  at  a 
moderate  rate  of  interest,  the  proceeds,  thus  used,  being  really  to  attract 
capital  and  thus  extend  the  business,  the  policy  may  perhaps  be  admissible. 

Before  admitting  this,  however,  as  an  accountant,  I  would  want  to 
examine  more  carefully  the  conditions.  The  problem  does  not  state, 
whether  outside  of  this  "working  capital"  of  $86,451.78  there  are  any 
other  assets;  whether  the  plant,  etc.,  is  owned  or  leased.  Let  us  assume 
that  it  is  owned.  Then  I  should  want  to  inquire  how  this  net  gain  of 
$54,817.96  was  arrived  at — whether  repairs  and  maintenance  had  been 
properly  charged  to  expense;  whether  adequate  sums  had  been  written 
oflF  or  set  aside  for  depreciation ;  whether  reserves  were  maintained  for 
losses  on  bad  debts,  etc. ;  also  whether  the  considerable  amount  of  accounts 
and  notes  receivable  indicated  slow  collections. 

A  most  rigid  treatment  of  these  points  would  be  required. 

Further,  as  it  is  proposed  to  capitalize  these  improvements,  let  us 
examine  what  they  are. 

The  $18,210.19  spent  for  addition  to  factory  building  would  probably 
stand  as  good  and  proper,  if  carefully  and  economically  spent.  Deprecia- 
tion, however,  should  be  provided  for  in  the  future. 

As  to  the  $16,309.27  spent  for  machinery,  the  propriety  of  capitalizing 
the  whole  sum  would  depend  on  the  nature  of  the  machinery,  its  duration 
of  life  in  ordinary  use,  its  liability  to  be  superseded  by  improved  ma- 
chinery, etc. 

A  liberal  reserve  should  be  set  aside  to  replace  and  renew  it. 

As  to  the  $3,298.50,  spent  for  hand  tools,  I  should  doubt  the  propriety 
of  calling  this  or  much  of  it  a  capital  expenditure.    The  loss  from  wear 


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ind  tear,  breakage,  being  lost  or  carried  away  by  workingmen,  etc.,  would 
probably  be  great.  I  would  charge  the  greater  part  of  this  item,  if  not 
all,  at  once  to  expense. 

This  question  should  all  be  considered  in  relation  to  the  nature  of 
the  business  carried  on.  What  might  be  a  proper  treatment  of  these 
matters  for  one  sort  of  business,  might  be  clearly  improper  for  another, 
and  it  is  a  pity  the  problem  did  not  enlighten  us  on  this  matter.  We  can 
only  draw  general  conclusions  from  a  consideration  of  the  above  matters. 

In  general,  a  loan  to  pay  dividends  is  imprudent  and  improvident  and 
can  only  be  justified  by  extraordinary  circumstances,  and  if  such  circum- 
stances seem  to  exist,  a  most  rigid  and  careful  examination  of  the  things 
suggested  above  should  be  insisted  on. 

In  this  particular  case  I  should  consider  the  dividend  too  large,  and 
the  making  of  a  loan  to  pay  it  exceedingly  unwise. 

Illinois  C.  P.  A.  Examination,  November,  1903.  Brown  and  Jones 
begin  a  partnership  business  Jan.  1,  1902;  at  the  time  of  closing  the  books, 
Dec.  31st,  1902,  an  examination  of  the  account  revealed  the  following: 

January  1st  Brown  paid  in $9,000.00 

May  1st  Brown  paid  in 2,400.00 

June  1st  Brown  drew  out  1,800.00 

September  1st  Brown  drew  out  2,000.00 

October  1st,  Brown  paid  in  800.00 

January  1st  Jones  paid  in  3,000.00 

March  1st  Jones  drew  out  1,600.00 

May  1st  Jones  drew  out 1,200.00 

June  1st  Jones  paid  in   1,500.00 

October  1st  Jones  paid  in 3,000.00 

Their  merchandise  account  was  Dr.  $32,000,  Cr.  $27,000.  Balance  of 
merchandise  on  hand  per  inventory  $10,500.  Cash  on  hand  $4,900.  Bills 
receivable  $12,400.  Chas.  Green  owes  on  account  $2.50;  F.  Draper  owes 
$700;  Wm.  Clark  owes  $650;  F.  Hart  owes  $850.  They  owe  on  their 
notes  $1,890.  They  owe  A.  Reed  on  account  $240;  owe  C.  Smith  $500; 
owe  A.  Clark  $100.  Their  profit  and  loss  account  shows  before  closing 
entries  Dr.  $866,  Cr.  $1,520;  expense  accotmt  is  Dr.  $2,520.  Commission 
account  is  Cr.  $2,760.  Interest  is  Dr.  $480,  Cr.  $950.  The  gain  or  loss 
is  to  be  divided  in  proportion  to  each  partners  capital,  and  in  proportion 
to  the  time  it  was  invested. 

Prepare  (1)  Asset  and  liability  statement.  (2)  Merchandise  account 
closed.  (3)  Profit  and  loss  account  closed.  (4)  Each  partner's  account 
closed.     (5)   Balance  sheet. 

SOLUTION. 

A. 

Dec.  31,  1902. 

ASSET   AND  LIABILITY   STATEMENT. 

Cash  on  hand  $  4,900      Open  creditors   $     840 

Accounts  receivable   ....     2,450      Bills  payable   1,890 

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137  American  Business  and  Accounting  Encyclofedia 

Bills  receivable   12,400       Suspense   account    7,556 

Stock  in  trade  10,500  ' 

Total    $10,286 

$30,250  CAPITAL. 

Jones     $4,700 

Brown    8,400 

13,100 

Undivided  profits    6,864 

$30,250 

MERCHANDISE  ACCOUNT. 

Purchases    $32,000      Sales $27,000 

Less  stock  in  trade 10,500 


Acc. 


Cost  of  merchandise  sold $21,500 

Gross  profits  5,500     . 


K 


$27,000 


$27,000 

PROFIT   AND   LOSS    ACCOUNT. 

Section  I. 

^^P«"ses  $2,520      Balance  from  Merchandise  ac- 

Balance  down  5,740  count    $5,500 

(Being  ordinary  business  Commissions    2,760 

profits.) 

"I $3,260 

$8,260 

Section  II. 

interest   $  480       Balance    $5,740 

Net  profits  6,864      Interest    950 

firown    $5,386.44  Old  balance  .'     654 

Jones    1,477.56  

$7,344 


$7,344 
BALANCE   SHEET.    DEC    31,   1902. 

Assets.  Liabilities. 

C^sh    $  4,900       Bills  payable    $  1,890.00 

Merchandise    10,500      Accounts  payable   840.00 

Bills  receivable  12,400      Suspense  account   7,556.00 

Accounts  receivable  2,450  

$10,286.00 
Proprietorship : 
Brown    13,786.44 


$30,250  Tones     6.177.56 

$30,250.00 
CAPITAL  ACCOUNT. 

Brown. 

June  1,  1902  $1,800.00      Jan.  1,  1902  $  9,000.00 

^^P^-   1    2,000.00       May   1    2,400.00 

^a^ance    13,786.44       Oct.   1    SOO.OO 

Dec.  31,  net  gain  5,386.44 


$17,586.44 


$17,586.44 


Balance    $13,786.44 


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Jones. 


March  1,  1902  $  1,600.00 

May  1    1,200.00 

Dec.  31,  balance  6,177.56 


$  8,977.56 


Jan.  1,  1902   $3,000.00 

June  1 1,500.00 

Oct.  1   , 3,000.00 

Dec.  31,  net  gain 1,477.56 


$  8,977.56 


Balance     $  6.177.56 


DIVISION    OF   PROFITS. 

Brown. 


Jan.  1,  $9,000  for  12  mos.,  = 
May  1,  2,400  for  8  mos.,  = 
Oct.   1,       800  for    3  mos.,  = 


.$108,000 

.     19,200 

2,400 


-$129,600 


Less  drawings — 

June    1,  $1,800  for  7  mos $12,600 

Sept.  1,     2,000  for  4  mos 8,000 


Balance 


-    20,600 
$109,000 


Jones. 


Jan.  1,  $3,000  for  12  mos.,  = 
June  1,  1,500  for  7  mos.,  = 
Oct.     1,    3,000  for    3  mos.,  = 


.$36,000 
.  10,500 
.     9,000 


55,500 


May 


Less  drawings — 

Mar.  1.  $1,600  for  10  mos : $16,000 

1,  1,200  for    8  mos 9,600 


Balance 


Total 


25,600 


29,900 


$133,900 


(138)     AGENDA  BOOK. 

A  title  given  to  a  memorandum  book  kept  by  the  secretary  of  a 
corporation  for  the  purpose  of  entering  therein  notes  of  meetings  of 
stockholders  or  board  of  directors. 

This  agenda  book  may  also  be  found  useful  for  the  purpose  of  entering 
memoranda  of  such  matters  as  may  be  considered  desirable  from  time 
to  time  to  bring  to  the  attention  of  directors  or  stockholders  at  a  subse- 
quent meeting. 

(139)     AGENT. 

A  person  employed  to  represent  a  business  for  the  sale  of  its  goods, 
or  to  obtain  contracts,  or  dispose  of  or  acquire  those  commodities  or 
rights,  etc.,  in  which  the  business  represented  may  trade  or  deal. 

Such  agents  may  be  described  as  traveling  agents ;  agents  who  under- 
take as  a  side  line,  the  sale  of  commodities  belpnging  to  the  concern  by 
whom  they  are  appointed,  who  may  have  the  sole  agency,  or  that  for  a 


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city  or  district,  may  be  remunerated  by  commission  only,  or  by  salary, 
and  commission ;  or  may  be  charged  with  the  goods  supplied  at  a  certain 
agreed  rate,  receiving  as  remuneration  the  difference  between  the  price 
charged  and  the  amount  at  which  the  sale  is  effected ;  agents  for  insurance 
companies  who  receive  as  a  remuneration  a  certain  proportion  of  premium 
receipts  in  their  territory  and  who  may  in  turn  appoint  sub-agents. 

(140)     AGENTS'  ACCOUNTS. 

The  consideration  of  the  accounts  of  agents  for  insurance  companies 
will  be  taken  up  under  the  head  of  Insurance. 

The  accounts  of  an  agent  for  a  general  business,  such  as  mentioned 
above,  frequently  present  a  great  many  complications  and  require  a 
considerable  amount  of  book-keeping,  especially  where  the  accounts  of  the 
agents  with  customers,  for  instance  are  collected  by  the  head  office.  In 
such  cases  the  agent  is  usually  required  to  forward  a  daily  report  of 
sales  in  his  territory,  which  report  is  frequently  transcribed  into  a  journal 
before  posting  the  items  to  the  ledger.  A  special  form  of  report  can, 
however,  easily  be  devised  from  which  posting  can  be  made  direct  without 
the  interposition  of  another  book  of  entry,  and  these  reports  can  be 
kept  in  a  binder  which  can  be  labeled  "Cleveland  Agent's  Sales  Journal." 

Where  the  agent  receives  a  certain  percentage  on  grosb  sales,  it  is  a 
very  simple  matter  to  keep  track  of  his  business,  charging  commission 
account  and  crediting  the  agent  with  the  percentage  earned  either  daily, 
weekly  or  monthly,  as  found  convenient. 

Where  the  goods  are  charged  to  the  agent  at,  say  10  per  cent  above 
cost,  it  will  be  seen  that  the  10  per  cent  above  cost  enters  into  account  both 
in  the  gross  sales  charged  in  customers  and  the  credit  to  merchandise  when 
th  egoods  are  charged  to  the  agent.  The  plan  used  by  many  houses  which 
make  arrangements  of  this  kind  with  agents  is  as  follows: 


Agents    Sales  RecoRo 


Date  or 
Shipment 


Description  QuAM'n  PhicE 


Amt 


Datc  or 

Rtron 


DzscatrTRK 
or  Sale 


QUAN 
TITY 


PRiCtlAM 


tF*^ 


Cr. 


When  goods  are  shipped  to  the  agent  for  sale,  a  list  of  the  shipments 
is  prepared,  providing  a  column  in  which  to  enter  the  amounts  at  which 
the  goods  are  charged  to  the  agent,  and  another  column  in  which  to  enter 
the  amounts  at  which  the  agent  makes  his  sales.  This  list  we  will 
hereafter  refer  to  as  "Agent's  Inventory."  Open  an  account  with  the  agent 
and  charge  him  with  the  goods  at  cost  and  10  per  cent  added,  crediting  an 
account  to  be  opened,  entitled  "Agent's  Sales  Account."     As  the  agent's 


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account  sales  come  in,  charge  the  customers  in  the  usual  way,  and 
credit  the  regular  sales  account,  entering  on  the  agent's  inventory  the 
amount  realized  by  the  agent  from  the  sales.  The  footing  of  the  two 
columns  on  the  agent's  inventory  will  then  show  the  excess  over  profits 
at  which  the  goods  were  billed  to  him.  Having  ascertained  this  amount, 
charge  agent's  sales  account  with  the  sales  made  at  the  prices  billed 
to  the  agent  and  credit  the  agent's  account.  Credit  the  agent  with  the 
difference  between  the  totals  of  the  two  columns  on  the  agent's  inventory 
and  charge  commission  account  with  the  amount.  When  the  customer 
pays  the  bill,  credit  him,  the  charge  being  to  cash.  When  the  settlement 
is  made  with  the  agent,  charge  his  account  with  the  amount  paid  him,  the 
credit  being  to  cash. 

In  order  to  make   this   quite   clear,  we   append  the  following  journal 
entries : 

Dr.  Cr. 

$770.00        Agent— bill  of  goods  with  10%  added  to  cost. 

Agent's  Sales $770.00 

125.00        John  Smith  &  Co. 

(Agent's  report,  1-6-99) 

Sales    125.00 

110.00        Agent's  Sales. 

Agent   (Sales  1-6-99) 110.00 

15.00        Commission. 

Agent's  profits  on  Sales  for  1-6-99 15.00 

125.00        *Cash. 

John  Smith  Co 125.00 

♦In  this  and  other  illustrations  in  the  American  Business  and  Account- 
ants' Encyclopaedia  cash  is  included  in  journal  entries  simply  to  accomplish 
lucidity  of  explanation. 

It  will  be  found  desirable  to  credit  agent's  profits  to  a  separate  account, 
for  the  reason  that  if  they  are  credited  to  the  agent's  account,  they  will 
prevent  that  account  from  showing  exactly  the  inventory  of  goods  he  has 
on  hand  remaining  unsold.  Inasmuch,  however,  as  the  agent's  sales 
account  will  exhibit  precisely  the  same  statistics  it  may  be  considered 
that  this  is  all  that  is  necessary,  in  which  case  the  agent's  account  can 
be  credited  with  the  profits,  each  credit  being  distinguished  from  other 
credits  when  posted,  so  that  at  any  time  they  can  be  extracted  for  the 
purpose  of  checking  up  the  agent's  claim  for  the  amounts  due  him. 

According  to  the  above  journal  entries,  the  accounts  affected  would 
stand  thus  after  postings  had  been  made: 

Dr.  Balances.  _      Cr.  Balances. 

$660.00        Agent. 

Agent's    Sales    :|)660.00 

15.00        Commission. 

Agent's   Profits    15.00 

125.00        Cash. 

Sales  Account  (regular) 125.00 

It  will  be  seen  that  the  agent's  account  shows  that  of  the  goods 

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furnished  him  he  has  disposed  of  $110  worth  and  has  $660  worth  on  hand. 
The  agent's  profits  on  sales  effected — ^$15 — have  been  credited  to  him  and 
charged  to  commission  account  as  a  selling  expense;  the  customer  has 
paid  his  account,  while  the  sales  account  has  been  credited  with  the  gross 
amount  of  sales — $125. 

Accounts  with  traveling  salesmen  are  kept  in  a  variety  of  ways,  and 
we  think  it  would  be  of  interest,  as  well  as  instructive,  to  reproduce  here 
the  methods  used  in  four  large  business  houses  for  keeping  track  of  debits 
and  credits  to  their  traveling  salesmen. 

No.   1. 

It  is  not  always  convenient  to  keep  the  cash  accounts  with  the 
traveling  salesman  in  the  general  ledger.  If  there  are  many  travelers  they 
will  occupy  a  large  amount  of  space  in  this  book,  besides,  these  accounts 
can  be  more  readily  referred  to  and  much  easier  kept  track  of,  by  means 
of  a  small  cash  ledger  used  only  for  this  purpose. 

The  book  we  use  is  about  five  and  one-half  inches  wide  and  eight 
inches  long,  and  is  ruled  like  form  shown  herewith : 

William  Simpson — Trip  from  Jonesville  to  Bloomington. 


Date. 
1896. 
Dec    1 

"  7 
"  7 
"  10 
"  12 
"  12 
"  12 


Particulars. 


Dr. 


Cr.      Dr.  or  Cr.     Bal. 


Cash    $50.00 

(Wages  paid  to  date.) 

Expenses  for  week 

J.  B.  Dalton   17.80 

Cash  to  family  10.00 

Expenses  for  the  week 

By  two  weeks'  wages 

Cash  to  balance  1.95 


Dr. 

$23.75  Dr. 

Dr. 

Dr. 

22.00  Dr. 

34.00  Cr. 


$30.00 

26.25 
44.05 
54.05 
32.05 
1.93 


$79.75         $79.75 

This  book  lies  in  the  cash  drawer,  and  when  counting  the  cash  every 
night  the  amount  charged  in  this  book  to  each  traveler  is  counted  as  cash. 

A  book  of  this  size,  with  about  two  hundred  pages,  will  record  the 
transactions  of  five  or  six  travelers  for  about  two  years,  and  when  filled  it 
can  be  laid  away  and  easily  and  readily  referred  to.  A  certain  number  of 
pages  are  allowed  to  each  man,  so  that  when  the  book  is  completed,  the 
transactions  of  each  account  follow  in  regular  order. 

On  account  of  its  easy  reference,  we  find  it  works  very  satisfactory, 
as  the  date  of  any  previous  trip  can  be  quickly  turned  to. 

When  a  man  starts  out  on  a  trip  he  is  given  a  certain  amount  of 
money  which  is  entered  only  in  this  book.  At  the  end  of  the  week  he 
sends  to  the  house  an  itemized  account  of  his  expenses  for  that  week, 
which  is  credited  to  him  in  this  book,  and  this  amount  is  charged  to 
general  expenses  in  the  cash  book.  If  he  collects  any  money  on  the 
road,  the  fact  is  reported  at  once,  and  he  is  charged  with  the  amount, 
while  the  customer  is  credited  with  it  in  the  general  cash  book. 


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If  his  family  get  any  money  during  his  absence,  this  fact  is  recorded, 
and  the  amount  charged  to  him.  When  he  comes  home  his  account  is 
balanced  by  crediting  him  with  his  wages  for  time  absent  and  paying 
the  balance  due  him. 

No.  2. 

The  method  hereunder  outlined  has  been  put  to  practical  use,  and 
while  simple  in  detail,  has  been  found  to  be  very  comprehensive  and 
satisfactory. 

Two  accounts  are  opened  for  each  salesman, — "Personal"  and 
"Sample."  To  the  personal  account  is  posted  only  such  items  as  remit- 
tances from  the  house  and  such  collections  as  the  salesman  may  make  on 
his  trip,  wherein  the  proceeds  are  retained  by  him  for  his  use  as  previously 
arranged,  for  the  debtor  side ;  and  for  the  credit  side  salary  and  expenses 
covering  railroad  fare,  hotels  and  other  legitimate  items,  as  shown  by 
w^^ekl:  reports.  This  account  should  i)e  balanced  at  convenient  times, 
but  parliculaily  upoa  co  npletion  of  each  trip,  when  the  account  can  be 
checked  with  the  salesman  if  necessary. 

We  now  come  to  the  sample  account,  which  takes  for  its  first  entry  a 
charge  from  the  sales  journal,  covering  the  aggregate  selling  value  of  all 
goods  taken  by  the  salesman  when  starting  on  his  trip.  As  each  sale  or 
delivery  of  goods  is  made  by  the  salesman,  whether  for  cash  or  on  time, 
he  should  immediately  report  the  transaction  on  the  regular  form  of  order 
blank  when  the  charge  in  the  home  books  would  be  in  the  event  of  a 

cash  sale: 

John  Hustle  (salesman),  Personal. 
To  John  Hustle,  Sample. 

•entering  the  description  of  goods  in  detail,  or  merely  referring  to  reported 
date  of  sale.  When  the  goods  are  delivered,  or  sold  on  time,  an  invoice 
must  be  made  and  mailed  to  the  customer,  and  the  proper  entry  for  the 

home  books  would  be: 

Marshall,  Meadow  &  Co.,  (Customer). 

To  John  Hustle,  Sample  Account. 

These  entries  involving  transactions  by  the  salesmen  should  be  made  in 

the  sundries  journal,   as  the  goods  have  already  entered  into  the  sales 

record  through  the  original  charge  to  salesman. 

Immediately  upon  return  of  the  salesman  to  the  home  plant  his 
samples  and  stock  of  goods  remaining  on  hand  should  be  checked  up  and 
credited  through  the  sales  journal,  when,  with  all  items  posted,  his  sample 
account  should  be  in  balance. 

No.  3. 

Our  attention  having  been  called  to  the  question  of  dealing  with  the 
accounts  of  traveling  salesmen,  particularly  with  the  method  outlined  in 
No.  2,  we  have  carefully  examined  same  and  note  the  claim  that  the  system 
has  been  put  to  practical  use,  is  simple  in  detail,  very  comprehensive  and 
satisfactory. 

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As  far  as  the  knowledge  and  desire  of  those  who  use  it  are  concerned, 
this  may  all  be  true;  but  as  viewed  from  another  standpoint,  it  appears 
to  be  open  to  criticism.  It  recommends  that  two  accounts  be  kept  with 
each  salesman;  one  a  "Personal"  and  one  a  "Sample"  account.  It  then 
explains  that  to  the  "Personal"  account  should  be  posted  among  other 
things  "such  collections  as  the  salesman  may  make  on  his  trip,  wherein  the 
proceeds  are  retained  by  him  for  his  use,"  etc. 

As  long  as  the  salesmen  are  strictly  honest,  the  simplicity  of  the  plan 
proposed  is  sufficient  to  recommend  it ;  but  simplicity  is  not  the  only  featui  e 
that  should  be  considered,  and  while  it  would  be  wrong  to  cast  an  unjust 
reflection  on  any  man's  honesty,  it  is,  nevertheless,  a  fact  that  one  object 
in  keeping  accounts  is  to  avoid,  as  far  as  may  be,  all  possibility  of  loss, 
and  it  would  be  well  before  inaugurating  or  continuing  such  a  system  to 
consider  the  possible  contingencies. 

Let  us  suppose,  that  under  such  a  system,  one  of  the  salesmen  has 
retained  a  number  of  his  collections  for  personal  use,  and  they  have  been 
simply  charged  to  such  a  "Personal"  account  kept  with  him  as  an  indivi- 
dual, together  with  other  miscellaneous  items.  Let  us  further  suppose 
that  settlement  is  requested  of  him  when  the  fact  is  brought  to  light  that 
he  has  appropriated  funds  far  beyond  the  business  needs  and  is  "short"; 
or  that  he  has  taken  what  money  he  could  collect  and  disappeared,  after 
having  reported  said  collections  and  authorized  a  charge  to  his  account 
of  the  amount,  in  accordance  with  previous  plans. 

Under  such  conditions  the  only  chance  to  secure  a  settlement  would 
be  to  rely  on  such  laws  as  relate  to  the  collection  of  ordinary  debts.  He 
has  had  unlimited  authority  to  collect  what  he  could,  with  privilege  of 
having  it  charged  to  him  personally  as  a  principal  and  not  as  an  agent. 

A  much  bettei  way  to  handle  such  matters  is  to  require  the  salesmen 
to  remit  promptly  for  each  and  every  collection  made,  and  when  received, 
credit  the  accounts  on  which  the  payments  are  made.  In  other  words, 
never  allow  a  collection  to  pass  through  an  employe's  personal  account. 

If  a  salesman  requires  money  for  expenses  or  other  purposes,  remit 
or  pay  it  to  him  on  receipt  of  proper  vouchers  showing  that  he  has 
expended  the  amount.  If  it  becomes  necessary  to  advance  money  for 
similar  purposes,  charge  it  to  him  as  "Agent,"  "Custodian,"  or  in  a  fiduciary 
account,  with  particulars  plainly  indicated  by  the  entries  made,  and  such 
vouchers  as  should  be  required  of  him ;  or  the  same  transactions  may  be 
handled  in  various  other  ways  that  will  comply  with  existing  conditions 
and,  at  the  same  time,  like  the  plan  herein  explained,  place  a  case  of 
retention  of  funds  subject  to  the  laws  regarding  embezzlements,  when  the 
salesman's  person  may  be  attached  for  the  unpaid  balance.  His  "Personal** 
account  should  be  a  record  of  settlements  promptly  made,  and  not  one  of 
unsettled  balances. 

Another  feature  of  the  advice  given  in  No.  2  is  worthy  of  attention. 
It    proposes    to   charge    the    salesman's    sample    accounts    with  such    goods 

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as  may  be  shipped  to  them,  subject  to  sale  and  regarding  the  entries  for 
subsequent  sales  made  by  them,  stating  they  should  be  made  in  the 
sundries  journal,  "as  the  goods  have  already  entered  into  the  sales  record 
through  the  original  charge  to  salesmen."  While  in  such  cases  the  manner 
of  handling  sales  totals  may  be  so  adjusted  as  to  produce  correct  results, 
the  plan  proposed,  without  further  proper  treatment,  would  certainly  pro- 
duce an  incorrect  total  of  gross  profits  in  a  monthly  statement,  unless  all  of 
such  goods  have  been  sold  and  charged  to  final  purchasers  at  that  time. 

If  such  goods  are  charged  to  the  salesman  at  cost,  the  profits,  when 
actual  sales  are  made,  would  be  omitted  from  the  original  sales  record,  and 
if  charged  to  salesmen  at  a  profit,  a  monthly  statement  of  totals  shown 
would  represent  an  incorrect  profit  total,  by  having  thus  considered  the 
profits  on  such  goods  as  had  not  been  finally  disposed  of. 

Again,  when  final  sales  were  made  from  such  stock,  unless  they  were  at 
the  same  prices  at  which  they  had  been  charged  to  salesmen,  an  adjusting 
entry  would  become  necessary  for  the  diflference,  which,  under  some 
systems,  would  then  be  difficult  to  incorporate  in  the  original  sales  record. 
The  conditions  in  question  might  be  systematically  and  correctly 
recorded  in  the  following  manner,  viz. : 

Open  accounts  with  each  salesman  in  the  style  of  "John  Johnson, 
custodian:"  or  "John  Johnson,  sample  account,"  or  any  similar  title  that 
will  briefly  indicate  the  facts.  Then  open  one  other  account  as  "merchan- 
dise in  transit,"  or  "salesmen's  samples,"  or  such  title  as  may  be  decided 
on.  Now,  presuming  that  a  special  book  is  kept  for  sales,  and  a  journal 
for  all  other  entries  that  are  not  cash,  the  method  of  handling  such  matters 
would  be  as  follows: 

For  shipment  to  salesmen,  if  charged  at  cost,  debit  "John  Johnson, 
custodian."  credit  "salesmen's  samples,"  and  at  the  same  time  charge  the 
goods  to  the  purchaser  in  the  regular  manner  through  the  sales  book. 

If  goods  are  charged  to  salesmen  at  a  profit,  the  entries  would  be  the 
same ;  but  in  either  case  great  care  would  have  to  be  exercised  in  making 
the  second  entries  exactly  the  same  prices  at  which  the  goods  were  origin- 
ally charged  to  the  salesmen's  accounts. 

By  this  plan  the  salesmen's  sample  accounts  will  represent  at  all  times 
the  value  of  goods  that  remain  in  the  charge  of  each,  while  the  "merchan- 
dise in  transit"  account  will  represent,  by  its  credit  balance,  the  total  value 
of  goods  held  by  all  the  salesmen,  unsold. 

This  latter  account  is  in  the  nature  of  a  memoranda  only,  and  while 
It  shows  a  credit  balance,  it  simply  requires  the  proper  treatment  in  any 
business  statement  that  may  be  made,  in  order  to  show  correct  results.  By 
this  plan  the  profits  are  in  no  case  overestimated,  and  require  no  special 
adjusting  entries;  neither  do  the  sales  book  tptals  contain  any  except 
actual  sales. 

164 


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American  Business  and  Accounting  Encyclopedia 


Aa 


No.  4. 

The  keeping  of  a  close  line  on  the  accounts  with  our  salesmen  has  been 
the  cause  of  much  trouble  in  our  office.  We  have  at  last  gotten  on  the  right 
track,  and  while  there  are  some  points  in  our  system  that  may  not  be 
adapted  to  the  uses  of  some  other  lines  of  business,  this  is  just  what  we 
have  needed: 

First:  The  accounts  with  the  various  salesmen  are  on  a  purely  com- 
mission basis — one-half  of  the  commission  being  paid  when  the  order  is 
accepted  and  the  balance  when  the  account  is  paid.  It  will  be  readily  seen 
that  there  will  always  be  a  balance  large  enough  to  protect  the  house 
against  the  charge  back  commissions  arising  from  goods  being  returned 
and  other  causes. 

Second:  The  goods  arc  mostly  sold  on  thirty  days*  trial,  and  this 
tends  to  lengthen  the  term  of  credit  considerably. 

Third :  The  goods  are  special  fittings,  or  machines,  and  if  an  agent 
makes  a  wrong  measurement  for  the  fittings,  there  arises  express  charges 
and  other  costs  which  must  be  kept  track  of  in  such  a  manner  as  to  allow 
ready  reference  when  any  question  arises  concerning  an  order  when  making 
a  settlement  with  the  salesman. 

Fourth :  It  is  very  desirable  to  have  a  complete  record  of  each  order 
in  such  shape  that  the  record  can  be  used  as  a  basis  for  future  quotations 
and  correspondence. 

Our  plan  is  virtually  as  follows:  When  an  order  comes  in  from  a 
salesman,  we  first  take  a  card  and  fill  out  the  name,  address,  rating,  etc.; 
then  the  salesman  order  number  and  our  order  number;  the  date  of  the 
order,  amount  of  the  order,  the  symbols  showing  kind  of  goods ;  then  fol- 
lows the  amount  of  the  salesman's  commissions,  with  one-half  carried  in 
short  for  ready  reference ;  the  one-half  commission  is  then  credited  to  the 
salesman's  account  in  the  ledger  ready  for  settlement.  Should  the  ship- 
ment be  prepaid  at  the  expense  of  the  agent,  the  express  is  charged  on  the 
card,  but  not  in  the  ledger  at  this  time,  this  item  appears  on  the  card  under 
date  of  shipment ;  the  date  of  shipment  also  appears  under  the  heading 
"Amount  of  Order." 

When  the  account  is  paid  by  the  customer,  the  card  is  taken  from  the 
case,  and  the  amounts  to  be  charged  back  to  the  salesman  are  entered 
against  his  account  in  the  ledger  and  credit  given  for  the  one-half  commis- 
sion unpaid.  On  the  card  the  cash  diflference  is  shown.  Each  week  the 
salesman  receives  an  itemized  statement  of  the  orders  received  with  the 
commissions  thereon ;  the  accounts  paid,  with  a  list  of  charge  back  items 
and  unpaid  commissions  due.  This  enables  the  salesman  to  have  a  check 
on  the  house,  and  at  the  same  time  any  diflFerences  in  the  accounts  are  at 
once  detected.  After  the  card  has  become  a  "paid  account  card,"  it  is 
transferred  to  the  transfer  case,  a  rtcord  card  first  being  made  for  the  cus- 
tomer's record  case  for  use  in  correspondence,  quotations,  advertising  mat- 


! 


165 


Ag. 


American  Business  and  Accounting  Encyclopedia        140-143 


ter,  etc.  This  is  done  for  the  reason  that  the  salesmen  do  not  work  the 
same  territory  continuously,  and  the  orders  that  drift  in  afterward  are  not 
those  on  which  the  salesman  receives  any  commission. 


The  relation  of  agent*s  accounts  to  balance  sheets,  trading  accounts 
and  profit  and  loss  accounts  is  easily  understood  where  separate  accounts 
are  kept  with  agencies.  The  best  method  of  incorporating  the  transactions 
of  an  agency  is,  by  some  accountants,  considered  to  be  by  means  of  a 
grand  balance  sheet,  including  all  the  assets  and  liabilities  of  the  main  office 
and  of  the  agencies,  and  a  detailed  balance  sheet  provided  with  separate 
columns  for  each  agency,  treating  trading  account  and  profit  and  loss  ac- 
count in  the  same  manner.  In  this  way  the  gross  and  net  profits,  inven- 
tories and  expenses  of  each  agency  will  be  exhibited  contemporaneously 
with  the  statistics  of  the  main  office  and  the  combined  statistics  of  the 
whole  business. 

The  methods  of  keeping  record  of  agency  sales  vary  with  the  different 
requirements  of  diflferent  lines  of  business.  Thus,  in  breweries,  where,  as  a 
rule,  a  large  number  of  agents  are  employed,  it  is  desirable  to  formulate  a 
special  record,  which  shall  show  at  a  glance  each  agent's  sales  and  the  total 
quantity  sold  of  each  size  of  package,  such  as  cases  or  barrels. 

(141)     ALLIGATION.  ' 

A  term  used  to  describe  the  mixing  of  various  ingredients,  or  combina- 
tions of  different  qualities  or  values,  and  the  finding  of  the  average  value 
of  such  a  combination. 

Thus,  if  a  merchant  desires  to  make  a  mixed  quality  of  tea,  composed 
of  a  mixture  of  different  grades,  alligation  signifies  the  process  of  finding 
how  much  of  each  grade  he  can  include  in  a  given  quantity  of  a  mixture 
which  is  to  sell  at  a  given  price. 

(142)     ALIQUANT. 

A  part  of  a  number  or  quantity  which,  when  dividing  this  number 
or  quantity,  leaves  a  remainder;  thus  7  is  an  aliquant  part  of  20. 

(143)     ALIQUOT. 

A  part  of  a  number  or  quantity  which  divides  that  number  or  quantity 
without  leaving  a  remainder;  thus  7  is  an  aliquot  part  of  21. 

Aliquot  parts  of  numbers  are  largely  used  to  shorten  and  simplify  the 
operation  of  multiplication,  especially  in  computations  involving  fractional 
prices  or  quantities. 

The  aliquot  parts  of  10,  100  and  1,000  are  hereunder  given : 

166 


143-145       American  Business  and  Accounting  Encyclopedia.  Au 


ALIQUOT  PARTS. 

OF 

10. 

2  1-2=1-4 

1  1  3=1-6 

1 

1-4=1-8 

3  1-3=1-3 

1  3-7=1-7 

1 

1-9=1-9 

OF  100. 

6  1-4=1-16 

16  2-3=1-6 

SO 

=1-2 

8  1-3=1-12 

25    =1-4 

62 

1-2=5-8  or  1-16  of 

12  1-2=1-8 

33  1-3=1-3 

75 

=3-4 

14  2-7=1-7 

37  1-2=3-8 

87 

1-2=7-8 

18  3-4—3-16 

31 

1-4=5-16 

OF 

1000. 

83  1-3=1-12 

166  2-3=1-6 

333 

1-3=1-3 

126    =1-8 

250    =1-4 

375 

=3-8 

625    —5-8 

875 

=7-8 

833  1-3=5-6 

Thus  to  compute  439  yards  c^  muslin  at  8  1-3  cents  per  yard  multiply 
by  100  and  divide  by  12. 

The  following  tables  of  aliquot  parts  of  a  lineal  foot,  or  one  dozen, 
and  tons,  will  be  found  useful: 


Aliquot  Parts 


TABLE  OF  ALIQUOT  PARTS. 


Of 


1  foot  or 
1  dozen. 
One  thirty-second  is...^    of  1      in. 

One-sixteenth  is  54  of  1      in. 

One-eighth   is    , IJ/^'  in. 

One- fourth   is    3      in. 

Three-eighths   is    4J/^  in. 

One-half  is    6 

Five-eighths  is    7^4 


Three-fourths  is 
Seven-eighths  is 
One-twelfth   is    . 


.  9 

lOH 
.   1 


One-sixth    (2-12)    is   2 

One-third    (4-12)   is    4 

Five-twelfths   is    5 

Seven-twelfths    is    5 

Two-thirds    (8-12)   is 8 

Five-sixths    (10-12)    is 10 

Eleven-twelfths  is    11 

One-fortieth  is   5-6  of  1 


Aliquot  Parts.         Of  1  Ton  of 

2000  lbs. 

One  thirty-second  is 62 J^ 

One-sixteenth  is    125 

One-eighth  is    250 

One-fourth   is    500 

Three-eighths  is   750 

in.      One-half  is lOOO 

in.     Five-eighths    is    1250 

in.      Three-fourths   is    15OO 

in.      Seven-eighths  is    1750 

in.      One-twelfth    is    166  2-3 

in.     One-fifth  is  400 

in.      One-sixth   (2-12)  is   333 

in.      One-third   (4-12)  is   666 

in.     Five-twelfths   is    S33 

in.     Seven-twelfths  is   1166 

ia      Two-thirds   (8-12)  is   1333 

in.      Five-sixths    (10-12)    is    1666 

in.      Eleven-twelfths  is  vlSSS 

One-fortieth   is    50 


1-3 
2-3 
1-3 
2-3 
1-3 
2-3 
1-3 


(144)     ALLOTMENT. 
A  share  or  portion ;  that  which  is  allotted. 

(145)     ALLOTMENT  OF  SHARES. 

In  large  corporations,  especially  those  whose  stock  is  open  to  public 
subscription,  it  is  necessary  to  keep  a  record  of  shares  applied  for  and 
shares  allotted,  as  it  frequently  happens  that  applications  have  to  be  passed 
upon  and  the  most  desirable  ones  selected.  This  is  more  especially  true  of 
very  promising  mining  companies. 

167 


Al.-Am.      American  Business  and  Accounting  Encyclopedia      145-147 

In  such  a  case,  one  of  the  authorities  on  corporation  accounting 
recommends  separate  sheets  being  employed  for  each  letter,  and  where 
subscriptions  are  invited  for  more  than  one  class  of  share,  the  employment 
of  separate  application  forms,  printed  on  different  colored  paper,  so  that 
the  applications  and  allotment  sheets  for  each  class  of  shares  may  be  easily 
distinguished.     When  the  allotment  is  complete  the  sheets  can  be  bound 


Date  of 
Appl'n 


Register  of  Share  Applications  and  Allotments 


NO 


Name 


Address 


Occupation 


No  Shakes 
App'o  for 


Folio 


Deposit 


Sh/kres 
Allote 


> 


OS 


_  .Amount 

FOLIoi      D„j 


either  in  the  form  of  a  book  or  a  binder,  in  order  to  make  a  permanent 
record. 

Appended  is  an  illustration  of  a  record  of  applications  and  allotment. 


(146)     ALLOWANCE. 

The  amount  credited  to  a  debtor,  or  claimed  by  a  purchaser, 
of  overcharge,  inferiority,  damage,  error,  or  discount. 

A  good  method  of  dealing  with  allowances  to  customers  is 
consecutively  numbered  credit  tickets  (journal  vouchers)  for  all 
other  than  cash  deductions,  each  voucher  to  be  O.  K.'d  by  a 
official. 

In  some  establishments  all  credits  of  this  description 
through  the  voucher  record,  in  which  case  it  is  necessary  to 
special  accounts  receivable  column  to  receive  the  contra  entry. 


on  account 

to  provide 
allowances 
responsible 

are  passed 
provide    a 


(147)     AMALGAMATION. 

A  term  used  to  indicate  tne  combination  of  two  or  more  concerns  who 
previously  have  carried  on  business  independently.  (See  also  Consolida- 
tions.) 

The  following  illustrates  the  general  accounting  methods  used  in 
preparing  the  necessary  data  for  recording  the  respective  interests  of  the 
concerns  proposing  to  amalgamate,  and  the  adjustments  consequent 
thereto. 

John  Deal  and  Alex.  Wood,  cabinetmakers,  enter  into  an  agreement 
for  the  sale  of  their  respective  businesses  to  a  limited  company,  as  at  30th 
Sept.,  1906. 

From  the  following  data  prepare — 

168 


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American  Business  and  Accounting  Encyclopedia 


Am. 


(a) 


(b) 


$      100.00 
25,725.o6 

27,525.00 

45,000.00 

2,500.00 

37J.00 


3,bU0.OO 
11.600.00 

85,000.00 

18,000.00 

3,750.00 


Profit  and  loss  adjustment  account  for  each  business  (treating 
all  necessary  adjustments  of  the  profit  and  loss  account  as  falling 
into  the  last  year),  and  calculate  good  will,  based  on  two  years* 
purchase  of  the  average  profits  of  the  last  three  years,  as  adjusted 
by  you. 

Balance   sheet   of   Deal,   Wood  &  Co.,  Lt'd.,  as  1st  Oct.,  1906, 
without  distinguishing  between  the    respective    interests    of    the 
vendors. 
The  figures  submitted  to  you  are  as  follows : 

John  Deal.  Alex.  Wood. 

Cash  balances    $  1,025.00 

Debtors    21,625.00 

Creditors     (including    bond    of    $100,00    on    Wood's 

building)     13,750.00 

Stocks    25,000.00 

Bad  debt  reserves  500.00 

Insurance  premiums  paid   225.00 

Bills  receivable  on  hand   2,250.00 

Bills  receivable  discounted   2,500.00 

Bills  payable    

Leasehold  premises  3,375.00 

Ground  and  buildings 

Plant  and  tools   12,500.00 

Bank  overdraft  

Balance   in  bank 1,625.00 

Profits- 
Year  to  30th  Sept.,  1904 8,750.00 

Year  to  30th  Sept.,  1905 4,600.00 

Year  to  30th  Sept.,  1906 13,100.00 

Ground  and  buildings  are  to  be  taken  over  at  the  above  figure;  plant 
and  tools  at  a  valuation  which  shows  an  appreciation  of  $500  in  Deal's  case, 
and  depreciation  of  $1,000  in  Wood's  case.  Assume  that  depreciation 
charged  in  the  profit  and  loss  accounts  does  not  require  alteration. 

It  is  further  arranged  between  the  parties  to  reduce  the  figure  of 
Deal's  stock  by  13  per  cent  and  Wood's  by  15  per  cent,  to  write  $1,115 
off  the  leasehold  premises  in  view  of  nothmg  having  been  written  off 
during  the  last  three  years),  and  that  Deal's  bad  debt  reserve  is  unneces- 
sary. You  also  find  that  one-third  of  the  insurance  premiums  has  expired 
in  each  case,  and  that  Deal's  "cash  balance"  consists  to  the  extent  of  $875 
of  his  personal  drawings. 

The  price  of  the  combined  businesses  is  payable,  one-third  in  deben- 
tures and  two-thirds  in  ordinary  shares;  2,500  preference  shares  of  $10 
each  are  issued,  on  which  $1  per  share  has  been  paid  to  provide  further 
working  capital.  The  limited  company  assumes  all  liabiHties  and  lakes 
over  the  book  debts  and  other  assets.  No  interest  is  payable  on  the  pur- 
chase price. 

169 


11,000.00 
13.350.00 
20,025.00 


Am. 


American  Business  and  Accounting  Encyclopedia 


147 


SOLUTION. 

Before  proceeding  with  the  profit  and  loss  adjustment  accounts,  I  give 
paragraphs  as  stated  in  problem  mentioning  at  which  values  assets  and 
liabilities  are  to  be  taken  over  by  .limited  company,  etc.:  "Ground  and 
buildings  are  to  be  taken  over  at  the  above  figure ;  plant  and  tools  which 
show  an  appreciation  of  $500  in  Deal's  case,  and  depreciation  of  $1,000  in 
Wood's  case.  Assume  that  depreciation  charged  in  the  profit  and  loss 
accounts  does  not  require  alteration.  It  is  further  arranged  between  the 
parties  to  reduce  the  figure  of  Deal's  stock  by  13  per  cent  and  Wood's 

PROFIT  AND  LOSS  ADJUSTMENT  ACCOUNT  OF  JOHN  DEAL,  AS  AT  SEPT.  30,   1906. 

(a)  Cr. 

I>r.  By  Profit  to  year  Sept.  30th, 

To  Reduction  on  Stock. . .  .$  3,250.00         1906   (as   shown)    $13,100.00 

To  Amt.  written  off  Lease-  By    Appreciation    on    Plant 

hold  Premises   1,115.00         and    Tools    500.00 

To  Expired  Insurance  Pre-  By  Bad  Debts  Reserve  (be- 

miums     75.00         ing  unnecessary)    500,00 

To  Personal  Drawings  (in- 
cluded in  cash  balance)  . .  875.00 

$5,315.00 
Balance,    being    Net    Profit 
for  year  ending  Sept.  30, 

1906     8,735.00 

$14,100.00 

$14,100.00  

by  15  per  cent,  to  write  $1,115  off  the  leasehold  premises  (in  view  of  noth- 
ing having  been  written  off  during  the  last  three  years),  and  that  Deal's 
bad  debt  reserve  is  unnecessary.  It  is  also  found  that  one-third  of  the 
insurance  premium  has  expired  in  each  case,  and  that  Deal's  cash  balance 
consists  to  the  extent  of  $875  of  his  personal  drawings." 

By  Net  Profit  brought  down  $  8,785.00 

By  Profit  year  ending  Sept.  30,  1904 8,750.00 

By  Profit  year  ending  Sept.  30,  1905 4,600.00 

Total  Profits  for  three  years   $22,135.00 

In  stating  "reduction  on  stocks,"  etc.,  in  above,  I  do  not  show  what 
per  cent  has  been  written  off,  as  this  should  be  plainly  stated  on  explana- 
tion in  journal  entries  of  these  adjustments. 

Dr. 

PROFIT    AND   LOSS   ADJUSTMENT    ACCOUNT   OF   ALEX.    WOOD   AS    AT    SEPT.    30,    1906. 

(a) 

To  Depreciation  on  Plant  and  Tools $  1,000.00 

To  Reduction  on  Stock  6,750.00 

To  Expired  Insurance  Premium •         125.00 

$7,875.00 
Balance,  being  Net  Profit,  year  ending  Sept.  30,  1906 12,150.00 

$20,025.00 

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Am. 


By  Profit  for  year  ending  Sept.  30,  1906,  as  shown  $20,025.00 

By  Amount  Net  Profit  brought  down $12,150.00 

By  Profit  for  year  ending  Sept.  30,  1904,  as  shown 11,000.00 

By  Profit  for  year  ending  Sept.  30,  1905,  as  shown 13,350.00 

Total  Profit  for  3  years  $36,500.00 

Good  will  based  on  two  years^  purchase  of  the  average  profits  of  the 

last  three  years,  as  adjusted,  will  be  as  follows: 

Profits  for  three  years,  after  adjustment   $22,135.00 

Average  profit  per  year   7  378  34 

Two  years'  average  profits   14  756  68 

which  amount  is  to  be  allowed  Deal  for  good  will. 

Profits  for  three  years,  after  adjustment  $36,500.00 

Average  profit  per  year  12,160.66 

Two  years'  average  profits   24,333.32 

which  amount  is  to  be  allowed  Wood  for  good  will. 

Before  rendering   (b)   the  balance  sheet  of  the  limited  company,  I 

will  give  statements  of  assets  and  liabilities  of  Deal  and  Wood  each, 

after  adjustments  have  been  made,  which  are  to  be  carried  over  by  the 

limited  company,  as  follows: 

JOHN  DEAL. 

ASSETS. 

•  Balance  in  bank $  1,625.00 

Cash   Balances    ^50  qq 

Bills   Receivable  on   hand    2  250  00 

^^^^OTs    ■  21,625.00 

^*°^^^     21,750.00 

Leasehold    Premises    2  175  00 

Insurance  Premium  paid    150  00 

Plant  and  Tools  13,000.00 

^^^  will  14,756.68 

$77,481.68 

LIABILITIES. 

Creditors     $13,750.00 

Balance  being  net  worth 63,731.68 


$77,481.68 
(Contingent  Liability— Bills  Receivable  discounted  $2,500.00.) 

ALEX.  WOOD. 

ASSETS. 

Cash  Balances   $      iqqqq 

Debtors 25,725.00 

Insurance  Premiums  paid  250.00 

Stocks    38,250.00 

Plant  and  Tools   17,000.00 

Ground  and  Buildings  85,000.00 

Good    will    24,333.32 


$190,658.32 


171 


Am. 


American  Business  and  Accounting  Encyclopedia 


147 


147 


American  Business  and  Accounting  Encyclopedia  Am, 


LIABILITIES. 

Creditors   (including  bond  of  $100,000  on  building) $  27,525.00 

Bills    Payable    11,600.00 

Bank  Over  Drafts    3,750.00 

Bad  Debt  Reserves   2,500.00 

$  45,375.00 
Balance  being  net  worth  145,283.32 

$190,658.32 

In  addition  to  the  above  liabilities  of  Wood  of  $45,375,  there  is  a 
contingent  liability  of  $3,600,  being  amount  of  bills  receivable  which  have 
been  discounted.  (I  presume  that  the  bills  receivable  are  entirely  good, 
but  think  it  best  to  mention  them  as  a  contingent  liability,  as  I  have  done; 
same  for  contingent  liability  of  Deal.) 

"The  price  of  the  combined  businesses  is  payable,  one-third  in  deben- 
tures and  two-thirds  in  ordinary  shares;  2,500  preference  shares  of  $10 
each  are  issued,  on  which  $1  per  share  has  been  paid  to  provide  further 
working  capital.  The  limited  company  assumes  all  liabilities  and  takes 
over  the  book  debts  and  other  assets.  No  interest  is  payable  on  the  pur- 
chase price."     For  amount  of  price  of  combined  businesses,  I  take 

Net  Worth  of  Deal  as  shown  above  $  63,731.68 

Net  Worth  of  Wood  as  shown  above  145,283.32 

Amount  capital  required  by  limited  company  to  take  over  busi- 
nesses of  Deal  and  Wood $209,015.00 

which  is  payable  one-third  in  debentures,  which  will  be  $69,671.67,  and 
payable  two-thirds  in  ordinary  stock,  which  will  be  $139,343.33.  Two 
thousand  five  hundred  preference  shares  of  $10  each  are  issued,  on  which 
$1  per  share  has  been  paid  to  provide  further  working  capital,  which  would 
give  $2,500  preference  capital  paid  in,  and  $22,500  preference  capital  un- 
paid, which  I  presume  is  to  be  paid  in  as  needed  by  the  limited  company. 
For  (b)  "balance  sheet  of  Deal,  Wood  &  Co.,  Limited,  as  at  Oct.  1. 
1906,  without  distinguishing  between  the  respective  interests  of  the  ven- 
dors," I  submit  the  following: 

BALANCE  SHEET  OF  DEAL,  WOOD  &  CO.^  LTD.,  AS  AT  OCT.  1,  1906, 

ASSETS. 

Cash    Balances    $    2,750.00 

Balances  in  Bank   1,625.00 

Bills  Receivable  on  hand   2,250.00 

Debtors     . . 47,350.00 

Stocks    60,000.00 

Insurance  Premiums  paid  400.00 

LeasehoW   Premises    2,175.00 

Plant  and  Tools   30,000.00 

Ground  and  Buildings  85,000.00 

Good  will   39,090.00 

$270,640.00 

172 


LIABILITIES. 

Creditors   (including  bond  of  $100,000  on  building)  $  4197500 

Bills    Payable    .*.".".'.".'.".'."  '" 

Bank  Over  Drafts  

Bad  Debt  Reserves  

Debentures    

Capital  Stock: 

Ordinary     $139,343.33 

Preference     2,500.00  141,843.33 


11,600.00 
3,750.00 
2,500.00 

69,671.67 


$270,640.00 

(There  is  a  contingent  liability  of  $6,100,  assumed,  which  is  amount 
of  bills  receivable  that  vendors  had  discounted,  but  it  is  thought  that  the 
bills  receivable  are  entirely  good  and  will  be  promptly  met  by  the  makers 
of  same  at  maturity.) 

As  to  the  2,500  shares  of  preference  stock,  I  only  show  on  balance 
sheet,  above,  amount  of  this  stock  that  has  been  paid  in ;  and  balance  due 
on  same,  records  should  be  kept  on  auxiliary  books,  and  credited  to  capital 
stock  as  it  is  paid  in. — (G.  Brownlee.) 

New  York  C.  P.  A.  Examination,  January,  1902.  The  Smith  Brew- 
ing Company,  with  $1,000,000  capital  stock,  the  Young  Brewing  Company, 
with  $500,000  capital  stock,  and  the  Star  Brewing  Company  with  $IOO,o6o 
capital  stock,  agree  to  consolidate  as  the  Universal  Brewing  Corporation, 
the  new  company  to  buy  all  the  prooerties  of  the  old  companies  at  a 
valuation  to  be  fixed  by  appraisal,  payment  therefor  to  be  made  in  full- 
paid  stock  of  the  new  company,  the  old  companies  to  pay  off  their  own 
indebtedness. 

The  appraised  values  of  the  old  companies  are  as  follows : 

1 


Real  Estate 

AND 

Buildings 


o  mit  h 
Young 

Star 


600,000 


3  2  7. 000 


'26.000 


Plant  f  Cash 


Bills  fomsEiVAttow 
|RECEnrABu|„^;;i;„ 


ssotooo 


'60,000 


7/,  000 


/  3,000 


3,0  00 


',000 


' 0,000     g   ♦,  000 


6,000 


3.000 


I.SOO 


Orricc 

FURNITURI 


'.000 


'.  ooo 


soo 


1,100.00a 


^oo.ooa 


2oo,ooc 


TotflJ  cpprciisGd  vciJue i.eoo^ooo 


J 


nnn  ^"  ^^'^  valuation  the  Universal  Brewing  Corporation  issued  $2,000- 
000  of  stock,  shares  $100  each,  which  was  divided  prorata  among  the 
old  companies  on  the  basis  of  their  appraised  value,  no  fractional  shares 
of  stock  to  be  issued,  odd  amounts  to  be  paid  old  companies  in  cash. 

Give  journal  entries  necessary  to  set  up  property  accounts  and  credit 
old  companies  with  their  prorata  on  the  books  of  the  new  company. 

At  the  time  of  the  consolidation  the  ledger  accounts  of  the  Star 
Brewing  Company  were  as  follows: 

173 


li 


Am.  American  Business  and  Accounting  Encyclopedia  147 

Real  Estate  and  Buildings   $250,000 

Plant     247,000 

Cash    1,000 

Horses,  Wagons  and  Harness  1,800 

Office   Furniture    1,200 

$501,000 

Capital  Stock  $400,000 

Bills  Payable   50,000 

Accounts    51,000 

$501,000 
Make   the   proper  journal   entries  to  liquidate  in  stock  of  the  new 
company  the  liabilities  other  than  capital  stock,  to  apportion  the  remain- 
ing stock  and  cash,  and  to  close  the  books  of  the  Star  Brewing  Company. 

SOLUTION. 
I. 
Find  the  prorata  amounts  due  each  company  of  the  $2,000,000  new 
stock  issued  in  excess  of  the  total  appraised  value,  $1,800,000. 

Smith. 
11X200000 
=$122,222.22+$22.22  To  be  paid  Cash. 

18 

Young. 

5X200000 
=    55,555.56— $44.44  To  be  Paid  Cash. 

18 

Star. 
2X200000 

=    22,222.22+$22.22  To  be  Paid  Cash. 

18 

$200,000.00 

Young  pays  Smith  and  Star  each  $22.22  cash,  and  the  even  amount  ot 
stock  of  the  consolidated  company  will  stand: 

Smith     $122,200+$1,100,000=$1,222,200 

Young    55,600+      500,000=      555,600 

Star     22,200+      200,000=      222,200 

$200,000+$l,800,000=$2,000,000 

Journal  entries  to  open  the  books  of  the  Universal  Brewing  Corpora- 
tion : 

ASSETS.  » 

Real  Estate  and  Buildings: 

Smith    $680,000 

Young    327,000 

Star    126,000 

Plant : 

Smith     390,000 

Young 160,000 

Star    • 71,000 

174 


147 


American  Business  and  Accounting  Encyclopedia 


Cash: 


Smith    15,000 

Young    3,000 

Star     1,000 

Bills  Receivable: 

Smith    10,000 

Young    6,000 

Horses,  Wagons  and  Harness: 

Smith     4,000 

Young    3,000 

Star 1,500 

Office  Furniture: 

Smith 1,000 

Young ....  1,000 

Star    500 

Bonus  account   200,000 

$2,000,000 

To  Smith  Capital  Stock $1,222,200 

To  Young  Capital  Stock  555,600 

To  Star  Capital  Stock 222,200 

$2,000,000 


STAR  BREWING   COMPANY. 
II. 

Consolidated  Stock   $222,200.00 

Cash  from  Young  


oo  oo 


$009  990  90 

To  Real  Estate  and  Buildings $126,000.00 

To  Plant  71,000.00 

To  Cash  1,000.00 

To  Horses,  Wagons  and  Harness 1,500.00 

To  Office  Furniture  500.00 

To  Profit  and  Loss  22.222.22 


Alt 


$900  099  OO 

Assets  transferred  to  Universal  Brewing  Corporation  in  lieu  of  con- 
solidated stock,  plus  $22.22  cash.     Balance  profit. 

III. 

Profit  and  Loss  Account  $301,000 

To  Real  Estate  and  Buildings $124,000 

To  Plant   176,000 

To  Horses,  Wagons  and  Harness 300 

"'. -)  Office  Furniture    700 


$301,000 
To  close  the  property  accounts,  the  losses  being  the  difference  be- 
tween the  book  values  and  the  appraised  values,  i.e.,  $501,000— $200,000= 
$301,000. 


175 


\ 


(I 


Am. 


American  Business  and  Accounting  Encyclopedia      147-148 

IV. 

To  liquidate  the  liabilities,  other  than  capital  stock: 

Bills   Payable    $  50,000 

Accounts   Payable    51,000 


$101,000 

To  Universal  Brewing  Cor.  Stock $101,000 

1010  Shares,  par  value  $100,  transferred  to  creditors  in  full  payment  of  all 
debts  as  per  agreement. 


To  close  the  books  of  the  Star  Brewing  Company. 

Old  Capital  Stock  $400,000.00 

To  Universal  Brewing  Cor.  Stock   $121,200.00 

To  Cash 22.22 

To  Profit  and  Loss   278,777.78 


$400,000.00 


$222,200— $101,000=$121,200. 


FINAL  PROFIT  AND  LOSS  ACCOUNT,  STAR  BREWING  CO. 

VI. 

Consolidated      Stock     and 

Cash   from  Voung  Co.  .$  22,222.22 

Old  Capital  Stock  to  Close 

Assets     $301,000.00  Books     278,777.78 

Shrinkage  in  values Loss  Sustained    , 


$301,000.00 


$301,000.00 


CONSOLIDATED  BALANCE  SHEET. 

Consolidated  Stock — 

Smith   Co:    $1,222,200 

Assets    $1,800,000         Young  Co 555,600 

Bonus    200,000  Star    Co 222,200 


$2,000,000 


$2,000,000 


( 148)     AMORTIZATION. 

A  term  usually  applied  to  the  purchase  of  bonds  at  a  premium,  the 
latter  being  extinguished  by  the  surplus  interest  earned. 

Also  used  in  connection  with  the  extinction  of  debts  by  means  of  the 
establishment  of  sinking  funds,  or  the  gradual  wiping  out,  on  the  books, 
of  the  purchase  price  of  a  lease.  In  the  following  example  the  interest 
and  depreciation  is  termed  the  amortization  rate. 

LEASE  ACCOUNT. 

1894.  Dr.  Cr. 

June   1  Purchase  price    $11,230.00 

1895. 

May  31  5%  interest   962.50 

176 


148      American  Business  and  Accounting  Encyclopedia  Am. 

Depreciation     $  2,598.45 

Balance    9,214.05 

$11,812.50  $11,812.50 

1896. 

May  31    Balance   forward    $  9,214.05 

5%    interest    460.70 

Depreciation     $  2,598.43 

Balance    7,076.30 

$  9,674.75  $  9,674.75 

1897. 

May  31    Balance  forward   $7,076.30 

5%  interest 353.80 

Depreciation     $  2,598.45 

Balance    4,831.65 

$  7,430.10  $  7,430.10 

1898. 

May  31    Balance  forward    $4,831.65 

5%    interest    241.58 

Depreciation $  2,598.45 

Balance    2,474.78 

$  5,073.23  $  5,073.23 

1899. 

May  31    Balance   forward    $2,474.78 

5%    interest    123.67 

Depreciation     $  2,598.45 

$  2,598.45  $  2,598.43 

The  state  authorities  of  New  York  have  recently  required  all  savings 
banks  under  their  supervision  to  carry  bond  investments  at  cost  (prin- 
cipal and  premium),  and  to  reduce  the  premium  by  amortization  so  that 
at  maturity  the  bonds  will  stand  at  par. 

The  appended  example  shows  a  serial  bond  of  $2,000  at  4J/  per  cent 
repayable  in  four  equal  annual  instalments. 


DATE 

PAR 

VALUE 

TRUE 
1  NTERtar 

AMORTI- 
ZATION 

INVESTMENT 
VALUE 

lOOT 

Tti  Iv 

/y 

200Q 

00 

202S 

4.0 

I906 

t 
Jc4ly 

15 

1  500 

00 

f-5 
45 

57 
23 

4 

4. 

45 
77 

20  re 
15  14 

97 

SO 

1909 

Jat). 
July 

15 
IS 

/  000 

00 

3'4- 
33 

07 
90 

3 
3 

4S 

60 

/  51  0 

/oo  7 

77 

11 

/©lo 

Jap. 
Jcily 

15 
IS 

9oo 

00 

£2 

66 

32 

39 

(  004 

So  a 

as 

4-6 

1  911 

Jo  9. 

IS 

II 

1 

1 

ZZ 
24 

roi 

TOO 

24. 

177 


Am.-An,    American  Business  and  Accounting  Encyclopedia 


149-152 


(149)     AMOUNT. 

The  sum,  total  of  two  or  more  numbers  or  quantities;  the  aggregate, 
or  value.  Thus,  the  amount  of  5  +  6,  is  11.  Gross  amount  is  a  term 
used  to  represent  the  aggregate  without  deduction ;  net  amount  represents 
the  aggregate  less  reduction. 

(150)  ANALYSIS  OF  LEDGER. 

An  expedient  frequently  used  by  accountants  for  the  purpose  of 
balancing  ledgers  where  the  books  have  been  kept  in  a  very  slipshod  or 
careless  manner,  and  where  the  entries  are  difficult  to  decipher.  Ruled 
sheets  of  paper  are  used  for  this  purpose,  separate  columns  being  allotted 
to  each  account,  the  debits  and  credits  to  these  accounts  being  entered 
in  the  proper  columns  from  the  books  from  which  the  postings  have  been 
made  to  the  ledgers.  The  analysis  thus  becomes  practically  a  transcript 
of  the  ledger,  but  obtained  independently,  and  the  accounts  can  then  be 
compared  with  the  accounts  in  the  ledgers  and  all  differences  examined 
and  corrected. 

Columns  are  also  provided  on  the  analysis  sheets  for  each  book  from 
which  the  postings  are  made,  such  as  sales  book,  purchase  record,  cash 
book,  journal,  etc.,  and  each  posting  to  a  ledger  account  is  counter- 
balanced by  an  entry  in  the  column  allotted  to  the  book  from  which  the 
entry  is  posted. 

At  the  completion  of  the  analysis,  the  footings  of  the  columns  for 
sales  book,  cash  book,  etc.,  should  agree  with  the  totals  of  these  books, 
while  the  total  of  each  account  should  agree  with  the  total  of  the  amounts 
posted  to  the  said  account  in  the  ledgers.  A  recapitulation  sheet  is  also 
made  of  the  totals  of  the  analysis  sheets,  and  the  balances,  thus  obtained 
should  agree  with  the  trial  balance  taken  from  the  ledgers. 

This  is  a  very  laborious  and  costly  process,  and  is  only  resorted  to 
where  it  is  evident  that  the  books  of  account  are  in  a  very  unsatisfactory 
condition.  In  cases  where  arbitrary  postings  have  been  made  to  the  ledger, 
this  method  of  checking  will  locate  such  postings  by  comparison  of  the 
accounts. 

(151)  ANNUAL  STATEMENT. 

A  statement  prepared  at  the  close  of  the  fiscal,  or  business  year, 
exhibiting  the  financial  condition  of  the  business  and  the  result  of  its 
transactions  during  the  period  reviewed.     (See  Balance  Sheets.) 

(152)  ANNUITIES. 
By  an  annuity  is  meant  a  periodical  payment,  made  annually,  or  at 
more  frequent  intervals,  either  for  a  fixed  term  of  years,  or  during  the 
continuance  of  a  given  life  or  a  combination  of  lives,  as  will  be  more 
fully  explained  further  on.  In  technical  language  an  annuity  is  said  to  be 
payable  for  an  assigned  status,  this  being  a"  general  word  chosen  in 
preference  to  such  words  as  "time,"  "term,"  or  "period,"  because  it  may 
include  more  readily  either  a  term  of  years  certain,  or  a  life  or  a  com- 

17B 


152 


American  Business  and  Accounting  Encyclopedia 


AN. 


bination  of  lives.  The  magnitude  of  the,  annuity  is  the  sum  to  be  paid 
(and  received)  in  the  course  of  each  year.  Thus  if  $100  is  to  be  received 
each  year  by  a  person,  he  is  said  to  have  an  annuity  of  $100.  If  the 
payments  are  made  half  yearly,  it  is  sometimes  said  that  he  has  "a  half- 
yearly  annuity  of  $100";  but  to  avoid  ambiguity,  it  is  more  commonly 
said  he  has  an  annuity  of  $100,  payable  by  half-yearly  instalments.  The 
former  expression,  if  clearly  understood,  is  preferable  on  account  of  its 
brevity.  So  we  may  have  quarterly,  monthly,  weekly,  dailv  annuities, 
when  the  annuity  is  payable  by  quarterly,  monthly,  weekly,  or  daily 
instalments.  An  annuity  is  considered  as  accruing  during  each  instant  of 
the  status  for  which  it  is  enjoyed,  although  it  is  only  payable  at  fixed 
intervals. 

If  an  annuity  is  payable  for  a  term  of  years  independent  of  any  contin- 
gency, it  is  called  an  annuity  certain ;  if  it  is  to  continue  forever,  it  is  called 
a  perpetuity ;  and  if  in  the  latter  case  it  is  not  to  commence  until  after  a 
term  of  years,  it  is  called  a  deferred  perpetuity.  An  annuity  depending  on 
the  continuance  of  an  assigned  life,  or  lives,  is  sometimes  called  a  life 
annuity;  but  more  commonly  the  simple  term  "annuity"  is  understood  to 
mean  a  life  annuity,  unless  the  contrary  is  stated.  A  life  annuity,  to 
cease  in  any  event  after  a  certain  term  of  years,  is  called  a  temporary 
annuity.  The  holder  of  annuity  is  called  an  annuitant,  and  the  person 
on  whose  life  the  annuity  depends  is  called  the  nominee. 

If  not  otherwise  stated,  it  is  always  understoood  that  an  annuity  is 
payable  yearly,  and  that  the  annual  payment  (or  rent,  as  it  is  sometimes 
called)  is  £1.  Of  late  years,  however,  it  has  become  customary  to  con- 
sider the  annual  payment  to  be,  not  £1,  but  simply  1,  the  reader  supply- 
ing whatever  monetary  unit  he  pleases,  whether  pound,  dollar,  franc, 
thaler,  etc.  It  is  much  to  be  desired  that  this  course  should  be  followed 
in  any  tables  that  may  be  published  in  the  future.  The  annuity  it  will 
be  observed,  is  the  totality  of  the  payments  to  be  made  (and  received), 
and  is  so  understood  by  all  writers  on  the  subject;  but  some  have  also 
used  the  word  to  denote  an  individual  payment  (for  rent),  speaking,  for 
instance,  if  the  first  or  second  year's  annuity— a  practice  which  is  cal- 
culated to  introduce  confusion,  and  should,  therefore,  be  carefully  avoided. 
The  theory  of  annuities  certain  is  a  simple  application  of  algebra  to 
the  fundamental  idea  of  compound  interest.  According  to  this  idea,  any 
sum  of  money  invested,  or  put  out  at  interest,  is  increased  at  the  end  of 
a  year  by  the  addition  to  it  of  interest  at  a  certain  rate;  and  at  the  end 
of  a  second  year,  the  interest  of  the  first  year,  as  well  as  the  original  sum, 
is  increased  in  the  same  proportion,  and  so  on  to  the  end  of  the  last  year— 
the  interest  being,  in  technical  language,  converted  into  principal  yearly. 
Thus,  if  the  rate  of  interest  is  5  per  cent,  $5  improved  at  interest  will 
amount  at  the  end  of  a  year  to  $5.25,  or  in  conformity  with  a  previous 
remark,  1  will  at  the  end  of  a  year  amount  to  1.05.  At  the  end  of  a  second 
year  this  will  be  increased  in  the  same  ratio,  and  then  amount  to  (1.05)2. 

170 


I*  i-oifctfa 


An. 


American  Business  and  Accounting  Encyclopedia      152-133 


• ,  I 


In  the  same  way,  at  the  end  of  a  third  year,  it  will  amount  to  (1.05)3, 

and  so  on. 

We  pass  on  now  to  the  consideration  of  the  theory  of  life  annuities. 
This  is  based  upon  a  knowledge  of  the  rate  of  mortality  among  mankind 
in  general,  or  among  the  particular  class  of  persons  on  whose  lives  the 
annuities  depend.  If  a  simple  mathematical  law  could  be  discovered  which 
the  mortality  followed,  then  a  mathematical  formula  could  be  given  for 
the  value  of  a  life  annuity,  in  the  same  way  as  we  give  above  the  formula 
for  the  value  of  an  annuity  certain.  In  the  early  stage  of  the  science, 
Demoivre  propounded  the  very  simple  law  of  mortality  which  bears  his 
name,  and  which  is  to  the  eflfect,  that  out  of  86  children  born  alive  1  will 
die  every  year  until  the  last  dies  between  the  ages  of  85  and  86.  The 
mortality,  as  determined  by  this  law,  agreed  sufficiently  well  at  the  middle 
ages  of  life  with  the  mortality  deduced  from  the  best  observations  of  his 
time;  but,  as  observations  became  more  exact,  the  approximation  was 
found  to  be  not  sufficiently  close.  This  was  particularly  the  case  when  it 
was  desired  to  obtain  value  of  joint  life,  contingent,  or  other  complicated 
benefits.  Xo  simple  formula,  however,  has  yet  been  discovered  that  will 
represent  the  rate  of  mortality  with  sufficient  accuracy;  and  those  which 
satisfy  this  condition  are  too  complicated  for  general  use. 

(153)     ANNUITY   CALCULATIONS. 

These  calculations  depend  upon  well  defined  methods  of  ascertaining 
the  incremental  value  of  a  sum  of  money  under  varying  conditions,  and 
also  at  any  time  during  the  "life"  of  the  annuity,  that  is,  the  number  ol 
years  or  months  or  other  periods  in  which  a  certain  prescribed  amount 
is  payable  by  will  or  otherwise,  so  as,  at  the  end  of  the  payments,  to 
amount  to  a  given  sum. 

These  sums  are  granted  "in  fee"  (to  a  person  and  his  heirs  forever), 
for  life  (made  a  charge  on  an  estate  which  is  to  end  with  the  life  of  the 
donee)  or  for  a  series  of  years.  As  the  interest  on  any  one  of  the  pay- 
ments in  the  series  thus  created  does  not  fall  due  till  the  end  of  the 
period,  this  incremental  feature  is  not  claimable  nor  payable  until  the 
second  period  has  begun  in  any  case,  so  that  we  thus  reach  the  general 
law  that  the  claimant  is  entitled  to  receive  during  any  period  that  the 
annuity  has  been  running  as  many  times  the  principal  as  periods  plus  as 
many  times  the  interest  as  there  are  periods  less  one,  subject  however  to 
certain  abatements  founded  on  the  rules  of  compound  interest  alluded  to 
further  along,  and  some  "present  worth"  calculations  which  diminish  this 
amount  to  a  greater  or  less  degree. 

But  a  yearly  payment  say  of  $500  at  6  per  cent  simple  interest  amounts 
in  six  years,  not  to  6  times  500  plus  6  times  30,  that  is  to  $3,180,  but  to 
the  sum  of  $500,  $530,  $560,  $590,  $620,  $650  or  $3,450. 

As  annuitants  have  many  forms  of  choice  as  to  how  and  when  they 
shall  take  their  payments  from  the  estate,  some  twenty  forms  of  calcula- 

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tion  have  arisen  in  reaching  varying  values  of  such  "holdings"  under  dif- 
ferent conditions,  values  of  the  "accrued  terms,"  we  might  say.  Let  us 
take  a  case  where,  for  example,  a  man  has  worked  eighteen  months  for  a 
farmer  at  $20  per  month,  the  wages  remaining  unpaid  till  the  end  of  the 
term  of  service,  to  find  how  much  is  due  the  workman,  at  6  per  cent  simple 
interest.  In  this  most  simple  form  of  annuity  illustration,  the  figuring 
takes  the  form  of  an  attempt  to  strike  an  average  for  two  successive 
periods  in  the  payment,  and  use  that  as  a  basis  for  working  out  the  result 
of  all  the  periods;  that  is,  20  plus  20  plus  .10  times  17  (the  interest  at  6 
per  cent  for  one  less  than  the  real  number  of  periods)  divided  by  2,  gives 
$21.70  for  the  value  of  an  "average"  term,  and  multiplying  this  by  the 
number  of  terms  (18)  we  have  $375.30  as  the  amount  due. 

Or,  we  might  put  it  in  this  way:  20  times  the  number  of  months 
(18)  plus  one-half  of  sum  of  the  interest  increment  for  the  time,  that  is, 
18  times  $1.70  divided  by  2,  giving  the  same  result.  In  the  same  way, 
to  use  another  illustration,  if  we  have  annuity  of  $150  running  for  5^^ 
years,  payable  quarterly  at  V/z  per  cent,  we  would  employ  the  formula: 

(150  plus  150  plus  $2.25  times  21)  divided  by  2  (to  get  the  average 
as  above)  and  times  22  for  the  entire  number  of  periods  (that  is  four  times 
5^),  giving  when  worked  out  the  sum  of  $3,819.75  as  the  result,  as  the 
amount  of  the  annuity. 

Now,  in  this  connection,  there  arises  an  interesting  feature  of  reckon- 
ing where,  instead  of  taking  two  periods,  one  of  which  is,  the  other  not 
an  interest-bearing  (accumulative)  period,  we  are  compelled  to  employ 
two  periods  in  the  reckoning,  both  of  which  are  incremental  in  character, 
as  in  the  problem  where  we  wish  to  find  in  what  time  an  annual  pension 
of  $500  will  amount  to  $3,450  at  6  per  cent  simple  interest;  and  the  reason 
for  the  choice  of  two  interest-bearing  periods  which  are  easily  found,  is 
that  the  number  of  periods  in  this  case  is  not  known ;  whence  arises  the 
formula : 

$3,450  divided  by  (530  plus  $560  divided  by  2)  plus  30  equals  $3,450 
divided  by  575  or  6  (years)  for  the  answer.  We  might  derive  a  general 
working  rule  then  as  follows:  Divide  the  amount  of  the  annuity  at  the 
given  rate  by  the  increment  for  one  period  plus  the  average  time  for  two 
periods,  to  get  the  number  of  terms. 

Again,  since  we  have  here  the  first  term  of  an  arithmetical  progres- 
sion (500)  the  common  diflFerence  (30)  and  the  sum  of  the  series  $3,450 
to  obtain  both  the  number  of  terms  and  the  last  term ;  whence  arises  the 
working  formula,  which  is  perhaps  as  good  as  any  that  can  be  devised, 
and  it  is  of  universal  application : 

**C"  representing  the  sum  of  the  series,  "a"  the  first  term,  "b"  the 
common  difference  to  find  "d"  the  number  of  terms  and  "e"  the  last 
term;  then  we  have: 

C  divided  by  the  formula  (a  plus  b  plus  a  plus  2  b)  divided  by  2 
plus  b,  equals  d  (that  is  6) ;  represented  in  figures  by  the  expression  $3,450 

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I  I 


divided  by  one-half  of  530  plus  560,  plus  30.  The  leading  feature  in  this 
method  is  that  two  increment  bearing  terms  are  used  instead  of  the 
principal,  or  the  first  term  simply  as  in  other  solutions,  and  since  in 
dividing  by  2  to  get  the  average  we  lose  the  use  of  one  of  the  elements, 
namely  the  30  that  is  the  common  difference  in  working  out  the  result, 
we  have  to  add  it  again  after  the  reduction  of  the  fraction  530  plus  560 
divided  by  2,  to  restore  it  to  its  place  in  the  solution.  After  obtaining 
"d,"  "e"  is  readily  found.  And  the  formula  is  one  of  universal  application 
in  this  class  of  problems.  Taking  another  case  to  show  its  working,  we 
have  one  where  it  is  required  to  find  the  rate  per  cent  at  which  an  annuity 
of  $6,000  will  amount  to  $59,760  in  eight  years,  simple  interest.  Now 
comes  first  the  formula  6,000  plus  6,000  plus  8  times  a  (the  unknown 
term)  divided  by  2  and  the  result  multiplied  by  8,  the  number  of  terms 
(which  we  have  given),  and  in  working  it  out  we  reach  finally  the  appar- 
ent value  of  a  as  being  840,  but  restoring  its  real  value  by  dividing  by  2 
(because  the  value  was  doubled  when  clearing  the  first  equation  of  frac- 
tional form  to  aid  in  the  solution)  we  have  the  real  value  of  a  as  420, 
whence  6,000  divided  by  420  gives  7  per  cent  as  the  required  answer. 

In  other  cases  the  finding  of  the  "valuation"  of  a  series  is  of  great 
simplicity,  as  where  it  is  required  to  ascertain  the  initial  value  of  a  per- 
petual lease  of  $250  per  year  at  6  per  cent,  which  is  merely  $250  divided 
by  .06  or  $4,166.66;  but  this  is  where  the  annuity  is  payable  yearly;  and 
if  we  go  a  step  further  and  take  cases  where  the  payments  are  made  at 
lesser  periods,  the  solution  becomes  more  difficult;  as  to  find  for  illus- 
tration the  value  of  a  perpetual  leasehold  of  $2,500  a  year  payable  first 
semi-annually,  and  second  quarterly,  when  it  becomes  necessary  to  take 
into  consideration  the  fact  that  interest  accumulates  upon  the  yearly  pay- 
ment and  makes  necessary  a  larger  sum  to  meet  the  required  number  of 
annuity  payments  than  where  the  annuity  is  payable  yearly;  in  other 
words,  the  value  of  the  "perpetual  lease"  above  referred  to  in  case  of 
quarterly  payments  is  $2,575  divided  by  .06,  or  $42,916.66  2-3,  and  where 
payable  semi-annually  it  is  $2,537.50  divided  by  .06,  or  $42,291.66  2-3,  which 
are  the  required  amounts  to  sustain  the  yearly  or  rather  the  above  period- 
ical payments,  and  at  the  same  time  maintain  the  interest  rates  demanded 
in  settlement  of  the  estate  in  this  case. 

It  will  be  noted  that  the  value  when  paid  annually  is  really  the 
present  worth  of  the  amount  paid  semi-annually,  as  shown  by  dividing 
$42,916.66  2-3  by  1.03.  To  extend  this  principle  in  a  slightly  different 
direction  to  reach  cases  of  a  "deferred"  annuity  (perpetuity),  and  find  for 
instance  the  present  worth  of  a  deferred  (forborne,  as  the  old  accounts 
used  to  call  it),  annuity  of  $250  a  year,  deferred  say  8  years  at  6  per  cent. 
After  obtaining  as  above  the  present  value  $4,166.66  2-3  by  dividing  by 
.06,  and  then  taking  the  present  value  as  a  representative  of  the  compound 
interest  of  a  certain  sum  which  invested  will  produce  that  amount,  and 

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dividing  the  $4,166.66  2-3  by  the  compound  interest  of  $1  for  eight 
years  at  6  per  cent,  i.  e.,  1.5938481,  we  have  $2,614.22  as  the  present  value 
of  the  perpetuity  which  has  been  deferred  eight  years.  This  means  the 
amount  claimable  by  the  beneficiary,  who  has  been  deprived  for  a  series  of 
years  of  his  annual  income  under  the  above  circumstances. 

And  so  to  extend  the  illustration  of  principle  a  little  further,  if  it  is 
asked  to  find  the  present  value  of  a  perpetuity  of  $160  a  year  to  commence 
in  3  years  4  months  at  7  per  cent.  Solution:  160  divided  by  .07  gives 
$2,285.71 ;  then  the 

Compound  interest  at  $1  for  4  years  at  7  per  cent  is 1.310796 

Compound  interest  of  $1  for  3  years  at  7  per  cent  is 1.225000 


3)     .085796 


.028598 


Adding  this  to  the  compound  interest  for  3  years  1.225043  we  have 
1.253641  as  a  divisor  of  the  $2,285.71  above  obtained,  yielding  a  result  of 
$1,823.28  for  the  present  value  required. 

It  should  be  noted  in  this  connection  that  in  the  drawing  up  of  wills 
neither  the  main  part  of  the  text  nor  the  codicils  provide  for  the  maximum 
amount  which  shall  be  payable  in  annuities  with  any  degree  of  exactness, 
that  is  to  say,  for  illustration,  if  a  man  dying  leaves  bequest  of  an  annual 
payment  of  $1,500  to  someone,  the  interest  accumulations  are  never  cal- 
culated upon,  the  term  of  years  is  not  often  exactly  specified  that  the  sum 
is  to  be  paid,  nor  any  conditions  attached  to  its  deferment  on  account  of 
the  absence,  etc.,  of  the  beneficiary,  or  other  reasons,  nor  what  arrange- 
ments shall  be  made  if  the  donee  elects  to  take  what  will  be  his  due  for 
a  series  of  years  in  advance,  commencing  at  the  end  of  such  series  of  years 
to  receive  the  annual  payment  under  ordinary  conditions  again,  and  so  on. 
There  are  some  classes  of  cases,  to  be  sure,  where  the  codicil  may  defer 
the  beginning  of  the  payment  for  a  series  of  years  as  where,  for  instance, 
it  is  required  to  ascertain  the  present  value  of  an  annuity  of  $680  to 
commence  in  7  years  and  to  continue  for  10  years  at  5  per  cent,  we  first 
find  the  present  value  of  $680  deferred  7  years  at  5  per  cent  to  be  $9,665.27, 
i.  e.,  $680  divided  by  .05  equals  13600,  divided  by  1.407,100  equals  $9,665.27*; 
present  value  $680  deferred  17  years  at  5  per  cent,  $5,933.64;  present  value 
$680  deferred  7  years,  and  to  run  10  years,  $3,731.63. 

But  we  must  prepare  ourselves  for  dealing,  too,  with  a  class  of  some- 
what related  problems,  but  differing  in  the  fact  that  there  is  no  provision 
made  for  the  deferred  "commencement"  of  the  payment  of  the  annuity, 
which  is  here  immediate,  and  so  necessitates  a  difference  in  the  figuring; 

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as  for  illustration,  where  it  is  required  to  find  the  deferred  value  of  an 
"immediate"  annuity  of  $300  running  18  years  at  5  per  cent,  we  find  as 
before  the  principal  which  produces  the  annual  payment  of  $300  by  divid- 
ing by  .06;  but  instead  of  using  the  compound  interest  itself  of  $1  for 
the  18  years,  we  employ  the  interest  less  the  principal ;  that  is  1.4066192 
not  2.4066192,  and  then  on  the  calculation  that  this  actual  interest,  de- 
prived of  its  one  dollar  of  principal,  and  representing  really  the  accumu- 
lative features  of  the  principal  (one  dollar),  and  using  it  as  a  means  of 
determining  what  $6,000  would  accumulate  under  the  same  conditions,  we 
have  for  the  required  result  the  sum  of  $8,439.72  as  the  deferred  value  of 
the  annuity  named  above.  On  the  same  principle  in  solving  a  class  of 
problems  to  see  what  could  have  been  saved  in  a  given  number  of  years 
under  various  conditions,  if  the  savings  had  been  permitted  to  accumulate 
annually  under  the  compound  interest  principles  as  where,  for  illustration, 
A  pays  $25  yearly  for  tobacco,  to  see  how  much  better  off  he  would 
have  been  in  40  years  had  he  invested  the  sum  at  10  per  cent  per  annum, 
whence  the  formula  45.2592556  (less  $1  principal  as  above);  that  is 
44.2592556  times  $25,  giving  $11,064.81  as  the  answer. 

Annuity  tables  can  be  purchased  which  will  save  the  accountant  the 
greater  part  of  the  trouble  of  calculating  same  for  himself,  when  required 
to  check  up  expenditures  under  this  head,  or  to  establish  sinking  funds, 
etc. 

(154)     ANNUAL   PAYMENTS   OF   PRINCIPAL  AND  INTEREST, 

HOW  TO  COMPUTE  EQUAL. 

To  ascertain  the  amount  of  the  necessary  instalment  to  be  paid  at 
the  end  of  each  year  for  a  given  number  of  years  to  liquidate  a  specified 
principal,  with  interest  at  a  stated  rate: 

Rule.  To  one  year's  interest  upon  the  total  principal  at  the  stated 
rate,  add  the  quotient  of  one  year's  interest  divided  by  the  compound 
interest  upon  $1  compounded  at  the  stated  rate  for  the  given  number  of 
years.     The  result  is  the  amount  of  the  annual  instalment. 

Illustration.  Ascertain  the  amount  of  each  instalment  necessary  to 
liquidate  a  debt  of  $20,000  to  be  paid  in  16  yearly  instalments,  including 
interest  at  six  per  cent  per  annum. 

One  year's  interest  at  6  per  cent  upon  $20,000 $1,200.00 

Compound   interest  at  6  per  cent  upon  $1.00  coOTpO"n<led 

annually  for  16  years  $1.540352 

$1,200  divided  by  1.540352  equals  "^"^-^^ 

Amount  of  each  instalment  $1,979.04 

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PROOF  OF  RULE. 

20,000.00  16,544.97  9,336.47 

1,200.00    1st  yr.  int.  1,979.04    6th  500.18 

21,200.00  14,565.93  8,836.65 

1,979.04     1st  payment  873.96  1,979.04  12th 

19,220.96    bal.  due  at  end  15,439.89  6,857.61 

1,153.26        of  1  yr.  6  per  cent.  1,979.04     7th  411.46 

20,374.22  13,460.85  7,269.07 

1,979.04     2nd  807.65  1,979.04  13th 

18,395.18  14,268.50  5,290.03 

1,103.70  1,979.04     Sth  317.40 

19,498.88  12,289.46  5,607.43 

1,979.04  3rd  737.36  1,979.04  14th 

17  519  84  13,026.82  3,628.39 

l',051.19  1,979.04  9th  217.70 

18,571.03         '  11,047.78  3,846.09 

1,979.04  4th  662.87  1,979.04  15th 

16,591.99  11,710.65  1,867.05 

995  52  1,979.04  10th  112.02 

17,587.51  9,731.61  1,979.04  16th 

1,979.04  5th  583.90 

15,608.47  10,315.51 

936.50  1,979.04  11th 

— (A.  J.  Conen.) 

(155)     ANTICIPATING  BILLS. 

A  term  used  in  commerce  to  signify  the  discounting  of  bills— i.  c, 
the  payment  of  same  prior  to  maturity  in  order  to  obtain  cash  discounts. 

The  following  table  will  illustrate  the  apparent  advantage  of  taking 

advantage  of  cash  discounts,  considering  money  as  being  worth  6  per 

cent  per  annum: 

Terms— 30  days,  or  1%  in  10  days,  cash  discount  $  1.00 

Interest  on  $100  for  20  days  at  Q%  -    -^^^ 

Saving  in  20  days   $    -^^ 

Saving  in  30  days,  or  1  month ^-^^ 

Saving  in  12  months,  or  1  year •  •  •  •  ^'^-^ 

Saving  12%. 

Terms — 60  days,  or  2%  in  15  days,  cash  discount  $  2.00 

Interest  on  $100  for  1^  months  at  6% -75 

Saving  in  45  days   *  ^^^ 

Saving  in  30  days  or  1  month ^^Vi 

Saving  in  12  months,  or  1  vear  lO-O® 

Saving  10%.  ' 

Terms— 4  months,  or  5%  in  30  days,  cash  discount $  5.00 

Interest  on  $100  for  3  months  at  6% 1-50 

Saving  in  90  days   3.50 

Saving  in  1   year   14.00 

Saving  14%. 
Terms— 4  months,  or  6%  in  10  days,  cash  discount $  6.00 

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Interest  on  $100  for  3  months,  20  days  at  6% 1.83H 

Saving  in  3  months,  20  days  $  4.16^ 

Saving  in  30  days,  or  1  month 1.14 

Saving  in  12  months,  or  1  year  13.68 

Saving  13  68-100%. 

Terms— 6  months,  or  5%  in  30  days,  cash  discount $  5.00 

Interest  on  $100  for  5  months  at  6%  2.50 

Saving  in   5   months $  2.50 

Saving  in  12  months,  or  1  year 6.00 

Saving  6%. 

Terms — 6  months,  or  6%  in  10  days,  cash  discount $  6.00 

Interest  on  $100  for  5  months,  20  days  at  6% 2.83J^ 

Saving  in  5  months,  20  days   $  3.16^ 

Saving  in  30  days,  or  1  month  5.59 

Saving  in  12  months,  or  1  year 6.71 

Saving  6  71-100%. 

The  advantage  above  mentioned,  however,  is  more  apparent  than 
real,  and  frequently  is  merely  an  exchange  of  capital  and  not  of  profit, 
as  the  customers  of  the  business  take  advantage  of  cash  discounts  just 
as  readily  as  the  proprietor  in  regard  to  his  own  purchases.  As  a  matter 
of  fact,  a  wholesale  house  with  a  fair  list  of  customers  will  lose  more 
by  offering  cash  discounts  than  it  will  gain  by  taking  advantage  of  them. 

The  six  examples  shown  above  may  be  considered  misleading  to  a 
certain  extent,  as  money  is  worth  in  a  business  whatever  profits  the 
business  makes  on  capital  invested — that  is  to  say,  the  legal  rate  of  interest 
may  be  6  per  cent  per  annum,  but  the  value  of  money  used  in  a  business 
may  be  worth  50  per  cent  per  annum,  so  that  its  withdrawal  for  the  pur- 
pose of  anticipating  payments  would  not  effect  an  actual  saving. 

A  question  that  frequently  comes  up  in  the  direction  of  the  prepay- 
ment of  bills  may  be  illustrated  as  follows: 

Smith  buys  of  Jones  a  bill  of  goods  on  January  1st,  at  60  days,  April 
1st,  2  per  cent  off  for  cash,  and  1  per  cent  per  month  off  for  the  prepay- 
ment. Smith  pays  the  bill  January  15th,  and  deducts  2  per  cent  for  cash, 
and  4J^  per  cent  for  four  and  one-half  months'  prepayment.  Jones  claims 
that  Smith  is  only  entitled  to  2^^  per  cent  for  two  and  one-half  months* 
prepayment.    Who  is  right? 

In  this  case,  Jones  is  clearly  right. 

Smith  having  elected  to  take  advantage  of  the  2  per  cent  discount, 
the  bill  becomes  due  for  payment  April  1st,  or,  as  custom  has  decreed,  April 
10th,  and  he  is,  therefore,  entitled  to  interest  for  prepayment  only  to  the 
date  on  which  he  would  be  obliged  to  pay,  viz.,  April  10th. 

Reduced  to  dollars  and  cents  basis,  we  will  assume  a  bill  of  $1,000, 
terms  as  stated,  April  1st  dating — 2  per  cent  cash  or  net  60. 

186 


155  American  Business  and  Accounting  Encyclopedia  An. 

Amount   of  bill •' $1,000.00 

2%    discount    20.00 

Amount  due  April  10th  $   980.00 

If  paid  January  15th,  interest  on   this  amount   from  January   15th 

to  April  10th,  or  85  days,  at  12%  per  annum 27.77 

Amount  to  pay  January  15th  $  852.23 

It  will  thus  be  seen  that  the  total  deduction  for  discount  is  $20  and 
$27.77=$47.77. 

The  only  basis  on  which  the  four  and  one-half  months  for  anticipations 
could  be  used  would  be  Smith's  waiving  the  2  per  cent  for  cash  privilege, 
in  which  case  he  might  figure  4j^  per  cent  on  $1,000,  or  1  per  cent  per 
month  from  date  of  payment  to  the  maturity  of  the  bill,  or  $45.  As  this 
would  involve  a  clear  loss  of  %2.77,  it  is  hardly  compatible  with  good 
financiering. 

If  Smith  takes  advantage  of  the  2  per  cent  for  cash,  he  can  figure 
interest  only  to  the  discount  date. 

Another  question  frequently  arises  in  regard  to  discount  being  de- 
ducted from  the  full  amount  of  a  bill,  which  includes  prepaid  freight. 
Lumber  is  almost  invariably  billed  at  a  delivered  price,  the  consignee  pay- 
ing the  freight,  the  object  of  billing  at  a  delivered  price  being  to  guar- 
antee the  weight  of  the  material,  or  to  guarantee  the  rate  of  freight,  or 
both.  Freight  is  strictly  a  cash  item,  being  in  the  nature  of  an  advance 
by  the  consignor  to  the  consignee,  and  is,  therefore,  not  subject  to  discount 
and  in  such  cases  it  is  not  equitable  to  expect  the  shipper  to  advance  a 
certain  amount  of  cash  and  have  it  returned  to  him  a  short  time  later, 
less  discount;  prepaid  freight  should  therefore  be  deducted  from  the 
amount  of  the  bill  prior  to  the  deduction  of  cash  discount. 

The  following  will  illustrate  the  way  in  which  a  great  many  com- 
mission houses  treat  anticipated  payments: 

A  bill  sold  on  March  15th  ($650),  with  terms  of  6  per  cent.  10 
days,  or  5  per  cent,  30  days,  with  60  days  extra.  If  this  bill  is  paid  on 
April  1st  the  calculation  of  discount  would  be  as  follows: 

March  15  as  May  15   $650.00 

Less  6%  discount   39.00 

Due   May   25th    $611.00 

Interest  from  April  1st  to  May  25th,  55  days  at  6%  per  annum 5.60 

$605.40 

The  $39  should  be  credited  to  discount  account,  and  $5.60  should 
be  credited  to  interest  account,  thus  showing  at  the  end  of  the  month,  or 
year,  the  net  credit  secured  by  anticipating  bills.  This  matter  will  be 
further  considered  under  the  heading  of  "Discounts." 

187 


Ap. 


American    Business    and   Accounting   Encyclopedia       156-160 


"i  i 


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(156)     APPORTIONMENT. 

In  connection  with  business  methods  is  synonymous  with  distribution 
and  relates  chiefly  to  those  expenses  involved  in  the  management  of  a 
manufacturing  plant  which  cannot  be  charged  direct  against  the  cost  of 
any  particular  product.  Examples  may  be  mentioned  in  unproductive 
labor,  machine  expense,  light,  heat,  and  power,  general  maintenance 
expense,  general  department  expense,  and  general  factory  administrative 
expense. 

The  term  apportionment  is  also  used  to  indicate  the  adjustment,  at 
time  of  closing  books  and  making  balance  sheet,  of  unpaid  charges  accrued 
but  not  due,  and  prepaid  unexpired  charges.  Examples  of  the  first  may 
be  quoted  in  interest,  commission  and  wages,  and  of  the  second  in  rent 
and  insurance. 

(157)     APPRAISE. 

To  value;  to  estimate  the  worth  of. 

(158)     APPRAISER. 

One  who  sets  a  value  upon  goods;  a  person  appointed  and  sworn 
to  estimate  a  fixed  value  on  goods  or  estates. 

(159)     APPRECIATION. 

A  term  used  to  describe  the  accretion  of  value  to  certain  classes  of 
assets  which  are  affects  by  changes  in  the  markets  or  other  causes,  acci- 
dental and  otherwise.  Appreciation  should  be  credited  to  profit  and 
loss  only  when  there  is  a  reasonable  prospect  of  the  increase  in  value 
being  permanent.  In  the  case  of  speculative  securities,  the  fluctuations 
of  which  are  mostly  artificial,  no  record  should  be  entered  on  the  books. 

If  securities  appreciate  in  value,  no  profit  accrues  unless  they  are 
sold.  If  securities  depreciate  in  value,  no  loss  is  sustained  unless  these 
securities  must  be  disposed  of  at  that  particular  time. 

(160)     APPRECIATION  OF  BUILDINGS. 

Periodical  appreciation  may  be  recorded  as  follows: 
Building. 

To  Appreciation  Reserve  Account. 

Amount  of  estimated  increase  in  value  for  period  ending 190 — . 

Such  appreciation  should  not,  generally,  be  available  for  dividends. 
The  alteration  and  repairs  account  should  be  kept  separate  from  the 
building  asset  account.    The  alteration  and  repairs  account  should  be  dis- 
posed of: 

Profit  and  Loss. 

To  Alteration  and  Repairs  Account. 

For  period  ending  190 — . 

The  reason  for  the  above  is  that  the  expense  of  alteration  and  repairs 
is  an  actual  expense,  already  paid,  hence  not  an  estimate  and  should, 
therefore,  take  effect  in  profit  and  loss  account. 

The  appreciation  in  value  of  building  is  more  or  less  fictitious  and  if 

188 


160-161      American   Business  and  Accounting   Encvcloi-kdia 


Ap. 


dividends  were  declared  in  one  year  based  upon  such  estimated  increase, 
subsequent  periods  might  suft'er,  as  the  value  is  liable  to  fluctuate  and 
stockholders  of  subsequent  periods  would  lose;  but  after  a  number  of 
years,  say  five  years,  have  elapsed,  showing  a  steady  appreciation  of  value, 
a  dividend  might  be  declared  against  the  first  year's  appreciation,  thus 
reserving  four  years'  increase. 

(161)     APPROBATION  SALES. 

Goods  delivered  to  customers  on  approval — that  is,  on  the  under- 
standing that  they  may  be  returned  without  charge  if  found  unsatisfactory. 

Such  sales  should  be  kept  in  a  separate  memorandum  sales  book  until 
disposed  of.  If  the  goods  are  retained  by  the  customer,  they  should  be 
entered  in  the  regular  sales  book;  if  returned,  a  memorandum  to  that 
effect  should  be  made  in  the  approbation  sales  book. 

In  all  large  businesses  where  there  is  danger  of  approbation  sales 
being  overlooked,  it  is  advisable  to  open  an  account  called  "Approbation 
Sales."  To  this  account  charge  all  goods  sent  out  and  credit  all  goods 
returned,  and  goods  charged  in  the  regular  sales  book.  The  balance  of 
this  account  will  thus  always  show  the  value  of  goods  out  on  approbation. 


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A  special  form  of  bill  can  be  used  in  duplicate,  the  original  being  handed 
to  the  customer  with  the  goods,  and  the  duplicate  being  retained  as  a 
record.  The  bills  can  be  so  devised  as  to  perform  the  functions  of  an 
approbation  sales  book  as  above  mentioned;  thus  saving  the  labor  of 
making  entries  in  a  bound  volume. 

In  most  businesses  these  departments,  and  the  records  of  same,  are 
not  as  satisfactory  as  they  might  be,  and  the  attention  of  those  who  are 
obliged  to  send  out  goods  to  their  patrons  in  this  way  is  particularly 
directed  to  the  form  here  presented. 

Sales  on  approbation  sometimes  remain  out  quite  a  long  time,  and 
where  monthly  statements  of  business  conditions  are  required  this  record 
will  be  appreciated  as  giving  full  information  in  the  best  possible  way. 

Regular  sales  checks  are  used  by  the  store  clerks  for  this  class  of 
sales,  but  they  are  printed  in  a  distinctive  color  and  carry  a  distinctive 
series  of  numbers. 


189 


Ap.-Ar.      American  Business  and  Accounting  Encyclopedia       161-163 

In  most  establishments  we  suppose  posting  would  be  made  direct  to 
customers'  accounts  from  the  "on  credit"  column  and  the  total  of  that 
column  dissected  into  departments,  and  the  departmental  totals  posted  to 
the  credit  of  the  regular  sales  accounts  at  the  end  of  the  month. 

(162)     APPROXIMATE  INVENTORY. 

A  method  of  calculating  inventory  on  hand  by  averaging  percentages 
of  profits  on  sales.     (See  Inventory.) 

(163)     ARCHITECTS,  ACCOUNTING  FOR. 

Architecture  is  defined  as  the  art  of  building  according  to  principles 
which  are  determined  not  merely  by  the  end  the  edifice  is  to  serve,  but 
by  considerations  of  beauty  and  harmony.  Architecture  thus  necessitates 
the  possession  by  the  builder  of  gifts  of  imagination  as  well  as  technical 
skill,  and  in  all  works  of  architecture  properly  so-called  these  elements 
must  exist  and  are  harmoniously  combined. 

Both  in  form  and  pretentiousness  has  man's  dwelling  changed  just  as 
have  changed  the  other  environments  of  his  evolution.  As  the  changes 
of  time  made  it  necessary  for  him  to  seek  other  abodes  than  the  shelter  of 
caves  and  huts  in  trees,  he  gradually  but  surely  drifted  from  the  humbler 
to  the  more  pretentious  house  that  was  built  above,  and  not  below,  the 
ground. 

The  architecture  of  today,  however,  is  not  the  work  of  a  few  short 
years.  The  ideas  of  symmetry  and  proportion  which  are  afterwards  em- 
bodied in  material  structures  could  not  have  been  evolved  until  at  least 
a  moderate  degree  of  civilization  had  been  reached,  while  the  efforts  of 
primative  man  in  the  construction  of  dwellings  must  have  first  been 
determined  solely  by  his  physical  wants. 

Some  architectural  monuments  there  seem  to  be  for  each  particular 
age,  and  the  Egyptian  pyramids,  obelisks  and  temples,  the  Roman  temples, 
amphitheaters  and  theaters,  the  Grecian  temples,  the  Gothic  architecture 
of  England  and  the  mosques  of  the  Saracen  countries  and  Arabia,  testify 
to  the  grand  ideas  of  the  imaginative  architects  of  the  centuries. 

In  our  own  days  we  see  the  architectural  forms  of  other  ages  imitated 
in  our  churches  and  public  buildings.  At  the  present  time  there  exists  no 
form  of  architecture  peculiarly  distinctive.  But  no  age  that  has  passed 
required  of  the  architect  a  greater  knowledge  of  the  laws  of  building  or 
engineering  than  the  erection  of  our  present  sky-scraping  edifices,  and 
although  they  may  sacrifice  beauty  to  income  production,  they  will  at  least 
be  monuments  of  our  strenuous  days. 

With  the  tremendous  increase  in  large  buildings  in  this  country  has 
come  an  evolution  in  the  work  in  the  architect's  office,  and  the  one-man 
ofHce  is  steadily  being  succeeded  by  companies  and  partnerships,  together 

190 


163 


American   Business  and  Accounting  Encyclopedia 


Ak. 


with  branches  for  the  handling  of  engineering  plans  in  constructive  work. 
So  the  offices  are  divided  into  their  several  departments  callmg  for  the 
drawing  of  plans,  writing  of  specifications  and  superintending  of  construc- 
tion In  addition,  where  expert  work  is  to  be  done,  and  there  is  no  such 
expert  connected  with  the  office,  outsiders  are  hired  and  paid  in  propor- 
tion to  the  nature  of  the  questions  to  be  solved. 

I  submit  in  connection  with  these  remarks  a  number  of  forms  and 
their  descriptions,  so  that  the  work  of  the  architect's  office  may  be  followed. 
Upon  calling  at  the  architect's  office  the  prospective  builder  gives  a 
general  idea  of  what  his  project  is,  and  this  is  entered  on  the  card,  Form 
A-1,  which  is  a  concise  expression  of  just  what  Mr.  Builder  wants  to 


Jgtmes  HendersoTi-Owner 

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Preliminary   p/ons  ond  e^timci^es 


do.  If  the  owner  has  no  definite  idea  as  to  the  number  of  rooms  or 
style  of  building  he  generally  leaves  the  general  get-up  to  the  architect, 
telling  him  the  limit  to  the  amount  of  money  to  be  expended.  An  agree- 
ment also  is  reached  as  to  compensation,  but  the  usual  fee  charged  is  five 
per  cent  of  the  value  of  the  work.  Preliminary  sketches  are  then  drawn 
so  that  an  estimate  of  the  cost  may  be  reached.  This  estimate,  however 
is  not  binding  in  any  way  upon  either  of  the  parties,  and  is  given  so  that 
the  owner  will  know  just  about  how  far  his  money  will  build,  or  how 
much  money  he  will  require  for  a  given  number  of  flats,  stories  in  com- 
mercial building,  or  whatever  the  nature  of  the  project  may  be.  Before 
rents  are  fixed  the  exact  estimates  must  be  on  hand,  as  first  estimates 
can  be  exceeded  as  high  as  one-third  when  the  contractors  finally  get 
their  bids  in. 

This  phase  of  the  business  is  well  illustrated  at  the  present  time  in 
San  Francisco,  where,  on  account  of  the  tremendous  price  of  materials 
and  both  the  scarcity  and  high  price  of  labor,  it  is  almost  impossible  for 
a  contractor  to  do  any  work  at  all.  All  estimates,  of  whatever  the  char- 
acter of  building,  are  being  exceeded  by  the  proportion  above  quoted  and 

191 


II 


Ar. 


American  Business  and  Accounting  Encvcloi'edia 


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some  are  even  doubled,  so  high  are  materials  and  labor  at  the  present 

time. 

If  the  estimate  is  acceptable  to  the  builder,  the  architect  goes  to  work 
on  the  preliminary  sketches  and  drawings,  and  all  correspondence  be- 
tween the  two  is  filed  away,  together  with  the  cards  relating  to  the  parti- 
cular job.  By  this  time  the  job  has  been  given  its  distinctive  number  and 
letter,  such  as  A-1  or  A-3  as  the  case  may  be,  and  all  further  drawings, 
correspondence  or  the  cards  for  filing,  take  that  letter  and  number.  Forms 
A-2  and  A-3  illustrate  this  part  of  the  process,  showing  the  dates  of 
meeting,  when  drawings  are  to  be  completed  and  turned  over  to  owner, 
and  such  other  information  of  importance  to  show  when  and  how  the 
building  is  started. 


Name 

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For  the  carrying  out  of  the  architect's  ideas  of  building,  it  is  neces- 
sary that  detailed  drawings  be  given  the  contractor  for  the  various  parts 
of  the  building.  When  a  contractor,  or  the  owner,  takes  a  drawing  from 
the  architect's  office  he  must  sign  a  receipt  for  same  on  back  of  Card  1, 
the  idea  being  to  eliminate  any  dispute  as  to  whether  or  not  the  con- 
tractor got  a  certain  drawing  from  the  architect  for  this  or  that  part  of 
the  structure. 


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American   Business  and  Accounting  Encvcloi'edia 


Ar. 


Architects'  Estimate  for  Office  Building  or  Warehouse.  For  thi? 
the  architect  makes  a  rough  sketch  of  floor  plan  or  section  through  walls, 
taking  ofl;  the  quantities  necessary  for  construction  of  same. 

For  example  such  would  be  the  itemized  account: 

Excavating,  grading  and  concrete. 

Brick  work. 

Carpenter  work. 

Plumbing. 

Painting. 

Wrought  iron  and  steel. 

Cast  iron. 

Various  sundries  and  minor  details. 

When  quantity  is  ascertained,  same  is  figured  at  current  prices  with 
which  the  architect  is  supposed  to  be  familiar,  thus  being  able  to  arrive  at 
almost  an  accurate  cost  estimate.  If  the  owner  then  figures  10  per  cent 
advance  over  this,  he  will  be  fully  protected. 

In  figuring  estimate  on  flats,  the  cost  per  cubic  foot  is  figured  on 
similar  building  and  the  cubic  feet  in  new  building,  multiplied  by  this  cost 
per  cubic  foot  in  previous  structure.  In  this  case  due  allowance  must  be 
made  by  architect  of  any  change  in  price  of  materials. 

A  cross  filing  system  for  the  cards,  one  for  names  of  builders  and  the 
other  for  job  numbers  and  series,  is  used  to  systematize  the  office  work. 

The  work  in  the  larger  offices  is  divided  into  three  branches.  The 
drafting  room  takes  care  of  all  the  drawing  of  plans.  The  specifications 
department  writes  up  the  details  of  the  building  as  planned,  and  the  super- 
intending department  does  the  overseeing  work,  taking  the  place  of  the 
personal  supervision  of  the  head  of  the  firm  in  this  respect.  Accounts  are 
kept  through  the  cash  book  with  each  of  these  departments  to  segregate 
the  cost  of  running  the  office. 

Various  contractors  are  usually  invited  to  put  in  bids,  based  on  the 
specifications  that  are  given  them.  The  lowest  bidder  generally  gets  the 
job,  but  it  is  within  the  province  of  the  owner  to  reject  any  or  all  bids  and 
call  for  new  ones.  A  record  is  kept  by  the  architect  of  each  contract  and 
of  each  contractor  working  on  the  job.  This  is  illustrated  by  Cards  2  and 
3,  Card  2  showing  dates  of  commencing,  completion  and  notice  to  owner, 
and  Card  3  showing  the  dates  of  payment  to  the  contractor.  Card  4, 
together  with  Forms  x-1  and  x-2  gives  the  details  of  the  notices  to  the 
various  contractors. 

Payments  are  made  to  the  latter  according  to  the  nature  of  the  con- 
tract, but  a  written  certificate  from  the  architect  to  the  effect  that  such 
payment  is  due  is  necessary  before  the  owner  will  make  such  payment. 

The  main  features  of  the  contract  are: 

1 — Parties  signing. 

2 — ^Time. 


192 


193 


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American  Business  and  Accounting  Encyclopedia 


163 


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163 


American   Business  and  Accounting  Encyclopedia 


Ar. 


3— Furnishing  of  detail  drawings  and  materials  to  be  furnished  in 

accordance  therewith. 
A — Added  time  for  unpreventable  delays. 
5 — Location  of  building. 
6— Amount  and  time  of  payments. 
7 — Delay  in  paying  by  owner. 

8— Carrying  out  of  work  including  changes  in  plans. 
9 — Selection  of  umpire  in  case  of  disputes. 
10 — Damages  for  delay  on  contractor's  part. 
11— Damages  to  building  by  act  of  God  to  be  borne  by  owner  to  the 

extent  of  what  has  been  paid. 
12— Payments  on  account  are  not  an  acceptance  of  the  work,  but  owner 
must  exercise  due  diligence  in  looking  for  and  reporting  defective 

parts. 

13 Where  contractor  refuses  to  supply  proper  workmen  and  material, 

owner  may  do  so  and  deduct  a  reasonable  amount  from  the  con- 
tract price. 


Ti  B**^  C  ^v  (*■ 

week    Z.r\ 

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Tc.ro  I 

Pc- 

SERIES 

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MON 

TUES. 

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194 


Form  13. 

Generally  where  a  commercial  building  is  to  be  erected  there  is  con- 
siderable correspondence  to  do  with  the  owners  of  adjoining  property  to 
the  effect  that  as  improvements  are  to  be  made  to  the  property  adjoining 
theirs,  excavating  of  same  to  be  carried  to  a  certain  depth  below  the  side- 
walk, they  should  take  steps  to  underpin  and  protect  their  property.  A 
record  of  these  notices  is  kept  in  a  file,  together  with  other  correspondence 
relative  to  the  building. 

Five  per  cent  is  the  usual  fee  of  the  architect  for  his  work;  two  and 
one-half  per  cent  is  the  amount  of  the  first  payment  which  is  due  when  the 
contracts  are  signed  and  recorded.  The  balance  is  paid  at  such  time  as 
the  work  progresses  or  at  such  time  as  the  owner  and  the  architect  may 
agree.    The  final  payment  is  not  made  until  after  the  building  is  completed. 

Architects  receive  extra  compensation  for  furniture  and  other  articles 
purchased  under  their  direction.  Also  for  the  drawing  of  plans  for  monu- 
ments, cabinets  or  decorative  works. 

195 


I  i 


r 


Ar. 


American  Business  and  Accounting  Encyclopedia 


163 


Fees  are  often  received  from  the  municipal,  state  and  national  govern- 
ments for  competitive  drawings,  and  it  is  usual  in  such  cases  to  pay  both 
the  successful  and  unsuccessful  competitors  in  proportion  to  the  nature 
of  the  competition.  Private  and  public  universities  and  similar  institu- 
tions quite  often  call  for  competitive  drawings  for  additions  to  their  build- 
ings or  new  buildings,  the  same  being  passed  upon  by  a  jury  of  awards. 

Consultation  fees  received  by  architects  depend  greatly  upon  the  pro- 
fessional standing  of  the  architect  and  the  amount  and  character  of  the 
work.    In  cases  where  an  owner  becomes  dissatisfied  with  the  work  of  the 


RECORD  FOR  CLERK  OF  WORKS 

BUILDING       MATERIALS 

rSdilJiAA    af' 

DcTe 

Fr-OP^    WKof^ 

K.rjd 

Volu*. 

A^co)'^"^ 

_; —  ..f    .1 

GnAS    of  C)ldi. 

Totol 

LAr^oR 

Week   En<' "1* 
eTulv      '      (^ 

M     .1       v-u 

i:>»  of  Labot*| 

I^<IY«  Work*4 

FV.-'Dny 

Tiliil 

A4S^ 

Form  14 


CASH 

BOOK— DR. 

bote 

rron\  WKof^ 

Job   No. 

R-iyt- 
No 

ArFNoOrvi- 

r^lnn 

^ 

CASH   BOOK— CR. 


ho^e 


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n 


OOnJry 


ActoOrjts 


Dro^t,^)^    bjn-cifcnfro-y  ^r,r^1fy<^ 


rrsern]  Mdn"}'»i 


lDi^fti'){>     5^i>c.ficnt.e'  ^Jfm 


^ni — 


Form  15. 

original  architect  it  is  usual  and  customary  to  appoint  consulting  architects 
to  whom  the  owner  looks  for  the  carrying  out  of  his  work  in  the  proper 
and  best  manner. 

"Clerk  of  the  Works."  Where  a  large  undertaking  is  under  way, 
one  that  calls  for  the  constant  attendance  of  an  overseer,  a  man  is  em- 
ployed by  the  owner  to  check  the  delivery  of  all  materials  and  payments 
for  labor.  He  is  called  the  clerk  of  the  works.  The  record  that  he  is  to 
keep  should  show  the  delivery  of  all  material  used  for  the  construction  of 
the  edifice,  how  many  men  are  employed  and  what  they  receive,  and  that 
the  class  of  materials  is  just  what  the  specifications  call  for.    This  protects 

196 


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American  Business  and  Accounting  Encyclopedia 


Ar. 


the  owner  from  the  delivery  of  substituted  articles  of  lower  grades  than 

those  contracted  for. 

The  presence  of  a  clerk  of  the  works,  however,  does  not  absolve  the 
architect  from  visiting  the  building  and  seeing  that  it  is  being  erected 
according  to  the  plans  and  specifications,  and  he  has  the  power  to  order 
out  any  material  that  is  not  right. 

When  the  contractor  consideis  his  work  completed  he  notifies  the 
architect  in  writing  to  that  effect  and  that  he  is  ready  for  acceptance. 


CERTIFICATE  FORM  FOR  CONTRACTORS  TO  BE 
PRESENTED  TO  OWNER 

San  Francisco, 1906. 


o    To 


,  owner. 

This  is  to  certify  that  the  sum  $5,000. ..  .00,  100  Five  Thousand 
s    and 00,00  Dollars  is  due con- 


tractor, being  the  payment  for. 


to 


.4. 

2    No... 

Co 

Series. 

To.... 


Received  payment, 


,  Architect 
.,  Contractor 


Form  16. 


The  date  of  this  is  recorded  on  Card  2.  The  architect  and  the  contractor 
visit  the  building  together,  inspect  it  thoroughly,  and  if  the  work  is  satis- 
factory to  the  architect  who  is  acting  as  the  agent  of  the  owner,  he  gives 
the  contractor  a  certificate  to  be  presented  to  the  owner  for  payment,  and 
also  notifies  the  latter  to  file  his  notice  of  the  completion  of  the  work. 
Final  payment  is  not  made  until  the  notice  of  completion  is  given. 

"The  architect  will  maintain  strict  watch  on  the  building  materials  and 
the  workmanship  on  the  buildings,  and  his  visits  will  be  of  such  frequency 
and  duration  as  are  necessary  for  accomplishing  the  purpose.  But  the 
architect's  superintendence  will  not  include  any  liability  nor  will  he  be 
responsible  for  any  breach  of  contract  by  the  contractor." 

As  the  contractor  is  under  bonds  the  owner  is  protected  in  the  event 
of  the  former  not  carrying  out  his  work  properly. 

The  main  accounts  in  the  office  work  will  be  for  salaries  and  office 
expenses  and  the  receipt  of  fees.  The  debit  side  of  the  cash  book  showing 
such  receipts  also  shows  the  number  of  the  payment.  The  credit  side  is 
divided  to  show  the  expenses  of  the  three  departments  the  work  is  divided 
into. 

Supplies  that  are  used  in  the  office  are  given  out  only  on  a  signed 

197 


Ar. 


American  Business  and  Accounting  Encyclopedia      163-165 


requisition,  each  one  of  which  shows  the  job  the  draftsman  is  working  on. 
These  are  charged  to  that  account,  together  with  salaries.  Each  weekly 
time  sheet  shows  the  number  of  hours  that  a  draftsman  puts  in  on  a  job 
and  also  the  time  that  the  specifications  or  superintending  departments 
devote  to  it.  To  offset  these  charges  are  the  fees  received,  the  idea  being 
to  show  as  closely  as  possible  the  cost  and  return  on  each  job.  General 
office  or  administrative  expenses  are  approximated  on  the  direct  charges. 
— (L.  Joseph.) 

(164)     ARITHMETIC. 

The  science  of  numbers;  the  art  of  computation  by  figures. 

The  sign  of  addition  is  derived  from  the  initial  letter  of  the  word 
"Plus."  In  making  the  capital  letter,  it  was  made  more  and  more  care- 
lessly, until  the  top  part  of  the  P  was  placed  near  the  center,  and  hence 
the  plus  sign  was  finally  reached. 

The  sign  of  subtraction  was  derived  from  the  word  minus.  The  word 
was  first  contracted  into  "mns"  with  a  horizontal  line  above  to  indicate  the 
contraction;  then  the  letters  were  omitted,  which  left  the  short  horizontal 
line.  The  multiplication  sign  was  obtained  by  changing  the  plus  sign 
into  the  letter  X.  This  was  done  because  multiplication  is  a  short  method 
of  addition. 

Division   was   formerly   indicated   by   placing  the   dividend   above   a. 
horizontal  line  and  the  divisor  below.    In  order  to  save  space  in  printing 
the  dividend  was  placed  to  the  left  and  the  divisor  to  the  right,  and  a 
dot  was  written  in  the  place  of  each. 

(165)     ARITHMETIC   (AMUSING). 

A  term  employed  to  signify  devices  in  the  combination  of  figures  by 
which  surprising  results  are  apparently  obtained  without  effort.  These 
devices  are,  however,  of  no  practical  value  in  commerce  or  mathematics. 
We  append  some  illustrations. 

Addition.  In  this  case  the  operator  asks  for  a  line  of  figures  and 
sets  them  down  as  per  line  of  the  example.  Underneath  this  line  the 
operator  writes  another,  adding  sufficient  to  the  figures  in  the  first  line  to 
make  9's  of  each  pair  of  figures.  (See  second  line.)  The  operator  now 
asks  for  another  line,  which  is  set  down  under  the  first  two  lines,  adding  a 
fourth  line  to  make  pairs  of  9's  as  before.  The  operator  then  obtains  the 
fifth  line  of  figures,  which  is  called  the  key  line.  By  subtracting  2  from 
the  last  figure  on  the  right  and  placing  a  2  in  front  of  the  first  figure  on 
the  left,  the  total  is  obtained. 

For  three  pairs  of  lines  deduct  3  from  the  last  figure  on  the  right- 
hand  and  prefix  3  to  the  first  on  the  left,  and  so  on,  with  four  pairs  of 
9's,  etc. 

198 


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American   Business  and  Accounting  Encyclopedia 


Ak. 


FIRST 

EXAMPLE. 

4 

8 

5 

3 

6 

2 

8 

1 

2 

7 

5 

!• 

4 

6 

3 

7 

1 

8 

7 

2 

7 

2 

1 

2 

s 

6 

5 

8 

3 

4 

2 

7 

8 

7 

1 

3 

4 

1 

6 

5 

8 

2 

4 

3 

1 

1 

0 

7 

5 

6 

—      — 

— 

— 

— 

— 

2         8 

2 

4 

3 

1 

1 

0 

7 

5 

4 

SECOND 

EXAMPLE. 

4 

8 

5 

3 

6 

2 

8 

1 

2 

7 

, 

5 

1 

4 

6 

3 

7 

1 

8 

7 

2 

7 

2 

1 

2 

8 

6 

5 

8 

3 

4 

2 

7 

8 

7 

1 

3 

4 

1 

6 

5 

8 

2 

4 

3 

1 

1 

0 

7 

5 

6 

1 

7 

5 

6 

8 

8 

9 

2 

4 

3 

7 

2 

1 

8 

2 

6 

3 

5 

8 

4 

3        7 

2 

1 

8 

2 

6 

3 

5 

8 

1 

THIRD 

example. 

4 

8 

5 

3 

6 

2 

8 

1 

2 

7 

5 

1 

4 

6 

3 

7 

1 

8 

7 

2 

7 

2 

1 

2 

8 

6 

5 

8 

3 

4 

2 

7 

8 

7 

1 

3 

4 

1 

6 

5 

8 

2 

4 

3 

1 

1 

0 

7 

5 

6 

1 

7 

5 

6 

8 

8 

9 

2 

4 

3 

7 

2 

1 

s 

2 

6 

3 

5 

8 

4 

2 

7 

8 

1 

7 

3 

6 

4 

1 

5 

1 

2 

2 

4 

5 

5 

6 

5 

1 

8 

4         1 

2 

2 

4 

5 

5 

6 

5 

1 

4 

Or,  the  first  line  may  be  made  the  key  line,  pairing  the  lines  of  9's 
underneath. 

Multiplication.     Multiply  the  following  example  as  directed: 


72 

78 


5616 


Multiply  the  upper  right  hand  figure  by  the  lower  right  hand  figure, 
2X8,  and  place  the  product  16,  in  the  answer.  Then  add  1  to  the  lower 
left  hand  figure,  and  multiply  the  upper  left  hand  figure,  7X8,  and  place 
the  product,  56,  in  the  answer,  to  the  left  of  the  other  two  figures  making 
a  total  product  of  5616. 

Apply  this  rule  to  the  following  examples: 

88    92    85    44    87    46    74    77    55 
64    98    85    82    83    44    76    46    73 

Multiply  the  following  example  as  directed: 

36 

76 

2736 

199 


99 
64 


65 
65 


58 
52 


Ar. 


American  Business  and  Accounting  Encyclopedia 


165 


Multiply  the  upper  right  hand  figure  by  the  lower  right  hand  figure, 
6X6,  and  place  the  product,  36,  in  the  answer.  Then  multiply  the  upper 
left  hand  figure  by  the  lower  left  hand  figure,  3X7,  and  add  to  this 
product  the  lower  right  hand  figure,  which  equals  21-f6=27;  place  this 
product  in  the  answer  to  the  kft  of  the  other  two  figures,  making  a  total 
product  of  2736. 

Apply  this  rule  to  the  following  examples: 

37    73    56    49    37    64    87 
44    66    56    69    S8    99    27 

Multiply  the  following  as  directed: 
27  56 

9&  84 


1814 
67 


4024 
68 


65 

64 

82 

75 

37 

45 

44 

22 

35 

88 

63 

46 

44 

24 

2412 

r24 

36 

28 

2484  4704  2772  1104 

Multiply  the  right  hand  figures  together,  and  place  the  product  in  the 
answer.  Next,  multiply  the  left  hand  figures  together,  and  place  the 
product  to  the  left  of  the  preceding.  Then  multiply  the  diagonal  figures 
together,  the  upper  left  by  the  lower  right,  and  the  upper  right  by  the 
lower  left,  and  add  these  products  together,  and  place  them  under  the  first 
line,  with  the  right  hand  figure  in  the  place  of  lO's.  The  sum  thus  obtained 
will  be  the  correct  answer. 

Apply  this  rule  to  the  following  examples: 

27    56    74    47    63    29    26    46    41    71    95 
92    84    98    63    44    47    43    24    28    97    27 

In  the  first  example  the  short  cut  is  due  to  the  fact  that  the  diagonal 
figures  multiply  together  and  added  as  above  give,  in  the  example  worked 
out.  72  X  78=5616,  a  sum  of  700  (8  X  70  +  70  X  2),  which  is  equal  to 
1  X  700,  and  this  added  to  70  X  70=4,900,  is  the  equivalent  of  7  X  700 
_j-  1  X  700,  or  80  X  70.  The  same  explanation  applies  to  the  second  class 
of  examples  under  this  head,  88  X  64,  where  the  upper  figures  are  the 
same  and  the  lower  are  complements  of  each  other. 

In  the  second  example  of  the  above,  the  first  case,  36  X  76=2736,  is 
of  two  numbers,  having  the  right  hand  figures  alike  and  the  left  hand 
figures  complements  of  each  other.  In  this  case  the  multiplication  and 
addition  of  the  diagonal  figures  gives  6  X  30  -f  70  X  6=100  X  6  or  600, 
which  is  exactly  what  is  done  in  following  the  process  prescribed.  In  the 
class  of  examples  shown  by  the  second  case,  the  upi^er  figures  being  com- 
l)lements  of  each  other  and  the  lower  figures  alike,  the  result  is  the  same, 
l)ut.  if  the  multiplier  and  nmltiplicand  change  places  the  example  will  be 
brought  under  the  first  head. 

Neither  first  nor  second  examj^les  can  be  applied  to  the  examples 
under  the  third  example. 

Another   illustration  of  multiplication,   where  there  are  two   figures   in 

200 


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American  Business  and  Accounting  Encyclopedia 


Ar 


both  multiplicand  and  multiplier,  or  three  figures  in  multiplicand  and  two 
in  multiplier,  is  as  follows: 

72 

,78 

5616 

8  X  2=16,  then  8  X  second  figure  of  the  multiplicand,  7=56;  then 
second  figure  of  multiplier  7X2  first  figure  of  multiplicand=14  X  56  +  1 
carried  from  16=71.  We  then  take  the  two  second  figures  of  multipher 
and   multiplicand   and   multiply   7    X    7=49   +    7   carried   from   71=56. 

Answer,  5616.  ,     ^  i         j 

Take  36  X  76  and  apply  the  same  rule  as  in  the  first  example  and  we 
have  2736.  So  with  27  X  92,  56  X  84,  63  X  44.  When  there  are  three 
figures  in  multiplicand  and  two  in  multiplier,  the  followmg  rule  should 
applv  Example:  732  X  68=49776.  Rule-Multiply  first  figure  ot  mul- 
tiplicand by  first  figure  of  multiplier  and  we  have  16;  put  down  o  and 
carry  1  Then  multiply  first  figure  of  multiplier  by  second  hgure  of 
multiplicand=24  added  to  product  of  second  figure  of  multiplier  times  hrst 
figure  of  multiplicand  (12)  we  have  36  +  1=37.  Then  multiply  second 
figure  of  multiplier  by  second  figure  of  multiplicand  (18)  plus  the  product 
of  first  figure  of  multiplier  times  third  figure  of  multiplicand  {d6)  equals 
74  +  3  carried  from  37=77.  Then  multiply  the  second  figure  of  multipher 
by  third  figure  of  multiplicand  (42)  and  add  7  carried  from  77  equals  49. 
Thus  we  have  49776  as  the  answer.    This  rule  can  never  fail  if  correctly 

applied.  ,        ,         ,  •  i-        u 

If  there  are  three   figures  in  both   multiplicand   and   multiplier  the 

following  rule  applies: 

236 

417 


98412 


Multiply  the  first  figures  of  multiplier  and  multiplicand  and  we  have 
42.  First  figure  (7)  of  multiplier  times  second  figure  of  multiplicand  (21) 
added  to  product  of  second  figure  of  multiplicand  times  first  figure  of 
multiplicand  (6)  equals  27  +  4=31.  Then  add  products  of  second  figures 
of  multiplier  and  multiplicand  and  (3)  first  figure  of  multiplier  times 
third  figure  of  multiplicand  (14);  third  figure  of  multiplier  times  first 
figure  of  multiplicand  (24)  equals  3  +  14  +  24=41  +  3  carried  from  31 
=44.  Then  add  products  of  second  figure  of  multiplier  times  third  figure 
of  multiplicand  (2)  third  figure  of  multiplier  times  second  figure  of  mul- 
tiplicand (12)  equals  14  X  4  carried  from  44=18.  Then  multiply  third 
figure  of  multiplier  and  multiplicand  (8)  plus  1  carried  from  18  we  have 
9.    Answer  98412. 

To  multiply  by  aliquot  parts  of  100,  add  two  ciphers  and  divide  what- 
ever fraction  of  100  the  multiplier  is.    Thus  28  X  25  is  J4  of  100. 

4)2800 

700  Ans. 

201 


Ar.-As.      American  Business  and  Accounting  Encyclopedia      165-168 

These  rules  are  easy,  and  when  once  fixed  in  the  mind  are  never  lost. 
Attention  has  been  called  to  the  number  142857,  which  is  odd  in  more 
senses  than  one. 

If  we  multiply  it  by  any  number,  from  1  up  to  6,  we  arrive  at  products 
expressed  by  exactly  the  same  figures  as  the  original.  Not  only  so,  but 
with  the  exception  that  a  different  figure  leads  off  each  time,  the  order 
of  the  figures  is  the  same. 

142,857  multiplied  by  1  is  the  same 
142,857  multiplied  by  2  is  285,714 
142,857  multiplied  by  3  is  428,571 
142,857  multiplied  by  4  is  571,428 
142,857  multiplied  by  5  is  714,285 
142,857  multiplied  by  6  is  857,142 
With  this  multiplying  by  6,  the  strangeness  stops,  though  the  result 
of  multiplying  the  number  by  7  gives  the  rather  odd  number,  99,999. 

(166)    ARRANGEMENT  OF  ACCOUNTS. 

(See  Classification.) 

(167    ARREARS. 

An  amount  overdue  and  unpaid,  as,  arrears  of  rent ;  arrears  of  salary, 
etc. 

(168)    ASSEMBLING  OF  COSTS. 

The  proper  assembling  of  the  costs  of  various  operations  of  various 
departments  is  by  no  means  of  the  least  importance  in  devising  an  efficient 
system  of  cost  recording  as  on  this  depends,  to  a  considerable  extent, 
the  value  of  the  records  for  subsequent  reference  or  comparison. 

There  cannot,  of  course,  be  any  hard  and  fast  rule  laid  down,  because 
what  would  be  necessary  in  one  establishment  would  be  waste  of  time 
and  energy  in  another. 

In  some  cases  it  is  found  convenient  to  issue  sub-orders  to  the  fore- 
men of  the  different  departments  and  to  assemble  all  particulars  on  the 
main  production  order.  In  other  cases  the  amount  of  detail  is  so  large 
as  to  necessitate  a  specially  arranged  cost  record. 

In  other  cases  where  the  operations  are  very  simple  and  few  it  is 
considered  sufficient  to  enter  the  particulars  from  time  and  material  cards 
direct  to  a  cost  summary,  computing  the  percentages  of  shop  expense  at 
the  time  of  entry. 

At  this  point  we  will  endeavor  to  explode  a  very  common  fallacy  with 
which  we  frequently  come  in  contact. 

The  unprogressive  cost  accotintant,  as  well  as  the  unprogressive  gen- 
eral accountant,  has  a  way  of  taking  the  position  that  what  we  present 
may  be  all  right  for  some  people,  but  he  has  no  personal  interest  in  it 
because  the  information  is  not  suitable  to  the  requirements  of  the  con- 
cern with  which  he  is  at  the  moment  connected. 

If  he  is  employed  at  a  furniture  factory  he  doesn't  want  to  know  any- 

202 


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thing  about  the  operations  of  a  foundry  because  the  information  is  of  no 
use  to  him,  etc.  And  yet,  tomorrow  the  furniture  manufacturing  company 
may,  from  one  reason  or  another,  go  out  of  business  and  the  unprogressive 
accountant  is  turned  loose  on  the  field  of  business  with  a  good  recommen- 
dation to  anyone  desiring  assistance  in  that  particular  line  of  business. 

Just  then  a  large  foundry  concern  needs  a  competent  cost  accountant 
and  will  engage  the  man  who  can  convince  them  of  his  general  knowledge 
of  progressive  and  up-to-date  cost  accounting  principles.  But  our  unpro- 
gressive example  is  unable  to  apply  his  knowledge  to  any  other  business 
than  that  in  which  he  has  been  previously  employed. 

One  would  scarcely  think  it  necessary  to  publish  any  reasons  why  the 
accountant  should  acquire  the  greatest  variety  of  information  possible,  but 
we  frequently  meet  those  whose  vision  is  entirely  limited  to  their  environ- 
ment. 

One  method  of  assembling  costs  is  by  the  use  of  an  item  or  speci- 
fication sheet  which  covers  all  the  operations  to  be  performed  and  gives 
quantities  and  kind  of  material  to  be  used  and  machines  that  must  be 
operated  in  the  process  of  production,  a  separate  column  being  provided 
for  each  machine  so  that  the  labor  is  conveniently  sectionalized.  Thus  a 
form  of  this  nature  may  contain  columns  for  smithing,  punch,  lathe,  planer, 
miller,  drill,  and  also  for  work  at  bench  and  in  the  assembling  or  fitting 
room.  At  the  foot  of  the  form  space  will  be  provided  in  which  to  note 
when  the  article  is  to  be  ready  for  assembling— to  be  tested,  and  shipped. 

This  item  or  specification  sheet  is  made  in  duplicate,  the  latter  being 
kept  in  the  main  office.  As  the  particulars  are  entered  on  the  original 
they  are  copied  on  the  duplicate,  thus  furnishing  the  general  manager 
information  each  day  as  to  the  exact  progress  of  each  job. 

Another  form  of  assembly  record  is  arranged  with  separate  columns 
for  departments  of  production  such  as  Shop  No.  1,  Shop  No.  2,  etc.,  and 
contains  a  complete  record  of  the  general  or  overhead  expense  to  be  borne 
by  each  department,  the  items  being  assembled  after  the  following  order: 

DIFFUSED   CHARGES. 

Unproductive  labor. 
Power. 
Depreciation. 
Supplies. 
General  expense. 
Heat. 
Light. 
A  comparison  is  then  made  between  the  total  charges  and  the  stan- 
dard cost  unit. 

Another  form  of  assembly  record  is  by  parts,  each  part  having  a 

distinctive  number. 

This  iB,  of  course,  in  connection  with  machines  manufactured  in  large 
quantities,  the  cost  of  each  part  being  compared  with  the  standard  units 
established. 

203 


DIRECT    CHARGES. 

Material. 
Direct  labor. 


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American  Business  and  Accounting  Encyclopedia      168-169 


The  same  kind  of  record  is  also  used  in  the  boot  and  shoe  manufac- 
turing business  where  each  upper,  for  example,  should  cost  just  the  same 
as  any  other  upper,  while  the  labor  in  connection  with  cutting,  fitting,  last- 
ing, trimming,  finishing,  etc.,  is  also  governed  by  established  standard 

units. 

In  some  establishments  a  cost  record  is  also  arranged  as  to  contain 
full  details  of  material  used  and  labor  performed,  while  a  space  is  pro- 
vided at  the  right  hand  of  the  form  for  a  summary  which  will  include  all 
indirect  expense. 

The  assembly  sheet  for  a  silver  mine  is  arranged  on  the  basis  of  the 
number  of  tons  of  ore  mined,  milled,  or  concentrated  and  is  quite  a  for- 
midable array  of  statistics,  the  totals  of  which,  divided  by  the  number  of 
tons,  must  conform  to  the  standard  unit  per  ton. 

The  number  of  different  departments  in  the  building  and  contracting 
business  is  quite  surprising,  consisting  of: 

Excavating.  Stair  work. 

Mason  work.  Plastering. 

Cement  work.  Painting. 

Stone  work.  Roofing. 

Carpenter  work.  Heating. 

Lumber.  Electric  work. 

Mill    work.  Glazing. 

Hardware.  Tile— Bathroom— Mosaic. 

Sheet  Metal  work.  Structural  Iron  work. 

(169)    ASSESSMENT. 
A  specific  sum  levied  or  assessed;  a  levy  on  stockholders  based  on 
their  holdings  of  stock,  for  the  purpose  of  raising  additional  capital  with 
which  to  carry  on  the  business,  make  up  deficiencies,  cover  losses,  make 

improvements,  etc. 

A  valuation  of  property  by  which  the  amount  of  taxation  is  deter- 
mined;  called  an  assessment  roll. 

The  levying  of  assessments  on  stockholders  is  usually  subject  to  cer- 
tain conditions  embodied  in  the  corporation  laws  of  the  different  states, 
and  the  state  law  must  therefore  be  consulted  when  an  assessment  is 
under  consideration  by  the  directors  of  a  corporation.  These  legal  pro- 
visions limit  the  amount  of  assessment  which  may  be  levied  in  different 
cases,  but  as  a  rule  whenever  the  full  amount  of  capital  stock  has  not  been 
paid  up  it  is  permissible  to  levy  the  full  amount  unpaid  in  case  the  cor- 
poration finds  itself  unable  to  discharge  its  liabilities.  It  sometimes  occurs 
that  corporations  are  organized  with  the  understanding  that  the  stock 
subscribed  need  not  be  paid  until  required  by  the  necessities  of  the  busi- 
ness. 

A  notice  of  assessment  should  contain  full  particulars  as  to  authority 
by  which  levied,  amount,  when  and  where  payable,  and  to  whom,  with  a 
Venalty  for  failure  to  comply  therewith. 

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The  following  is  an  example  of  a  form  of  assessment  notice  which 
may  be  used: 

NOTICE  OF  ASSESSMENT. 

The    Company,  a  corporation — principal   place 

of  business County, 

Notice  is  hereby  given  that  at  a  meeting  of  the  Board  of  Directors  of 

said  Company,  held  on  the day  of ,  1 ,  an 

assessment.  No ,  of ,. .  dollars  and cents  ( ) 

per  share  was  levied  upon  the  capital  stock  of  the  said  corporation,  payable 
to at 

Any  stock  upon  which  this  assessment  shall  remain  unpaid  on 

1 ,  will  be  delinquent  and  advertised  for  sale  at  public  auction,  and 

unless  payment  is  made  before,  will  be  sold  on 1 ,  at  .... 

o'clock  M.,  to  pay  the  delinquent  assessment,  together  with  costs  of  adver- 
tising and  expenses  of  sale.  Secretar}'. 

Office  

Dated 190 

(170)     ASSESSMENT  RECORD. 

Where  assessments  are  levied  b}-  a  corporation,  a  special  record  of 
same  should  be  kept  after  the  following  form : 

So  far  as  the  accounting  necessary  on  the  general  books  in  regard  to 
an  assessment  is  concerned,  the  best  plan  is  to  open  an  assessment  account, 
to  which  the  total  amount  of  the  assessment  as  shown  by  the  assessment 
record  will  be  charged,  "capital  stock"  being  credited  with  an  assessment 
for  unpaid  stock,  and  "working  capital"  credited  with  an  assessment  levied 
to  make  good  losses  or  to  meet  emergencies.  As  the  assessments  are  paid 
cash  will  be  charged,  and  assessment  account  credited. 

(171)     ASSETS. 

Property,  possessions,  resources.  A  real  account  representing  intrinsic 
value.  All  property — realizable  or  unrealizable,  real  or  contingent,  upon 
which  a  value  can  be  placed.  "An  expenditure  upon  a  remunerative 
object." 

Assets  are  credits  of  the  concern  owning  them,  and  form  the  basis  of 
the  credit  such  concern  receives  from  the  commercial  community. 

Assets  are  considered  as  debits  on  ledger  and  trial  balance,  but  in 
making  up  balance  sheets,  it  is  best  to  ignore  the  debit  and  credit  element, 
and  to  consider  only  assets  in  contradistinction  to  liabilities.  Thus  the 
make  up  of  the  balance  sheet  may  be  arranged  to  suit  the  convenience  of 
the  maker  as  follows: 

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171 


Assets 


Liabilities. 


or 


Liabilities. 


Assets. 


or 

Assets. 
Liabilities. 

or 
Liabilities. 
Assets. 

Assets  and  Expenses.  Assets  may  be  represented  by  cash  on  hand, 
inventories,  accounts  receivable ;  expenses  by  advertising,  stationery,  post- 
age. 

The  difference  between  asset  accounts  and  expense  accounts  is  really 
one  of  degree.  In  purchasing  merchandise,  for  instance,  cash  is  exchanged 
for  something  of  equal  value  which  can  in  turn  be  exchanged  for  cash 
by  the  purchaser.  In  purchasing  advertising,  or  circulars  for  distribution, 
cash  is  exchanged  for  something  the  results  of  which  are  generally  indirect 
and  uncertain. 

Stationery,  stamps,  etc.,  actually  on  hand  at  date  of  taking  inventory, 
are  assets;  the  amounts  expended  and  used  represent  an  expense  which 
reduces  the  profits  of  the  business. 

One  writer,  therefore,  differentiates  assets  and  expense  as  follows: 

An  asset  account  is  charged  with  something  received,  and  represents 
property  on  hand,  maintaining  or  increasing  capital  invested. 

An  expense  account  is  charged  with  something  disbursed,  and  repre- 
sents expenditures  which  decrease  or  impair  capital  invested. 

Assets  may  be  differentiated  into: 

Fixed  Assets. — Are  those  which  form  a  permanent  and  essential  part 
of  the  business  carried  on,  and  the  returns  on  account  of  which  are  not 
direct,  but  are  received  through  the  manipulation  of  circulating  assets. 
This  is  the  reason  for  the  distinction  made  in  the  Individual  Home  Study 
Course  in  Higher  Accounting,  by  a  division  into  two  classes,  viz. : 

a.  The  property  of  the  merchant  prepared  to  do  business. 

b.  Values  obtained  with  original  capital  for  purposes  of  re-sale. 
Fixed  assets  are  capital  investments. 

Examples: 

Poles. 

Wires. 

Furniture  and  Fixtures. 

Patterns. 

Engines. 

Boilers. 

Meters. 

Active  or  Floating  Assets.  Those  which  vary  in  amount  from  day 
to  day  from  sale,  realization,  exchange,  etc.,  commodities  purchased  for 
re-sale  or  business  circulation.     Active  assets  are  trading  investments. 

206 


Right  of  Way. 

Road   Bed. 

Real  Estate. 

Buildings. 

Equipment. 

Machinery. 

Cars. 


Construction. 
Sinking  Funds. 
River  Dam. 
Coke  Ovens. 
Abattoirs. 
Car  Ferries. 
Station  Buildings. 


171-17^      American    Busikess  and  Accounting   Encyclopedia 


As. 


Inventories  of  all  kinds  of  Mdse.  on 

hand  for  sale. 
Diamonds. 
Liquors. 

Stocks  and  Bonds. 
Boots  and  Shoes. 


Examples : 

Cash. 

Accounts  Receivable. 

Notes  Receivable. 

Grain. 

Ice. 

Coal. 

Raw  Material. 
Wasting  Assets.  These  are  usually  classified  as  fixed  assets,  but  a 
distinction  is  made  because  the  more,  for  example,  a  mine  is  worked, 
the  less  ore  or  coal  remains,  so  that  while  the  mine  was,  in  the  first  place, 
a  capital  asset  (on  which  the  capitalization  of  the  mining  corporation  was 
based)  at  the  end  of  a  certain  period  the  mine  will  be  exhausted  and 
only  the  equipment,  plus  a  hole  in  the  ground,  remains  to  represent  the 

investment. 

The  best  method  of  dealing  with  wasting  assets  will  be  considered 

under  the  specific  heading. 

Passive  Assets.  These  possess  no  intrinsic  or  realizable  value,  and  in 
many  cases  simply  consist  of  prepaid  charges,  preliminary  corporation 
organization  expenses,  etc.  As  this  class  of  charge  is  usually  incurred 
for  the  benefit  of  business  operations,  not  for  one  year  only,  but  for  many 
future  years,  it  is  considered  proper  and  equitable  to  spread  the  extinction 
over  several  years  so  that  the  burden  will  not  fall  with  too  great  weight 
on  the  business  of  one  year: 
Examples : 
License.  Bonus.  Copyright. 

Charter.  Promotion.  Deputation. 

Franchise.  Legal   Expense. 

Further  examples  are : 
Active  Assets.    Bolts  of  cloth  in  a  tailor  shop  ready  to  be  made  up 

into   suits. 

Fixed  Assets.     Shoe  lasts  in  a  shoe  manufacturer's  plant.     Sample 

photographs  in  a  photographer's  etudio. 

Passive  Assets.  Futures:  The  amount  invested  in  stock  where 
market  values  fluctuate  from  day  to  day.  Advertising  devices,  being 
amounts  expended  on  signs  advertising  a  certain  article. 

Theater  Privilege :  Being  an  amount  paid  to  a  city  by  a  company 
for  the  privilege  of  carrying  on  a  place  of  amusement. 

(172)     ASSIGNEES'  ACCOUNTS. 

The  accounts  of  assignees,  receivers  and  trustees  are  similar  in  nature 
and  arranged  on  the  same  general  principles.  An  account  has  to  be  kept 
of  the  assignor's  property,  showing  how  realized,  and  an  account  must  also 
be  kept  of  receipts  and  expenditures  of  the  assignee,  who  charges  himself 
with  all  receipts  and  takes  credit  for  all  authorized  expenditures  and 
remuneration  for  his  services.     A  record  must  also  be  kept  of  all  claims 

207 


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I 


ii 


against  the  assignor's  estate,  such  claims  being  properly  proved  before 
being  allowed  to  rank  for  dividend.  This  record  is  ruled  so  as  to  show — 
amount  of  claim;  amount  at  which  claim  is  admitted;  amount  disallowed; 
amount  of  dividends;  when  paid;  creditors'  receipts. 

(173)     ASSIGNED  ACCOUNTS. 

Accounts  assigned  to  a  bank  or  other  party  for  the  purpose  of  realizing 
on  same  before  they  become  due. 

As  this  method  of  discounting  accounts  receivable  is  not  very  common, 
we  will  illustrate  it  as  follows: 

We  will  assume  that  W.  H.  Hunt  &  Co.  have  $12,000  out  in  accounts 
receivable,  distributed  as  follows:  Smith  &  Co.,  $2,000;  Jones  &  Co.. 
$4,000;  Brown  &  Co.,  $6,000.  Wishing  to  raise  immediately  say  $8,000, 
they  communicate  with  their  bankers,  and  having  obtained  their  consent 
Forty-two 

to  the  loan,  copies  of  each  bill  (representing  the  $12,000)  are  made  in 
duplicate,  and  on  the  back  of  each  is  indorsed  the  usual  "for  value  received 
we  do  hereby  transfer,  set  over,  etc."  A  statement  is  attached  to  each 
firm's  bills,  making  each  account  complete.  All  the  firms  whose  accounts 
are  being  assigned  are  then  notified  by  Hunt  &  Co.  of  the  fact,  and  the 
bills  assigned  are  specifically  mentioned.  The  bills  are  then  sent  to  the 
bank  accompanied  by  addressed  and  stamped  envelopes,  in  order  that 
they  may  have  as  little  trouble  as  possible  in  the  matter.  This  completes 
the  preliminaries. 

The  bank  then  makes  a  demand  note  for  the  amount  of  the  loan 
($8,000),  which  embodies  the  collateral  on  which  the  loan  is  made,  i.  e.. 
Smith,  Jones  and  Brown's  accounts,  it  being  understood  that  the  bank  does 
not  loan  on  the  accounts  but  on  the  note,  which  is  signed  by  Hunt  &  Co., 
and  their  account  is  then  credited  by  the  bank  and  loan  account  charged. 

Hunt  &  Co.,  first  making  a  journal  entry  crediting  Smith,  Jones  and 
Brown  and  charging  assigned  accounts,  which  is  really  an  account  against 
the  bank.  The  reason  for  this  entry  is  very  plain.  The  moment  the 
assignment  is  made  to  the  bank,  that  moment  the  accounts  of  the  three 
customers  are  settled  as  fully  as  though  they  had  mailed  checks  for  the 
proper  amounts,  so  far  as  they  are  concerned ;  but  as  a  matter  of  fact  the 
amounts  are  still  "accounts  receivable,"  the  only  change  being  the  source 
from  which  the  payment  is  to  be  received. 

Cash  is  then  charged  with  $8,000  and  the  item  is  credited  to  loan 
account.  Some  might  prefer  calling  this  account  bills  payable,  which  is 
perfectly  proper;  but  it  has  been  found  more  desirable  to  separate  it  from 
the  trade  notes.  The  accounts  affected  by  the  above  entries  then  stand  as 
follows : 


Nov.  20    Mdse 


Nov.  15. 


SMITH    &   CO. 
$2,000     Nov.  26. 

JONES   &   CO. 

Mdse $4,000     Nov.  26. 

208 


Asgmt $2,000 

Asgmt $*,0CO 


173-174      American  Business  and  Accounting  Encvclopedia       As-.At. 

BROWN  &  CO. 

Nov.  15.    Mdse $6,000  Nov.  26.    Asgmt $6,000 

ASSIGNED  ACCOUNTS. 

Nov.  26.    Smith  &  Co $2,000  Nov.  26.    Brown  &  Co 6.000 

Nov.  26.    Jones  &  Co 4,000 

LOAN   ACCOUNT    (FIRST  NAT'L  BANK). 

Nov.  26    $8,000 

CASH. 

Nov.  26.    Loan   $8,000 

The  bank  receives  Smith  &  Co.'s  check  for  $2,000.  They  pass  it  to 
the  credit  of  Hunt  &  Co.  exactly  the  same  as  a  deposit  made  in  the 
regular  way.  Then  a  subsequent  entry  is  made,  charging  H.  &  Co.,  and 
crediting  loan. 

Hunt  &  Co.  do  exactly  the  same  thing,  i.  e.,  charge  cash  and  credit 
the   bank    (assigned   accounts)  and   then   credit   cash    and    charge    loan 

account. 

These  are  the  methods  applied  by  the  borrower  and  lender.  When  the 
$8,000  has  been  received  by  the  bank,  it  closes  out  the  loan  and  makes 
up  interest  charge,  which  is  deducted  from  the  regular  deposit  account  of 
Hunt  &  Co.,  the  papers  relating  to  the  assignment  and  the  note  are  all 
returned,  and  subsequent  payments  from  Smith,  etc.,  are  received  by  the 
bank  and  credited  up  as  straight  deposits,  while  Hunt  &  Co.  credit  such 
payments  to  assigned  accounts  until  it  is  closed. 

(174)     ATTORNEYS,  ACCOUNTING  FOR. 

The  following  forms  with  explanations  will  show  a  simple  yet  accurate 
system  for  keeping  accounts  in  an  attorney's  office.  By  means  of  special 
column  cash-journal  and  fee  book  the  moneys  earned  will  be  separately 
shown,  together  with  details  of  expense  accounts  for  running  the  office. 
The  ledger  will  be  one  of  separate  sheets  for  each  and  every  case,  of 
sufficient  size  to  enter  all  the  details  of  any  case  or  suit  so  that  reference 
need  not  be  made  to  any  other  book.  Law  offices  at  best  are  poorly 
equipped  for  book-keeping  so  that  simplicity  and  original  entry  must  be 
the  dominating  features  of  a  successful  system. 

Together  with  the  regular  account  system,  there  is  added  a  combina- 
tion journal-ledger  for  keeping  accounts  with  estates  in  course  of  settle- 
ment. The  pages  for  this  book  are  so  ruled  that  the  income  and  expendi- 
tures will  be  shown  in  original  form,  no  other  books  being  necessary  for 
entries.  The  balance  of  the  cash  on  hand  is  shown  by  the  "bank  balance'* 
column  as  all  money  is  immediately  deposited  in  bank  and  withdrawn  by 
check  only.  No  cash  accounts  with  estates  are  therefore  necessary  in  the 
general  cash  book  except  for  the  receipt  of  the  fees. 

In  connection  with  this  book  a  small  memorandum  estate  book  is 
kept  in  which  is  entered  all  the  details  of  the  will  together  with  the  separate- 
pieces  of  property,  real  or  personal,  that  are  a  source  of  income  or  expen- 
diture so  that  reference  can  be  made  to  this  book  from  the  journal-ledger 

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174 


pages,  where  it  would  be  impracticable  to  spread  all  this  detailed  infor- 
mation. 

The  operation  and  description  of  the  office  system  is  as  follows: 

(1)  Office  blotter  or  slate  for  details  of  new  matter  coming  up. 

(2)  Card  calendar  for  laying  out  daily  work. 

(3)  Cash-journal  for  receipts  and  expenditures;  also  money  advanced 
to  clients  for  costs  of  suits  and  money  received  from  them  in  return. 

(4)  Single  sheet  three  column  ledger  to  contain  costs  in  detail  in  debit 
column,  credit  money  paid,  and  balance  column  for  amount  due. 

(5)  Fee  book  for  charging  fees.  Made  out  with  duplicate  extension 
sheets  from  which  entries  are  posted.  Extension  sheet  with  columns  for 
the  several  kinds  of  fees  charged  so  that  the  total  may  be  ascertained  at 
end  of  month  for  posting. 

(6)  Journal-ledger  designed  for  estates  to  be  used  in  connection  with 
the  foregoing.  Debit  side  has  wide  column  for  receipts  from  all  sources, 
bank  column  and  bank  balance  column.  Credit  side  has  wide  column  for 
all  expenditures,  bank  check  column  and  column  for  all  fees  allowed  by 
court. 

Original  entries  will  be  made  on  office  blotter,  fee  book,  and  calendar 
cards  and  posting  made  thence  to  cash-journal  or  ledger  and  credited  or 
charged  in  ledger  when  affecting  personal  accounts.  Totals  only  of  repre- 
sentative accounts  posted  monthly. 

Office  slate  is  used  by  the  entire  office  force.  Card  calendar  is  kept 
up  by  clerk  keeping  the  accounts  from  memoranda  furnished  by  the  office 
clerks.  Cards  are  arranged  by  days  and  can  be  filed  ahead  for  any  day  or 
month.  Cash  is  to  be  paid  out  on  receipts  or  vouchers  only.  Clerks 
receiving  money  to  be  used  for  payment  of  costs  of  any  client's  account 
must  give  personal  receipt  for  sarne,  this  to  be  the  book-keeper's  authority 
until  the  regular  receipt  for  which  the  money  is  paid  is  turned  in.  The 
petty  cash  (for  which  column  is  provided  in  the  cash-journal)  embraces 
such  items  as  car  fare,  entertainment,  etc.,  a  check  to  be  drawn  each  month 
for  as  much  as  the  account  is  estimated  and  the  adjustment  to  be  made 
monthly  from  details  gained  from  petty  cash  memorandum  book.  New 
ledger  accounts  are  opened  from  the  details  as  written  on  office  slate. 


MoNbAY-Nov.iv-igov. 

Vij0t0fSN3»k« 

of" 

I^rfrviwftj 

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• 

Offitei/tlf. 

i5 


'i 


f,lt  ej>l>fraijit  (aye  fJJ»yn  n  J  Qeyj 
Ctr  drpti-f'tj  J)r  Cfftij  r/)ert  a/u^  (»>t 

f-lt  traitf'.jtr  t^d  tbp—i  fit  (hty  Wljilt  *\  i(Will>i 


wrf  f«"*  "t^f'IH  J  T'mm\ftr  fit 


Form  1. 


Form  2. 


210 


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American  Business  and  Accounting  Excvclopedia 


At. 


Representative  Accounts.  Client's  accounts,  payments — debited  for 
moneys  advanced  and  credited  when  same  are  repaid,  balance  showing 
amount  due  for  advanced  moneys. 

Client's  accounts,  fees — same  as  above. 

Fee  account — credited  monthly  with  total  as  added  in  fee  book. 

Office  furniture  and  library  account — the  library  in  law  offices  is  quite 
an  important  feature  not  alone  on  account  of  the  value  of  the  books,  but 
because  there  is  a  constant  expense  attached  to  the  maintenance  of  the 
current  reports  from  all  over  the  United  States.  To  the  account  charges 
will  be  made  for  all  new  books  added.  Rebinding  and  depreciation  to  be 
charged  to  expense  and  loss  accounts  respectively. 

Administrative  expense — as  per  form  showing  the  details  of  expenses 
for  running  expenses. 

Cash  account  and  proprietor's  account  will  complete  trial  balance 
accounts. 

The  office  slate — in  diary  form,  each  day  having  a  page.  Designed 
especially  for  parties  calling  in  event  of  new  cases  or  consultation.     In 


bdtc 

NOINC 

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Form  3 — Right  Hand  Page. 


Form  3 — ^Left  Hand  Page, 


addition,  every  call  affecting  the  office  work  should  be  entered.  In  the 
remark  column  should  be  entered  any  special  information  gained  in  the 
interview.  The  entered  column  is  for  the  use  of  the  clerk  keeping  the 
accounts  and  is  checked  as  items  are  written  off. 

Card  calendar — used  in  connection  with  office  slate;  a  great  many 
entries  being  made  immediately  from  slate  to  cards  for  the  day  required. 
In  addition  original  entries  are  made  on  the  cards  and  posted  thence  to 
ledger  and  cash-journal  as  indicated.  The  current  day's  card  is  carefully 
gone  over  by  the  clerk  at  end  of  day  and  if  a  memorandum  is  found  for 
future  work  it  is  transferred  to  the  card  of  that  day.  The  used  cards  are 
kept  in  transfer  boxes  arranged  monthly. 

Cash-journal — the  debit  column  contains  name  of  client,  amount  of 
money  received  in  return  for  that  advanced  for  costs,  payment  of  fees 
charged  and  bank  column.    The  fee  column  is  divided  into  respective  fees 

211 


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American    Business   and   Accounting    Encyclopedia 


174 


1 

fONSUL  TIN<r 

RETAIneif 

rtr/AL 

San  Franc isco.Co^  ///i^/oi 

'"^r*  X  S  Jehnsr^ru. 

To  f  7»iai  fee  case  of 

J' S  Johnson    vr    f^j»ec{  QrowTL. 

' 

/SO 

M/so^^ 

Chas.  Wiicox.  Attorney 

Fee  Bo»k~  kvttA  perftrafe^  She*ts  *ftfh 

^dupitcot*  fiOf»   tJitei>^t/i4  ouf  ^fom  ort^iiM/ 

«fii  r-oietl /»^  Amounr  ant/  kin^  «//••  c^ar^ed. 

Form  5. 

so  that  data  is  always  on  hand  showing  how  much  of  each  kind  of  fees 
charged  is  being  paid.  Totals  are  credited  to  client's  account  in  the 
ledger.  The  total  of  clients'  payments  is  credited  at  end  of  month  to 
that  ledger  account. 

Credit  side  shows  name  of  client  and  column  for  moneys  paid  for 
costs  with  a  number  column  which  is  the  designation  of  the  kind  of  cost, 
as  follows:  Have  a  printed  schedule  of  all  costs  likely  to  be  used  in 
connection  with  all  suits  and  cases  so  that  when  the  detailed  cost  charge  is 
entered  in  the  ledger  debit  column  all  that  it  is  necessary  to  enter  in  the 
cash  book  credit  side  is  the  number  of  the  cost  item  and  the  amount. 
This  saves  duplication.  The  costs  in  civil  and  criminal  cases  are  always 
the  same  as  far  as  caption  is  concerned,  so  that  the  schedule  can  be  easily 
used.  Total  costs  advanced  charged  to  debit  of  client's  account  payment, 
in  ledger.  Office  furniture  and  library  account  charged  for  new  material 
and  subscriptions.  Administrative  expenses  are  for  the  carrying  on  of 
the  office  work  and  include  rent,  clerk  hire  and  stenographers,  printing  and 
stationery,  telephone,  telegraph  and  postage,  petty  cash  for  incidentals. 
The  bank  column  for  checks  drawn  and  column  for  sundries  (including 
proprietor's  personal  account)   completes  the  credit  side. 


II,  Probate  Cou't  Of                                                                r%f«>t-i*. 

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P*»'»»')T»  All  AdOuMt 

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Form  6.  Form  6. 

Ledger — each  case  has  a  separate  page.  The  account  is  headed  with 
name  of  party,  date  of  first  visit  (from  office  slate)  with  all  details  neces- 
sary to  a  ready  grasp  of  the  steps  that  have  been  taken  in  connection  with 
the  case.  Costs  as  charges  being  entered  in  detail,  the  ledger  page  shows 
the  account  in  such  form  that  no  reference  is  necessary  to  other  books. 

212 


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At. 


Fee  book — made  in  check  book  form  with  the  under  duplicating  sheet 
extending  out  from  the  original  and  ruled  with  columns  for  entering  the 
amount  of  fee  charged  so  that  same  can  be  added  at  end  of  month  and 
posted  in  total  to  ledger  account.  Used  with  carbon  and  entry  made  from 
carbon  copy,  original  going  to  client  as  bill. 

Journal-ledger  for  estates  with  bank  column  is  so  ruled  that  all  the 
details  concerning  the  income  and  expenditure  of  an  estate  in  course  of 
settlement  can  be  entered  without  the  use  of  any  other  books.  The 
receipts  are  entered  in  the  bank  column  and  immediately  deposited  making 
the  debit  charge  to  cash.  All  payments  bemg  made  by  check  on  bank  and 
entered  in  bank  column  (Cr.)  the  bank  balance  column  shows  the  amount 
of  cash  on  hand  so  that  no  other  cash  entries  are  necessary.  Estates  usually 
take  eight  to  ten  months  for  settlement,  the  final  entries  being  the  amounts 
distributed  to  legatees  and  the  fees  allowed  by  the  court  for  administering. 
In  connection  with  this  book  keep  a  memorandum  estate  book  that  shows 
the  details  of  the  will  governing  the  distribution  of  the  estates  with  the 
value  of  the  separate  pieces  of  property,  names  of  legatees,  etc.,  manner 
of  distribution,  and  such  items  as  are  necessary  for  a  complete  under- 
standing of  the  course  to  be  pursued.  The  fees  allowed  by  the  court  to  the 
attorney  (proprietor)  will  go  through  the  regular  office  cash-journal  as 
other  fees  do. 


Dale  First  V.'iit 
Nature  of  Cote 
C«im  At>im(d  to 
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fir^dl  ^iJ^iiTicn 


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rft^  C>)^dai)dCost>Pci:d 


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t    TranlctihT  of  feir,iru,n, 

f-  Reporten  fee* 
<i- Notary 
lOPiijKtttaij  Hifttty 

II  Prtietutivf  fftp^ol  'U  Sub 
lyPrinriija  Obetiino  ht!ef 
»»-      «      ^  f<tp\y,-' 
1  r  Preittut'trjL  Caf  Jaefit^  *j ihbrtl 
lk-f^til)Tinn    rrorjicriffi- 
•T^'/Oy  iroijirt-tit  ctfdAfi/aetl  I 

10  Ji/nc/nei    ' 


Cr 


btlTc 


'T)0€>K 


B        "^r 


i"btiid 


f 


Form  4. 


The  net  earnings  of  the  business  will  be  shown  by  gross  fees  charged 
during  year,  less  administrative  expenses,  expense  of  maintaining  library 
and  office,  depreciation  on  books  and  furniture.  Close  this  amount  into 
attorney  proprietor  account  and  when  his  withdrawals  are  deducted  it  will 
give  the  present  worth. 

There  are  some  offices  that  do  not  make  a  practice  of  advancing  costs 
for  clients,  making  the  clients  pay  the  costs  of  the  case  as  it  progresses. 
This,  of  course,  makes  the  book-keeping  much  simpler,  but  with  the  above 
system  any  sized  office  can  be  accommodated  and  it  is  simple  yet  accurate 
enough  to  show  the  earnings  of  the  same. — (L.  Joseph.) 

213 


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American  Business  and  Accounting  Encyclopedia      175-176 


(175)     AUDIT. 
The  examination  of  books  of  account  to  determine  their  accuracy,  and 
the  honesty  of  those  interested. 

The  objects  of  an  audit  have  been  defined  as  follows: 

1.  The  detection  of  technical  errors. 

2.  The  detection  of  errors  of  principle  which  do  not  affect  the 

accuracy  of  the  figures. 

3.  The  detection  of  fraud. 

Another  authority  states  that  the  principles  which  should  govern  an 
audit  are: 

1st.  The  obvious  principle  that  the  books  should  be  thoroughly 
examined  and  found  to  be  in  balance  and  all  payments  correctly  vouched. 
In  my  humble  opinion,  no  partial  audit  of  a  company's  affairs  is  satis- 
factory. 

2nd.  An  exhaustive  survey  of  the  results  from  past  standpoints 
(where  there  are  any),  and  any  serious  discrepancy  noted  with  a  view 
to  careful  inquiry. 

3rd.  An  intelligent  and  conscientious  review  of  the  assets  (and  upon 
these  an  auditor  of  any  experience  and  ability  to  gather  information 
ought  to  form  some  definite  opinion),  in  order  to  ascertain  to  the  best 
of  his  judgment  the  true  financial  position.  It  is  clearly  laid  down  that 
where  the  services  of  an  outside  and  independent  valuer  are  employed, 
the  auditor  cannot  go  behind  his  certificate,  but  I  suggest  that  in  his 
report  he  should  set  out  the  fact  of  an  outside  valuation.  But  it  appears 
to  me  that  the  auditor  is  not  wise  to  accept  the  certificate  of  anyone  inside 
the  company,  without  making  such  examination  as  is  possible,  within  the 
bounds  of  his  experience. 

(176)     AUDITING. 

The  method  employed  or  work  performed  in  accomplishing  an  audit. 

The  Scope  of  an  Audit.  In  considering  this  subject  we  have  to  take 
into  account  the  fact  that  it  has  by  no  means  been  authoritatively  defined 
as  to  exactly  what  an  efficient  audit  should  cover.  There  has  been  con- 
siderable diversity  of  opinion  as  to  the  extent  of  probing  which  the  term 
"auditing"  should  embrace,  some  maintaining  that  an  audit  should  trace 
every  entry  to  its  original  source,  while  others  consider  the  verification  of 
the  trial  balance  from  the  books  to  be  sufficient.  It  is  often  very  difficult 
to  convince  a  merchant  of  the  value  of  the  work  for  which  he  will  be 
called  upon  to  pay,  and  in  such  cases  what  may  be  termed  "a  condensed 
method  of  auditing"  may  be  used,  which  will  of  course  be  subject  to 
modifications  made  to  suit  the  special  conditions  encountered.  Such  a 
condensed  method  of  auditing  will  be  hereafter  described  in  detail. 

Checking  Postings  to  Ledger.  A  great  many  auditors  consider  it 
necessary  to  check  in  detail  the  postings  to  the  individual  accounts 
receivable  and  payable,  but  it  is  usual  in  this  country  to  take  the  ground 

214 


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that  if  the  general  or  representative  accounts  are  found  correct,  no  manipu- 
lation of  the  individual  or  personal  accounts  could  remain  undetected.  The 
auditor  does  not  devote  any  time  to  satisfying  himself  that  a  bill  of  goods 
bought  by  John  Jones  has  been  charged  in  error  to  John  Smith.  When 
John  Smith  gets  the  bill  he  will  promptly  attend  to  the  rectification  of 
error.  The  postings  to  customers  and  purchase  accounts,  however,  are 
checked  in  bulk.  The  auditor  satisfies  himself  that  the  total  amount  of 
charges  called  for  by  the  sales  book  has  gone  into  the  ledger,  as  also  the 
total  amount  of  credits  called  for  by  the  cash  book,  etc.  As  the  trading 
statement  will  show  the  gross  and  net  sales  and  purchases,  there  is  very 
little  chance  of  falsifying  the  merchandise  account  so  that  the  falsification 
will  not  be  detected. 

Books  to  be  Audited. — These  will  comprise  customers  ledgers,  pur- 
chase ledger,  general  or  private  ledger,  cash  book,  petty  cash  book,  cross- 
entry  journal,  purchase  journal,  sales  journal,  credit  journal,  pay  roll,  bills 
receivable  book,  bills  payable  book,  trial  balance  book  and  any  other  extra- 
ordinary book,  or  books  of  original  entry,  from  which  postings  may  be 
made  to  the  ledger,  or  the  totals  of  which  may  be  transferred  from  the 
auxiliary  books  to  a  book  from  which  postings  are  made  to  the  ledger. 
The  importance  of  paying  attention  to  the  last  mentioned  detail  can  be 
illustrated  by  an  accountant's  experience  in  an  audit  where  it  was  only 
accidentally  discovered  that  the  book-keeper  used  an  auxiliary  or  "blotter" 
cash  book,  from  which  he  transferred  each  day  the  items  to  the  regular 
cash  book,  from  which  they  were  posted  to  the  ledger.  This  "blotter" 
being  examined,  a  comparison  with  the  regular  cash  book  disclosed  the  fact 
that  the  book-keeper  had  changed  the  entries  so  that  for  years  he  had  been 
putting  in  his  pocket  not  less  than  $10  every  day,  making  fictitious  credits 
to  conceal  the  defalcation  in  the  ledger,  said  credits  being  duly  entered  in 
the  journal. 

Statistical  Reports  and  Exhibits. — From  the  books  above  men- 
tioned the  auditor  compiles  the  following  statements  and  exhibits,  which, 
as  a  rule,  will  cover  all  the  desired  information.  Where  investigations 
are  made  for  a  special  purpose  the  whole  trend  of  the  audit  will  naturally 
be  directed  along  the  special  line  and  special  statements  will,  in  all  prob- 
ability, be  required. 

1.  Trial  balance  at  commencement  of  period  covered  by  audit. 

2.  Trial  balance  at  close  of  period  covered  by  audit. 

3.  Trial  balance  after  closing  the  books. 

4.  Balance  sheet,  or  statement  of  assets  and  liabilities. 

5.  Trading  statements.    Departmentalize  as  much  as  possible. 

6.  Profit  and  loss  account. 

7.  Analysis  of  expense  account  and  comparative  statement  when 
possible. 

8.  Statement  showing  analysis  of  merchandise  account  as  appearing 
on  the  ledger  (where  a  merchandise  account  is  carried). 


215 


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American   Business  and  Accounting  Encyclopedia 


176 


9.     List  of  bad  or  suspense  accounts. 

10.  Schedule  of  bills  receivable. 

11.  Schedule  of  bills  payable. 

12.  Schedule  of  missing  vouchers. 

Check-Marks.— It  is  usual  for  the  auditor  to  use  a  distinctive  check- 
mark by  which  he  can  readily  distinguish  his  completed  work.  Some 
accountants,  however,  state  that  they  make  a  point  of  accomplishing  their 
work  without  placing  a  mark  of  any  kind  upon  the  books  audited.  This 
seems,  however,  to  be  a  very  risky  method  and  would  not  be  advisable 
unless  the  books  audited  were  in  the  sole  charge  of  the  auditor  during  the 
examination.  Particularly  is  this  true  where  books  of  account  are  subject 
to  a  partial  audit  which  is  supposed  to  keep  the  work  as  much  as  possible 
up  to  date  until  the  accounts  receive  their  final  checking.  In  order  to 
prevent  alterations  being  made  after  the  books  have  been  checked  in 
this  way,  some  accountants  adopt  a  special  form  of  check-mark  upon  all 
figures  upon  which  a  correction  may  appear.  They  afterwards  look  back 
over  their  work  for  corrections,  erasures  or  alterations  in  order  to  see  that 
nothing  of  the  kind  appears  without  the  special  check-mark.  This  special 
check-mark  should  be  as  much  like  the  regular  check-mark  as  possible, 
so  that  the  book-keeper  may  not  recognize  the  distinction. 

Cash  and  Bank.— The  first  task  of  an  auditor  upon  undertaking  an 
audit  is  usually  to  check  the  cash  account  both  on  hand  and  at  bank 
according  to  the  balance  shown  in  the  cash  book.  If  some  time  has  elapsed 
since  the  books  were  closed,  add  to  the  cash  balance  on  hand  the  footings 
of  all  disbursements  since  that  date,  deduct  the  footing  of  the  receipts, 
and  the  balance  should  agree  with  the  cash  on  hand  at  date  of  closing 
as  shown  by  the  cash  book.  It  should  be  particularly  noted  that  no  check 
for  currency  has  been  drawn  but  not  entered  on  the  cash  book  for  the 
purpose  of  making  up  the  amount  which  should  be  on  hand. 

An  audit  is  much  facilitated  when  all  receipts  are  deposited  in  the 
bank,  and  in  any  case  it  is  useful  to  compare  deposits  made  in  bank  with 
the  receipts  as  shown  by  the  cash  book  for  the  purpose  of  locating  any 
large  differences  which  need  investigation.  It  has  often  happened  that  dis- 
honest cashiers  have  deposited  amounts  in  the  bank,  omitting  to  enter  same 
on  the  books,  thus  enabling  them  to  appropriate  a  similar  amount  from  the 
receipts  which  are  entered  on  the  books. 

Purchase  Accounts.— It  has  been  indicated  above  that  accounts  with 
creditors  are  frequently  checked  in  bulk  and  not  in  detail.  It  will,  how- 
ever, be  necessary  for  the  auditor  to  take  particular  notice  that  there  has 
been  no  opportunity  to  charge  purchases  for  employes  to  merchandise  or 

expense  accounts. 

Vouchers. The  auditor  should  call  for  vouchers,  not  only  for  every 

expenditure  entered  on  the  cash  book,  but  also  for  credits  and  allowances 
entered  on  the  journal,  the  latter  being  fruitful  ground  for  entries  made  to 
cover  defalcations.     There  should  also  be  vouchers  for  deductions  from  the 

216 


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American    Business  and  Accounting   Encyclopedia  Au 


amounts  of  customers'  bills  for  freight,  discount,  etc.  In  a  well  ordered 
office  such  deductions  are  always  O.  K.'d  by  a  responsible  person  who 
guarantees  their  accuracy  to  the  auditor.  The  vouchers  should  be  turned 
over  to  the  auditor  in  order  of  date,  and  it  is  best  also  that  they  should  be 
in  numerical  order.  This,  however,  comes  under  the  head  of  improvements 
which  an  auditor  can  generally  suggest  in  his  report. 

Discount. Where   the   information   can  be   readily  ascertained    the 

auditor  will  allow  for  the  usual  cash  discounts  on  both  sales  and  purchases 
in  making  up  his  statements.  Trade  discounts  must  always  be  deducted, 
but  this  class  of  accounts  is  usually  posted  to  the  ledger  "net." 

Fraudulent  Error. — The  detection  of  irregularities  forms  a  large 
part  of  an  auditor's  duty,  and  he  must  always  be  on  the  watch  for  "clues" 
which  may  lead  to  discoveries. 

Customers'  Accounts. — In  cases  of  suspected  embezzlement  of  collec- 
tions, statements  should  be  mailed  to  all  customers  with  a  request  that 
they  verify  the  balance  shown  as  owing. 

Arbitrary  Entries. — One  of  the  most  trying  conditions  encountered 
by  the  auditor  is  when  transfers  are  made  from  one  account  to  another 
without  originating  from  any  book  of  original  entry  or  when  simple  post- 
ings are  made  in  the  same  manner.  Such  entries  must  necessarily  cause  a 
large  amount  of  trouble  and  the  auditor  will  know  how  to  deal  with  them 
in  his  report.  The  proprietor  of  a  business  should  promptly  deal  with  such 
matters,  as  it  is  he  who  pays  the  bill. 

Location  of  Errors. — The  detection  of  irregularities  in  books  of 
account  forms  a  large  part  of  the  duties  of  the  auditor  and  accountant,  the 
auditor  exclusively  employed  by  a  large  corporation,  or  the  independent 
public  accountant. 

One  of  the  peculiarities  of  accounting  in  the  United  States  commercial 
houses  is  that  they  prefer  to  have  their  books  made  of  a  paper  on  which 
erasures  can  easily  be  made  without  detection.  Any  sign  of  erasures,  there- 
for, should  be  considered  with  suspicion,  and  the  entries  carefully  followed 
up  and  checked  back. 

The  transfer  of  footings  from  page  to  page  should  also  be  carefully 
watched,  as  this  is  a  frequent  hiding  place  for  peculations.  It  is  a  very 
common  trick  with  fraudulent  book-keepers  or  cashiers  to  bring  footing 
^  forward  accurately  in  the  first  place  until  the  cash  book  has  been  scrutin- 
ized by  the  proprietor.  After  he  has  found  everything  all  right,  he  is  not 
likely  to  look  at  those  particular  entries  or  that  particular  page  again,  and 
the  footings  brought  forward  can,  therefore,  be  safely  reduced  on  the  receipt 
side  or  increased  on  the  payment  side. 

Vouchers  should  be  demanded  for  all  payments  entered  in  cash  book  or 
petty  cash  book,  and  also  for  all  journal  credits  to  customers,  etc.,  such 
vouchers  to  be  properly  O.  K.'d  by  some  responsible  official  who  at  the 
time  was  cognizant  of  the  transaction.  Six  months  hence  no  person  in  the 
business  will  be  able  to  recollect  why  certain  payments  were  made  if  no 


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receipts  can  be  found  for  same,  or  no  authorized  vouchers.  A  system  of 
vouchers  for  journal  credits  should  always  be  instituted  for  the  reason  that 
receipts  may  be  diverted  into  the  book-keeper's  pocket  and  entered  in  the 
journal  as  a  credit  for  goods  returned,  or  for  all  allowances,  or  something  of 
that  kind.  An  embezzlement  is  more  frequently  connected  with  a  clever 
manipulation  of  merchandise  account  than  with  anything  else. 

Deductions  from  remittances  on  account  of  freight,  expressage  or  dis- 
count are  frequently  taken  advantage  of,  the  amounts  of  said  deductions 
being  increased  and  the  amount  of  the  remittance  decreased.  These  petty 
frauds  are  extremely  difficult  to  locate,  and  can  only  be  checked  up  by  filing 
remittance  letters  as  vouchers  in  order  of  date,  so  that  even  if  all  such 
letters  are  not  compared  with  the  entries  a  judicious  selection  can  be  made 
which  will  probably  determine  the  fact  as  to  whether  the  entries  are 
correct. 

Another  favorable  location  for  embezzlement  is  in  the  pay  roll  of  a 
large  manufacturing  concern,  unless  proper  precautions  and  safeguards  are 
adopted.  It  will  be  found  quite  possible  to  overcharge  the  wages  earned 
by  workmen  who  are  in  collusion  with  the  superintendent,  to  insert 
"dummy"  names,  or  for  the  cashier  himself  to  foot  up  the  pay  roll  suffi- 
ciently incorrect  to  give  him  a  "rake-off"  when  he  enters  the  wages  paid  in 
the  cash  book.  The  proper  method  of  preventing  defalcations  of  this  kind  is 
to  have  a  complete  system  of  record  from  the  time  the  workman  enters  the 
factory  until  he  leaves ;  an  automatic  machine  to  register  his  arrival ;  a  job 
record  book  in  which  a  clerk  will  register  the  work  he  is  engaged  on ;  a  cost 
ticket  on  which  the  workman  will  enter  time  occupied  and  material  used  on 
each  job;  cost  summary  from  which  another  clerk  will  make  up  the  total 
labor  from  the  cost  cards  and  the  amount  due  each  workman ;  a  pay  roll 
book  to  be  kept  by  another  clerk  which  shall  bring  the  labor  of  the  different 
jobs'together  for  each  man,  and  will  show  the  amount  due  him,  the  amount 
which  may  have  been  advanced  him,  and  the  balance  due  on  pay  day.  A 
form  of  receipt  should  then  be  issued  to  each  workman  showing  the  amount 
he  is  to  receive,  and  on  his  presenting  this  form,  duly  signed,  at  the  cash- 
ier's desk,  he  will  be  paid. 

There  may  also  be  irregularities  in  making  deposits  in  the  bank,  outside 
of  such  irregularities  as  taking  a  few  hundred  dollars  in  currency  to  deposit 
and  taking  the  train  for  Canada  instead.  Cases  have  been  known  in  which 
deposits  have  been  short  for  quite  a  lengthy  period  of  time,  the  amount  in 
the  bank  pass-book  being  made  to  agree  with  the  amount  shown  on  the 
books  of  account  by  omitting  one  or  two  entries  toward  the  close  of  the 
month  when  the  balance  is  taken.  The  only  way  to  detect  such  intentional 
mistakes  is,  of  course,  to  carefully  compare  the  payments  as  per  cash  book, 
or  check  stub,  with  the  payments  entered  in  the  cash  book  and  to  check  the 
balance  of  cash  on  hand  and  at  bank  as  shown  by  the  cash  book  with  the 
actual  cash  on  hand  at  unexpected  intervals,  afterward   depositing  the 

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whole  amount  on  hand  in  the  bank  so  that  there  will  be  an  accurate  basis 
for  further  investigation  if  found  desirable. 

Another  method  of  embezzlement  often  employed  is  by  paying  invoices 
of  goods  purchased  twice.  This  can  easily  be  prevented  by  a  good  voucher 
system  by  which  the  bills  to  be  paid  are  all  attached  to  the  voucher,  and 
each  bill  is  stamped  by  the  officer  who  O.  K.'d  them  as  he  reviews  them. 
These  bills  cannot  then  be  brought  before  him  again  because  of  the  indorse- 
ment upon  them,  and  in  case  a  duplicate  bill  should  be  presented  it  would 
be  the  officer's  duty  to  carefully  investigate  the  matter  before  sanctioning 
its  payment. 

Every  invoice,  also,  before  being  presented  for  O.  K.  to  the  treasurer, 
should  bear  the  O.  K.  of  the  shipping  clerk,  as  being  received  in  good  order; 
of  the  superintendent  (if  it  is  a  factory)  ;  or  of  the  department  manager 
(if  it  is  a  business  divided  into  departments)  ;  of  the  purchasing  agent  in 
regard  to  price ;  and  of  the  book-keeper  so  far  as  accuracy  of  computation 
is  concerned. 

The  misappropriation  of  cash  sales  occurs  very  frequently  in  business 
houses  where  strict  and  proper  methods  of  precaution  are  not  used.  The 
salesman  may  pocket  the  cash  sale  when  receiving  the  money  from  the 
customer,  or  the  cashier  may  pocket  it  on  receiving  the  money  from  the 
salesman.  The  best  method  of  protecting  the  merchant  from  this  class  of 
fraud  is  to  use  triplicate  cash  sales  tickets,  and  to  advertise  to  every  cus- 
tomer that  a  receipt  is  given  for  every  sale.  This  practically  compels  the 
salesman  to  make  out  a  ticket  for  the  customer.  The  salesman  retains  one 
of  the  carbons  and  hands  the  other  to  the  cashier  with  the  money.  In  case 
of  an  investigation  the  salesman's  tickets  and  the  cashier's  tickets  are  com- 
pared. Both  sets  of  tickets  should  be  numbered  and  filed  away  consecu- 
tively. 

The  best  method  to  prevent  defalcations  in  the  keeping  of  petty  cash 
is  to  have  that  duty  performed  by  an  assistant  cashier,  providing  him  with 
a  separate  book  with  which  to  enter  his  transactions.  A  check  should  be 
drawn  to  his  order,  which  he  will  enter  in  the  petty  cash  book  as  a  receipt. 
At  certain  intervals  he  will  account  for  all  moneys  expended  to  someone 
appointed  to  receive  his  report,  and  on  this  account  being  O.  K.'d  he  will 
receive  a  check  for  the  amount  of  his  expenditures  which  will  make  the 
amount  of  cash  in  his  hand  equal  to  the  amount  originally  given  him.  In 
the  general  ledger  an  account  will  be  opened  with  the  petty  cashier,  charg- 
ing him  with  all  checks  for  which  he  is  responsible,  and  crediting  him  with 
the  amount  of  his  expenditures,  the  difference  showing  each  month  the 
balance  he  has  on  hand. 

There  are,  of  course,  a  number  of  other  methods  of  making  intentional 
errors  for  the  purpose  of  concealing  fraud,  but  it  is  impossible  to  attempt  to 
describe  them  all,  and  the  foregoing  may  be  considered  interesting  examples 
which  may  be  useful  reading  to  anyone  whose  duty  it  is  to  supervise  or 
check  up  the  work  of  others. 


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The  responsibility  of  the  auditor  for  errors  or  defalcations  unlocated 
has  been  a  matter  of  considerable  discussion,  but  the  general  conclusion 
appears  to  be  that  he  is  not  bound  to  do  more  than  exercise  reasonable  care 
and  skill.  He  does  not  guarantee  that  the  books  correctly  show  the  position 
of  a  company's  affairs,  but  he  does  guarantee  that  his  investigation  has 
been  perfect  to  the  best  of  his  abiltiy  and  that  his  findings  have  been  arrived 
at  in  the  most  careful  and  bona  fide  manner  possible. 

The  Valuation  of  Assets  on  the  Balance  Sheet. — ^The  responsi- 
l)ility  of  the  auditor  for  the  values  set  down  in  a  statement  of  assets  and 
liabilities  has  not  yet  been  defined  in  this  country,  and  the  auditor  will 
as  a  rule,  take  the  values  as  he  find  them,  incorporating  in  his  report  such 
criticism  and  recommendations  in  regard  to  same  as  he  may  think  best. 
This  refers  exclusively  to  an  audit  performed  for  the  purpose  of  verifying 
the  accuracy  of  books  of  account.  Where  an  examination  is  made  for 
intending  purchasers  of  a  business  all  values  must  be  analyzed  in  detail, 
and  only  what  are  considered  to  be  actual  current  values  accepted  of  assets 
known  to  exist  as  represented. 

Depreciation. — It  is  the  auditor's  duty  to  see  that  proper  provision 
is  made  for  the  depreciation  of  fixed  assets,  and  that  bad  debts  are  elimin- 
ated from  the  statement  of  assets.  Whether  he  will  establish  a  reserve  for 
bad  and  doubtful  debts  will  depend  upon  the  general  conditions  of  the 
case. 

Charges  for  repairs  should  be  carefully  watched ;  as  it  is  quite  usual 
for  merchants  to  treat  them  as  capital  expenditures  instead  of  as  a  charge 
to  revenue  for  maintaining  present  values. 

This  subject  will  be  considered  at  length  under  its  proper  heading. 

Verification  of  Profits. — ^There  has  been  considerable  discussion  as 
to  the  scope  of  an  accountant's  work  when  engaged  to  verify  the  profits 
of  a  business,  some  maintaining  that  it  does  not  include  an  examination  as 
to  the  accuracy  of  the  books  of  account  from  which  the  profits  are  deter- 
mined. 

The  only  way,  however,  to  verify  a  statement  of  profits  made  is  to  de- 
termine the  truth  of  the  figures  from  which  such  a  statement  is  compiled, 
i.  e.,  those  figures  which  affect  the  trading,  and  profit  and  loss  accounts. 

With  regard  to  this  important  subject,  which  hinges  so  much  upon 
the  value  of  certain  supposed  assets  which  go  to  make  up  the  alleged 
surplus  shown  by  the  books,  such  as  accounts  receivable  (either  trade  or 
loans),  etc.,  it  may  be  well  to  quote  the  following: 

"It  is  no  part  of  an  auditor's  duty  to  give  advice,  either  to  directors 
or  to  shareholders,  as  to  what  they  ought  to  do.  An  auditor  has  nothing 
to  do  with  the  prudence  or  imprudence  of  making  loans  with  or  without 
security.  It  is  nothing  to  him  whether  the  business  of  a  company  is  being 
conducted  prudently  or  imprudently,  profitably  or  unprofitably.  It  is 
nothing  to  him  whether  dividends  are  properly  or  improperly  declared, 
provided  he  discharges  his  own  duty  to  the  shareholders.     His  business  is 

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to  ascertain  and  state  the  true  financial  position  of  the  company  at  the  time 
of  the  audit,  and  his  duty  is  confined  to  that.  But  then  comes  the  question : 
How  is  he  to  ascertain  that  position?  The  answer  is,  by  examining  the 
books  of  the  company.  But  he  does  not  discharge  his  duty  by  doing  this 
without  inquiry  and  without  taking  any  trouble  to  see  that  the  books  them- 
selves show  the  company's  true  position.  He  must  take  reasonable  care 
to  ascertain  that  they  do  so.  Unless  he  does  this,  his  audit  is  worse  than 
an  idle  farce.  Assuming  the  books  to  be  so  kept  as  to  show  the  true 
position  of  the  company,  the  auditor  has  to  frame  a  balance  sheet  showing 
that  position  according  to  the  books,  and  to  certify  that  the  balance  sheet 
presented  is  correct  in  that  sense.  But  his  first  duty  is  to  examine  the 
books,  not  merely  for  the  purpose  of  ascertaining  what  they  do  show,  but 
also  for  the  purpose  of  satisfying  himself  that  they  show  the  true  financial 
position  of  the  company." 

Unearned  Profits. — It  is  a  part  of  the  auditor's  duty  to  see  that  no 
unearned  profits  on  uncompleted  work,  or  on  sales  booked  for  future 
delivery  are  included  in  the  period  covered  by  the  audit.  One  method  of 
treating  uncompleted  work  is  to  include  the  credit  for  a  completed  contract 
— for  instance — and  to  open  an  account  entitled  "reserve  for  unfinished 
contracts,"  and  charge  to  this  account  the  estimated  cost  to  complete. 
This  applies  only  to  contracts  in  an  advanced  stage. 

Condensed  Auditing  System. — \'erify  the  cash  balance  at  date  of 
commencement  of  audit  with  balances  found  in  ledgers.  On  suitably 
ruled  paper  open  accounts  with  all  general  ledger  accounts  and  adjustment 
accounts  with  customers  and  purchase  ledgers.  Post  up  these  accounts 
from  cash  book  and  cross  entry  journal,  and  post  totals  from  purchase 
sales  and  credit  journals  to  their  respective  representative  accounts.  Where 
the  books  are  well  kept  and  separate  columns  used  for  the  different  ledgers 
and  for  heavy  posting  accounts  (such  as  cash  sales,  cash  purchases,  ex- 


SUMMAfiY    OF  ABSTRACT  LEDGER 


NAMES     or     ACCOUNTS 


Copito 

Accounts  Poyabl* 

Bill«  Payable 

C««h  onNand  'tat  -OanK 

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&.  Heirpi* 

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R«a  I  tst<it« 

Good  vvil  I 

Hdrscs*  Wagen«.  Etc 

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M<ts«   I 

Pay  Roll 

In  t  ereat 

O  ■■%  count 

E  M  p«  n  6C 


Tot-io 


BAL.ANCE.S 

July    i*^     ia*e 


D«bi<s 


IS 


79 


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cs 


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Total  Journal     . 


u 


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3  Its 


04 


PosTiNbi  roR    sno'J 


Debits 


7    * 


97 

17 
13 
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Crcd.ii 


24   Total  Ca«h  Ceedit& 


B  A  I.  A  NCC 
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39 
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9 
7 


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Journal 
Ca%h  Bo:    S«pt  3o^a. 


221 


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American  Business  and  Accounting  Encyclopedia 


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penses,  etc.)  this  work  is  extremely  simple,  and  easy  to  perform  with  speed 
and  accuracy. 

In  a  case  of  very  old-fashioned  book-keeping,  where  everything  is 
jumbled  up  in  one  column  on  the  books  of  original  entry,  it  is  a  more,  diffi- 
cult process,  and  necessitates  great  care. 

After  completing  this  auditor's  ledger,  or  abstract,  draw  off  the  bal- 
ances from  same  arid  compare  with  the  balances  shown  on  the  book- 
keeper's trial  balance.  Locate /the  source  of  every  difference  and  note  all 
errors  found,  such  as  personal  accounts  charged  to  non-posting  column, 
etc.,  accompanying  same  with  entries  necessary  to  correct.  The  customers' 
ledger  balance  accounts  will  agree  total  sales  and  other  ledger  debits  with 
sales  and  cross  entry  journal,  total  cash  and  other  ledger  credits  with 
cash  book  and  credit  journal,  and  the  resulting  balances  will  agree  with 
the  total  of  the  ledger  balances  as  per  trial  balance.  The  purchase  ledger 
balances  will  be  checked  in  the  same  manner. 

To  obtain  this  comparison,  on  a  sheet  of  suitably  ruled  paper  write  out 
the  following  data: 

From  the  trial  balance  at  commencement  of  audit  the  debit  and  credit 
balances,  taking  sales  and  purchase  accounts  in  totals.  From  the  auditor's 
abstract  ledger  in  adjoining  columns,  the  total  debit  and  credit  postings  ior 
the  period  audited.  In  columns  next  adjoining  draw  off  new  trial  balance 
and  agree  with  that  of  the  book-keeper. 

To  the  total  credit  add  cash  on  hand  at  close  of  books.  To  the  debits 
add  cash  on  hand  at  commencement  of  audit.  The  debits  and  credits  will 
then  agree.  Compare  with  total  debits  and  credits  from  cash  and  journals. 
This  will  catch  errors  of  footings,  simple  or  counterbalancing. 

.  Close  out  accounts  to  profit  and  loss,  and  draw  up  statement  of  assets 
and  liabilities.  Check  footings  of  all  columns  of  cash  book  and  journals 
the  totals  of  which  were  taken  into  the  abstract.  Check  footings  of  pay 
roll  and  compare  with  cash  book.  Check  footings  of  petty  cash  book. 
Check  bills  receivable  book  with  bills  receivable  account,  and  verify  inven- 
tory of  bills  on  hand.  Check  bills  payable  book  with  bills  payable  account. 
Have  bank  books  balanced  at  bank,  and  verify  balance  on  hand  at  close  ot 
books  after  listing  all  unpaid  checks.  Check  vouchers  for  all  payments 
by  cash  or  check,  and  makt  a  list  of  vouchers  not  produced.  Some  auditors 
consider  the  checks  themselves  as  sufficient  vouchers  for  payments  through 
bank.  Call  for  vouchers  for  journal  credits  and  allowances.  Prepare  report 
and  necessary  financial  statements. 

Whenever  possible  the  auditor  should  endeavor  to  satisfy  himself  that 
all  receipts  have  been  entered  in  the  cash  book,  but  it  is  rare  to  find  a 
business  house  possessing  a  record  which  can  be  satisfactorily  checked  or 
that  will  take  the  trouble  to  keep  such  a  record.  Should  it  fall  within  the 
duty  of  the  auditor  to  balance  the  books,  this  is  best  accomplished  by 
making  each  ledger  self-proving  by  means  of  adjustment  accounts. 

Corporation  Auditing. — The  audit  of  the  books  of  a  corporation 


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involves  the  examination  and  verification  of  capital,  debenture,  and  divi- 
dend accounts.  To  accomplish  this,  the  company's  minutes  must  be  per- 
used and  their  effect  noted,  and  a  report  made  of  any  variations  therefrom. 
The  corporation  laws  of  the  United  States  do  not,  however,  prescribe 
the  method  of  dealing  with  these  accounts,  and  the  auditor  will  therefore 
use  his  judgment  in  regard  to  what  he  finds. 

(177)     AUDITOR. 

An  auditor  may  be  described  as  a  person  whose  duty  it  is  to  examine 
the  accounts  of  a  company,  firm  or  person,  so  as  to  ascertain  the  exact 
state  of  affairs  financially  at  a  given  moment.  This  involves  not  only  a 
scrutiny  of  the  figures,  but  also  an  examination  of  the  form  and  substance 
of  the  accounts,  in  order  to  see  that  they  truly  represent  the  state  of 
affairs  purporting  to  be  represented  by  them.  The  position  of  an  auditor, 
his  rights,  and  liabilities,  depend  very  much  upon  the  circumstances  under 
which,  and  for  the  purpose  of  which,  he  is  appointed. 

Qualifications.— Dicksee  says:  "First,  it  is  very  generally  con- 
ceded that  an  exhaustive  knowledge  of  every  department  of  book-keeping 
is  the  very  'A  B  C  of  the  auditor's  art. 

"Second  in  importance,  probably,  is  a  thorough  acquaintance  with 
various  statutes  regulating  the  different  undertakings  in  which  the  auditor 
may  be  concerned. 

"Thirdly,  although  this  point  has  been  bitterly  contested  by  some,  a 
sufficient  knowledge,  not  only,  of  business  generally,  but  of  the  especial 
way  in  which  various  particular  businesses  are  conducted.  In  his  presi- 
dential address  at  the  first  provincial  meeting  of  the  Institute  of  Chartered 
Accountants,  Mr.  Frederick  Whiimey,  F.  C.  A.,  clearly  advocated  the  doc- 
trine when  he  said:  'No  accountant  can  successfully  carry  on  his  practice 
in  all  the  above  mentioned  branches  unless  he  is  a  person  of  cosiderable 
knowledge,  skill,  and  experience,  for  he  must  be  not  only  acquainted  with 
book-keeping,  which  is  to  him  as  the  alphabet  only  ;  but,  to  put  it  briefly, 
he  must  have  some  general  knowledge  of  various  trades  and  their  customs.* 

"Lastly,  but  not  least,  may  be  placed  those  desirable  qualifications  of 
the  auditor  which  are  not  acquired  by  careful  study,  but,  rather,  by  living. 
Tact,  caution,  firmness,  fairness,  good  temper,  courage,  integrity,  discre- 
tion, industry,  judgment,  patience,  clear-headedness,  and  reliability.  In 
short  all  those  qualities  that  go  to  make  a  good  business  man  contribute  to 
the  making  of  a  good  accountant;  while  that  judicious  and  liberal  edu- 
cation which  is  involved  in  the  single  word  'culture'  is  most  essential  for 
all  who  would  excel.  Accountancy  is  a  profession  calling  for  a  width  and 
variety  of  knowledge  to  which  no  man  has  yet  set  the  limit ;  the  foremost 
accountants  are  not  ashamed  to  say  that,  like  Epaminondas,  they  'learn 
something  in  addition  every  day' ;  let  us,  therefore,  see  no  shame  in  follow- 
ing their  example." 

Duties. — 1.    To  detect  error,  mismanagement  and  fraud. 

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0     To  verify  the  accuracy  of  books  of  account  examined  and  to  certify 
the  correctness  of  the  balance  sheet  submitted. 

3.  To  determine  the  intent  and  insure  a  nroner  comnhance  with  the 
terms  of  partnership  agreements,  etc. 

4.  To  prevent  illegal  declarations  of  dividends,  inflation  of  assets   or 

overissue  of  capital  stock,  etc.  , 

5.  To  satisfy  himself  as  to  the  existence  of  securities  included  in  the 

assets  scheduled  in  the  balance  sheet. 

6  To  obtain  and  inspect  vouchers  for  all  payments  made. 

7  To  call  attention  to  all  loose,  irregular  and  incompetent  methods 
emploved.  and  to  devise  forms  and  methods  which  will  P^^-^"^^[j;^'^f^^; 
inaccuracies  and  facilitate  the  prompt  detection  of  all  errors  which  may 

nevertheless  occur.  ,         .  , 

8  To  provide  the  proprietors  of  a  business,  as  far  as  possible,  with  a 
personal  check  upon  the  accuracy  and  honesty  of  their  employes. 

9  To  simplify  evervthing  that  is  complicated  and  difficult:  to  keep 
in'order  and  to  straighten  out  everything  that  has  become  confused  and 

^^"^la'  To  serve  always  the  interests  of  his  client  (and  thereby  his  own) 
to  the  best  of  his  ability. 

The  relation  of  an  auditor  to  those  who  employ  him  is  invariably  a 
confidential  one.    Just  as  the  physican  is  admitted  to  the  home,  and  shown 
the  phvsical  weaknesses  which  are  concealed  from  other  eyes,  so  is  the 
auditor'  admitted  to  the  inner  sanctum  of  the  business,  where  concealmen 
of  its  weaknesses  is  impossible.    The  physician  by  a  breach  of  the  trus 
reposed  in  him  could  bring  untold  distress  upon  the  family,  and  so  might 
the  auditor  by  a  similar  violation  of  confidence  bring  ruin  and  disaster  to 
his  clients     There  are  in  the  profession  a  number  of  men  of  strong  abilities 
and  splendid  knowledge  of  the  technical  work  of  auditing,  who  are  denied 
success  however,  bv  the  fact  that  they  have  at  some  time  in  their  career^ 
been  disloval  to  the  interests  of  those  who  employed  them.     A  case  has 
never  fallen  within  the  observation  of  the  writer,  where  an  auditor  has 
become  recreant  to  the  trust  reposed  in  him.  without  bringing  upon  himself 
professional  ruin.     It  is,  therefore,  best  that  the  auditor  at  the  beginning 
of  his  career  should  recognize  the  fact  that  nothing  but  the  most  uncom- 
promising honestv  should  distinguish  his  conduct  as  an  auditor.     It  is  a 
common  impression  that  the  auditor  is  a  developed  book-keeper  and  that 
an  apprenticeship  at  the  book-keeper's  desk  is  a  necessary  preparation  for 
an  auditor's  work.    It  is  hardly  possible  to  agree  with  those  who  share  this 
opinion      It  is  true,  the  auditor  must  have  a  thorough  knowledge  o    ac- 
counts   and  be  so  familiar  with  the  art  of  book-keeping  as  to  be  able  to 
understand  and  criticise  any  books  which  may  be  presented  for  inspection, 
but  the  duties  of  the  two  positions  are  very  dissimilar  and  it  is  quite  pos- 
sible that  a  man  mav  be  a  good  book-keeper  who  would  not  succeed  as  an 
auditor,  while  on  the  contrary  a  successful  auditor  might  make  a  very  poor 

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book-keeper.    The  book-keeper  should  be  a  methodical  man,  whose  every 
effort  should  be  put  forth  to  systematize  his  work  and  confine  it  within 
certain  well-defined  lines.     The  auditor,  on  the  other  hand,  must  guard 
himself  against  becoming  too  methodical  or  he  will  find  himself  trying  to 
perform  all  his  work  in  the  same  way,  which  will  certainly  defeat  his  suc- 
cess.    As  stated  in  the  beginning,  each  piece  of  work  undertaken  is  sur- 
rounded by  its  own  peculiar  circumstances,  and  this  fact  makes  it  impos- 
sible to  prescribe  set  rules,  to  be  followed  in  each  and  every  piece  of  work. 
The  object  or  purpose  for  which  the  audit  is  undertaken  wields  a  directing 
influence  in  determining  the  manner  in  which  the  work  shall  be  done.    If 
the  object  of  the  audit  be  to  ascertain  the  accuracy  with  which  a  book- 
keeper is  discharging  his  duties,  a  very  different  procedure  will  be  neces- 
sary from  that  to  be  taken  in  the  case  of  a  confirmation  of  a  statement  of 
resources  and  liabilities,  where  the  honesty  of  the  book-keeper  is  not  in 
question.  So  also  would  a  different  course  of  procedure  be  necessary  in  legal 
investigations,   where   but   one   feature   of   the   business   may   be   of   im- 
portance.    It  is  the  duty  of  the  auditor,  where  employed  to  audit  the 
accounts  of  a  going  concern,  to  report  to  those  who  employ  him  every 
material  fact  in  connection  with  their  business  which  he  has  reason  to 
•  believe  that  they  do  not  already  know.     It  is  his  further  duty  to  suggest 
improvements  in  the  forms  or  systems  of  books  in  use,  when  he  can  ad- 
vance a  good  reason  for  the  adoption  of  such  suggestions.     The  auditor 
should  never  be  afraid  of  giving  more  than  he  is  paid  for.    He  will  find  that 
those  who  employ  him  believe  that  they  are  paying  for  all  his  talents,  and 
that  they  have  a  right  to  all  of  the  knowledge  of  their  affairs  which  be- 
comes apparent  to  him  from  his  investigation.  The  auditor  will  find  it  profit- 
able to  have  his  clients  feel  that  they  have  received  a  little  more  than  they 
expected  from  his  employment,  and  as  a  general  policy  in  every  line  of 
business  it  is  best  to  give  full  measure.    The  auditor  who  shall  fail  to  do 
this  may  be  compared  to  a  physician  who  is  called  to  lance  a  boil  and  does 
so  without  mentioning  the  presence  of  an  incipient  cancer  which  is  appar- 
ent to  his  professional  eye.    It  is  difficult  to  attempt  to  set  forth  his  duties 
in  the  actual  work,  for  the  reason  that  each  auditor  determines  this  for  him- 
self, and  may  in  perfect  good  faith  entirely  disagree  with  the  policy  that 
might  be  mapped  out  by  another  auditor.     As  before  stated,  the  circum- 
stances of  each  case  will  determine  the  auditor's  duty  in  relation  thereto, 
so  that  no  set  rules  can  be  prescribed. 

Attitude  of  the  Auditor.— The  auditor  to  a  firm  is  usually  appointed 
by  the  mutual  agreement  of  the  partners,  but,  occasionally,  by  the  articles 
of  partnership  themselves,  or  by  one  particular  partner.  If  appointed 
auditor  to  the  firm,  he  must,  however,  in  either  case,  consider  each  partner 
as  his  client,  and  protect  the  interests  of  each  accordingly.  The  same  con- 
ditions as  to  terms  of  agreement,  responsibility,  fees,  and  resignation, 
obtain  as  to  the  auditorship  of  firms  as  mentioned  in  the  previous  para- 
graph ;  but  it  would  seem  that  any  one  partner  would  have  power  to  bind 


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the  firm  as  to  the  amount  of  the  fees— except,  perhaps,  where  the  appoint- 
ment lay  in  the  hands  of  one  partner,  when  the  consent  of  such  partner 
would  probably  be  required.  Probably  no  one  partner  could  discharge  an 
auditor  without  the  consent  of  all  his  co-partners. 

To  a  great  extent  it  rests  with  the  directors  to  decide  how  much  in- 
formation shall  be  supplied  in  the  published  accounts ;  but  the  auditor  must 
not  lose  sight  of  his  individual  responsibility,  and  he  should  never  certify 
a  balance  sheet  to  be  ''full"  merely  because  he  considers  it  to  be  as  "full" 
as  he  may  think  it  expedient  for  it  to  be.  Rather  let  him,  in  such  a  case, 
certify  the  balance  sheet,  "in  his  opinion  to  be  a  fair  balance  sheet,  and  to 
sufficiently  disclose  the  financial  position  of  the  company."  On  the  other 
hand,  he  should  be  particularly  careful  to  guard  against  juggling  with 
words,  and  so  appearing  to  give  a  full  certificate,  when  in  reality  he  is 
"making  himself  safe,"  or  "hedging"  behind  a  certificate  which,  when  care- 
fully analyzed  (and  only  then)  is  found  to  be  most  qualified.  He  must, 
in  every  case,  be  satisfied  in  his  own  mind  that  the  accounts  are  correct, 
and  fairly  stated. 

Attitude  of  Proprietors  of  Business. — An  accountant  says:  "Com- 
panies' audits  are  curious  things.  Some  secretaries  and  managers  think 
the  audit  ought  to  be  as  they  think  fit— that  is,  they  arid  not  you  should 
say  what  ought  to  be  gone  through.  In  this  case  I  strongly  recommend 
the  auditor  to  go  through  first  what  is  offered,  and  afterwards  to  whatever 
he  wants.  Never  be  put  off  by  anything  material.  If  seriously  blocked 
at  any  stage  or  thwarted  in  any  way,  look  out  and  pay  more  particular 
attention  to  this  part  of  the  audit  than  any  other."  The  proprietors  of  a 
business  where  the  books  are  being  audited  are,  however,  pleasant  as  a 
rule,  especially  if  the  work  is  being  done  "on  contract" — that  is,  at  a  speci- 
fied sum  for  the  job.  If,  however,  the  work  is  being  done  at  so  much  per 
diem,  some  proprietors  have  an  unpleasant  habit  of  sneaking  around  the 
auditor  every  ten  minutes  and  surveying  his  work  with  manifest  im- 
patience and  displeasure,  after  a  while  asking  him  how  much  longer  he 
thinks   the  audit   is   going  to   take,   and   otherwise   generally   upsetting   his 

equanimity. 

Some  proprietors  are  quick  to  take  advantage  of  any  hints  thrown  out 
by  the  accountant  in  regard  to  shorter  and  better  methods  which  might  be 
improved,  and  promptly  give  such  suggestions  a  trial.  Others,  strange  to 
say,  resent  these  suggestions,  although  they  actually  pay  the  accountants 
to  make  them.  Instances  have  been  known  when  very  trying  abuses, 
which  greatly  hindered  the  accountant  in  his  work,  and  thereby  made  the 
audit  more  expensive  for  the  merchant,  were  left  uninterfered  with  year 
after  year,  in  spite  of  recommendations  for  their  removal  made  in  each 
semi-annual  report. 

Attitude  of  the  Book-keeper. — In  the  performance  of  his  duties  the 
public  accountant  must  of  necessity  come  into  contact  with  all  kinds  and 
varieties  of  persons,  and  it  naturally  follows  that  some  of  his  experiences 

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are  amusing,  and  some  exasperating.  The  demeanor  of  the  book-keeper 
to  the  public  accountant  is  of  itself  an  entertaining  study.  Some  book- 
keepers maintain  an  impressive  and  haughty  dignity  with  a  view  to  im- 
pressing upon  the  accountant  the  fact  that  he,  the  book-keeper,  considers 
himself  not  only  as  good  as  the  accountant,  but  a  great  deal  better,  and 
that  if  he,  the  book-keeper,  must  suffer  the  outrage  of  the  accountant's 
contiguity,  he  does  it  under  protest.  Some  book-keepers,  on  the  other 
hand,  are  extremely  agreeable,  and  even  endeavor  to  be  as  "chummy"  as 
possible  with  the  accountant,  as  by  this  method  they  expect  to  touch  the 
soft  spot  which  can  always  be  found  in  the  heart  of  a  human  being,  and 
thus  obtain  a  favorable  report  in  regard  to  their  abilities  and  the  way  in 
which  the  work  has  been  performed. 

Some  book-keepers  are  morose,  savage,  and  act  as  though  the  exam- 
ination conducted  by  the  accountant  was  an  insufferable  insult  which 
could  never  be  forgiven.  The  accountant  generally  manages  in  some 
way  to  help  improve  the  prospects  of  such  a  book-keeper  as  a  return  for 
his  amiability. 

Auditors'  Assistants. — Reliability  is  the  first  requisite  in  an  auditor's 
assistant,  and  those  who  wish  to  do  well  in  this  profession  must,  above  all 
things,  obtain  a  reputation  for  being  tenacious  of  the  secrets  of  their 
business.  The  accountant's  assistant  should  be  careful  not  to  accept  the 
friendly  advances  of  the  employers'  book-"keeper  or  other  clerks  with 
whom  he  may  have  to  do,  as  in  case  condemnatory  reports  have  to  be 
made,  he  may  otherwise  find  himself  in  an  uncomfortable  position.  Owing 
to  the  difficulty  in  obtaining  experienced  assistants  in  this  country,  the 
public  accountant  is  frequently  compelled  to  suffer  many  annoying  experi- 
ences. One  difficulty  which  appears  to  be  almost  omnipresent  is  getting 
the  detail  work  of  an  audit  done  in  such  a  neat  and  orderly  manner  that, 
should  the  assistant  die  in  the  midst  of  an  audit,  or  suffer  any  other  cal- 
amity whereby  he  may  be  prevented  from  completing  the  work,  someone 
else  may  take  it  up  at  the  point  of  breakage  and  intelligently  complete  it, 
without  having  to  do  all  the  work  over  again.  The  average  assistant, 
when  he  comes  to  any  difficulty,  will  generally  make  a  note  on  some  small 
slip  of  paper,  with  an  intention  of  referring  to  it  at  some  time  hereafter. 
He  also  generally  carries  these  small  slips  around  with  him  in  his  pockets. 
When  he  quits  the,  work  it  never  occurs  to  him  that  the  contents  of  these 
slips  will  be  unknown  to  his  successor,  and  if  that  successor  takes  up  the 
work  where  "number  one"  left  off,  and  carries  it  out  until  its  completion, 
he  will  consequently  find  himself  involved  in  an  almost  inextricable  tangle, 
the  straightening  out  of  which  will  be  extremely  annoying  and  expensive. 

Another  curious  trait  of  accountants'  assistants  is  that  a  great  many 
of  them  cannot  on  any  account  be  persuaded,  induced  or  cajoled  into 
obeying  instructions,  and  this  is  frequently  true  of  really  good  men.  You 
may  order  them  to  follow  certain  lines  in  their  work  and  to  adopt  certain 
methods,  but  in  the  end  it  is  usually  found  that  they  have  done  the  work 

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in  some  other  way  (their  own  way),  which  they  describe  to  you  as  having 
been  found  by  them  to  be  much  simpler  and  speedier  in  this  particular 

case. 

(178)     AUDITORS'  CERTIFICATES. 

Many  forms  of  certificates  have  been  used  by  auditors,  and  we  attach 
some  of  the  best  known.  It  should  be  borne  in  mind  that  the  auditor  is 
not  required  to  make  himself  responsible  for  errors  or  defalcations  which 
have  escaped  his  notice  after  a  faithful  and  conscientious  examination. 

Forms  and  Certificates.— "I  hereby  certify  that  I  have  carefully  ex- 
amined the  books  of  account  of  James  Reid  &  Co.  with  the  vouchers  pro- 
duced, and  that  the  above  balance  sheet  (or  statement  of  assets  and  lia- 
bilities) is  a  true  and  correct  statement  of  the  present  condition  of  the 
business  as  on  the  31st  day  of  December,  1899,  as  disclosed  by  said  books 
of  account. 

Dated  this  8th  day  of  January,  1901. 

(Signature.) 


Certified  Public  Accountant." 

"I  have  audited  the  above  balance  sheet   (or  the  company's  balance 

sheet,  dated  the   day  of  ),  and  in  my  opinion 

such  balance  sheet  is  properly  drawn  up,  so  as  to  exhibit  a  true  and 
correct  view  of  the  state  of  the  company's  affairs  as  shown  by  the  books 
of  the  company." 

"We  hereby  certify  that  we  have  thoroughly  audited  these  accounts 
for  the  (year)  ended  (25th  :\Iarch)  last,  and  that  the  same  appear  to  be 
correct.  We  further  certify  that  the  above  balance  sheet  is,  in  accordance 
with  the  books,  and  appears  to  us  to  be  a  correct  statement  of  the  financial 
position  of  the  firm,  as  it  appeared  on  the  above  date." 

Auditor  (Permanent,  of  Corporations). — ^The  chief  accountant,  whose 
duty  consists  in  verifying  all  the  accounting  work  of  a  corporation,  and 
preparing  the  necessary  verified  statistical  statements  of  the  condition  of 
the  business.  These  officers  proceed  from  one  branch  to  another  checking 
the  work  in  detail.  They  are  also  responsible  for  the  suitability  of  the 
various  forms  used. 

The  duties  of  the  permanently  employed  auditor  of  a  corporation 
necessarily  differ  from  those  of  an  auditor  employed  from  the  ranks  of 
public  accountants.  The  former  is  the  company's  paid  servant,  and  has 
not  the  independence  or  opportunity  to  use  his  best  judgment  that  the 
public  accountant  claims  as  his  greatest  privilege  and  right.  The  paid  per- 
manent auditor  of  a  corporation  always  has  to  consider  whether  his  recom- 
mendations will  give  offense  or  not,  as,  if  they  are  objectionable  to  the  high 
officers  of  the  corporation,  he  may  lose  his  employment  as  a  consequence. 
This  consideration  must  at  all  times  relegate  the  permanent  auditor 
to  a  secondary  place  in  accounting,  ranking  him  barely  above  the  level 
of  the  ordinary  book-keeper,  and  a  description  of  the  methods  he  may 

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use  in  his  work  in  devising  systems  and  checking  the  accounts  of  work  of 
his  office  and  that  of  the  various  branches  connected  therewith,  does  not 
possess  any  greater  value  than  the  description  of  the  accounting  methods 
of  a  business  where  no  permanent  auditor  is  employed.  However,  for 
the  purpose  of  including  everything  of  interest,  we  quote  the  followmg 
description  of  the  duties  of  a  permanent  auditor  as  compiled  by  one  in  the 
profession : 

To  open  a  set  of  books  for  a  business  corporation  of  today  as  com- 
pared with  the  method  that  would  have  been  employed  some  twenty-five 
years  ago,  the  auditor  of  a  corporation  finds  himself  contronted  with 
many  difficulties,  occasioned  by  the  legislatures  of  the  different  states 
enacting  laws  permitting  the  organization  of  corporations  with  certain  lim- 
ited liabilitv  conditions.  As  a  result  of  these  varying  conditions  we  find 
that  stock  companies  do  not  all  open  their  books  alike  but  conform  entirely 
to  their  charter,  which  contains  the  fundamental  agreement  with  the  incor- 
porators themselves,  terms  of  agreement  of  association  with  the  share- 
holders indicating  the  character  and  extent  of  business  in  which  the  com- 
pany shall  engage,  taken  in  connection  with  the  laws  of  the  state  under 
which  the  incorporation  takes  place.  Consequently,  the  auditor  finds  the 
situation  of  some  of  the  larger  corporations  of  today  something  like  this: 

To  engage  in  new  enterprise  with  capital  stock  paid  in  full ;  or  part  of 
the  subscription  paid  in  cash  and  balance  in  instalments  under  various 
conditions ;  or  patentee  may  take  stock  for  patent,  balance  of  stockholders 
pay  in  cash,  etc.,  or  consolidation  of  many  companies  into  individual  cor- 
porations. 

The  new  company  purchases  all  of  the  real  estate,  plants  and  inventory 
of  materials  at  an  appraised  value,  paying  cash  to  the  sellers,  or  instead  of 
paying  cash  issue  paid  up  stock.  This  necessitates  the  old  companies  col- 
lecting their  accounts  and  paying  off  their  obligations,  they  settling  with 
their  stockholders  direct,  or  the  new  company  may  purchase  the  outstand- 
ing stock  of  the  old  companies,  in  which  case  the  old  companies  turn  over 
their  entire  property,  including  book  accounts,  real  estate,  plants  and 
materials ;  or  the  stock  of  the  old  companies  may  be  purchased  at  a  price 
based  upon  their  trial  balance  at  a  certain  losing  period,  receiving  a  guar- 
antee from  the  old  companies  that  at  the  expiration  of  a  certain  period  they 
will  make  good  all  unsettled  balances;  or  to  purchase  part  of  the  entire 
capital  stock  of  other  concerns,  the  latter  to  retain  their  corporate  exist- 
ence, in  which  case  the  new  company  would  control  the  officers  and  busi- 
ness affairs  of  the  old  companies,  taking  their  profits  after  regular  divi- 
dends have  been  declared,  which  profits  or  dividends  from  subsidiary  com- 
panies would  constitute  the  principal  earning  power  of  the  new  company. 

The  method  of  keeping  the  accounts  of  a  corporation  ten  years  ago 
was  simple  compared  with  modern  practice,  for  the  reason  that  certain 
legal  aspects  were  not  considered  at  that  time  while  now  a  majority  of  the 

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states  have  enacted  laws  limiting  the  powers  of  both  local  and  foreign  cor- 
porations. 

The  books  of  an  individual  corporation  of  today  are  opened  up  under 
legal  counsel  so  as  not  to  conflict  with  the  various  state  laws,  and  which 
legal  advice  governs  the  auditor  in  outlining  his  system  of  accounting. 
This  arises  from  the  fact  that  most  of  the  large  corporations  of  today  have 
plants  located  in  various  states,  are  transacting  business  in  every  state  in 
the  union  and  with  foreign  countries.  These  facts  decide  whether  the 
minor  companies  transact  business  as  individual  corporations  or  whether 
their  accounts  shall  be  a  part  oj  a  central  system. 

The  auditor  should  determine  what  results  it  will  be  necessary  for  him 
to  obtain;  whether  the  officials  desire  a  monthly  estimate  of  profits  and 
losses,  being  satisfied  to  wait  for  actual  inventories  upon  which  correct 
showing  can  be  ascertained,  which  may  be  either  semi-annually  or  annually, 
or  to  make  a  monthly  closing  for  ascertaining  profit  and  loss,  taking  book 
values  for  inventories,  which  inventories  can  be  adjusted  from  time  to  time 
as  fast  as  actual  count  can  be  had.  If  the  auditor  inaugurates  the  monthly 
closing  system,  the  officials  will  never  permit  him  to  change;  but  once 
started  on  a  semi-annual  or  annual  closing  with  estimate  of  monthly 
profits,  he  will  find  it  hard  to  convince  the  officials  of  the  benefits  of  more 
frequent  showings  if  he  desires  to  change. 

Assuming  that  the  method  of  arriving  at  monthly  profits  by  an  actual 
closing  of  the  books  is  preferable,  a  system  which  will  obtain  these  results 
should  be  arranged  upon  a  plan  likened  unto  a  wheel — the  hub  being  the 
central  office,  the  spokes  the  departments  or  district  offices,  and  the  rim  the 
organization.  The  first  thing  necessary  will  be  so  to  arrange  the  general 
ledger  in  the  central  office  as  to  receive  only  the  results  of  the  various 
departments  or  district  offices,  but  so  mapped  out  that  these  results  will 
arrive  as  early  after  the  first  of  each  month  as  is  possible,  and  that  all 
reports  giving  these  results  be  so  classified  that  every  detail  necessary  for 
sake  of  comparison  be  given.  The  general  ledger  should  only  contain  the 
representative  accounts  of  the  company,  in  addition  to  which  may  be  car- 
ried individual  accounts  of  such  nature  as  will  not  permit  of  their  being 
carried  in  the  sales  ledgers ;  also  an  account  with  each  accounts  receivable 
or  sales  ledger  as  is  used  in  the  accounts  receivable  department.  It  should 
be  arranged  that  all  reports  showing  results  be  so  complete  that  after  they 
have  been  entered  on  the  general  ledger  at  the  end  of  the  month,  the  trial 
balance  of  the  ledger  will  show  the  true  condition  of  the  company's  affairs. 

In  large  corporations  having  many  factories  or  branch  offices,  and 
especially  where  these  are  widely  separated  from  the  central  office,  it  is 
very  difficult  to  get  all  closing  entries  in  at  a  very  early  date  after  the  first 
of  the  month,  and  as  it  is  usually  the  fifteenth  of  the  succeeding  month,  the 
general  books  must  remain  open  longer  than  the  records  in  the  other  de- 
partments ;  therefore,  it  is  very  essential  that  some  method  be  employed  in 
the  construction  of  the  general  books  that  will  admit,  in  order  to  gain  time, 

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of  the  posting  of  the  current  business  without  interfering  with  the  work  of 
the  preceding  month.  After  the  general  books  have  been  carefully  classi- 
fied and  laid  out  to  receive  the  various  reports  from  the  departments  and 
district  offices,  special  attention  should  be  given  to  the  method  and  manner 
of  making  up  the  forms  of  reports  from  the  departments  or  district  offices 
to  dovetail  with  the  classification  of  the  general  books. 

Departments  can  be  divided  into  the  following  general  classifications, 
and  subdivided  into  as  many  departments  of  each  as  the  nature  of  the 
business  of  the  corporation  demands,  having  a  subdivision  of  each  main- 
tained in  the  district  offices,  if  desirable,  in  which  event  they  should  be  so 
arranged  that  their  reports  will  be  combined  in  the  original  department, 
which  should  be  maintained  in  the  central  office,  consequently  reference 
to  such  departments  at  the  central  office  will  give  all  of  the  information  of 
the  company  desired : 

General  Ledger  Division. 
Sales  Ledger  Division. 
Journal  Division. 
Invoice  Division. 
Claim  Division. 
Vouchers  Division. 
Cost  Division. 
Statistical  Division. 

The  accounts  receivable  or  sales  ledgers  should  contain  only  those 
accounts  which  represent  charges  covering  the  sales  of  the  company's 
products.  As  the  book-keepers  on  these  ledgers  should  do  nothing  but 
post  the  entries  to  these  accounts,  the  auditor  will  find  it  to  his  advantage 
to  so  arrange  the  division  that  each  book-keeper  may  receive  his  work 
entirely  independent  of  the  others,  so  that  he  will  not  be  compelled  to  post 
from  a  record  that  is  passed  along  from  one  book-keeper  to  another,  caus- 
ing an  industrious  book-keeper  to  wait  on  his  neighbor  who  is  behind  in 
his  work.  In  planning  this  division  it  will  be  found  that  bound  forms  can- 
not be  as  successfully  used  as  loose  ones.  After  the  book-keepers  have 
posted  the  entries  from  these  reports,  such  reports  should  be  turned  over  to 
the  division  keeping  bound  records  of  the  results  to  be  summarized.  In 
fact,  the  adoption  of  such  a  system  will  result  in  the  reduction  of  labor  to 
a  great  extent  over  the  methods  generally  employed  at  the  present  day.  It 
is  greatly  to  be  desired  that  a  trial  balance  of  the  accounts  receivable  or 
sales  ledgers  show  as  nearly  as  possible  the  true  condition  of  the  accounts 
receivable  at  all  times,  and  this  can  be  had  by  the  inauguration  of  a  claim 
division,  which  will  receive  all  of  the  unadjusted  balances  in  the  customers* 
accounts,  thereby  leaving  the  sales  ledger  accounts  in  a  clean  condition. 

The  journal  division  can  contain  all  of  the  journal  work  of  various 
natures  that  is  essential  to  the  business,  including  sales  records  of  all  kinds, 

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debit  and  credit  memoranda,  and  such  other  entries  as  affect  the  sales 

ledgers.  .    ,  rp,  • 

The  invoice  division  should  issue  all  invoices  ot  the  company,    i  his 
division  should  be  so  planned  that  quick  reference  can  be  had  to  all  of  its 

records.  .     ,,  vu 

In  large  corporations  the  settlements  of  accounts  receivable  carry  with 
them  a  great  many  deductions  of  various  natures,  and  in  addition  to  these 
deductions  claims  are  made  in  advance  of  the  remittances.  In  order  to 
facilitate  the  handling  of  all  such  deductions  it  is  necessary  to  establish  a 
claim  division,  which  will  handle  everything  of  a  claim  nature.  As  this 
division  is  a  part  of  the  accounting  department  they  will  keep  certain 
records  that  will  contain  all  the  business  that  is  left  in  their  hands  for  ad- 
justment and  which  must  balance  each  month  in  order  to  ascertain  that  all 
claims  are  accounted  for.  If  this  department  is  properly  equipped,  claims 
should  be  adjusted  promptly,  thereby  keeping  the  customers'  accounts  in 
a  healthy  condition  at  all  times. 

Accounts  payable  of  every  nature  should  be  handled  by  the  voucher 
system,  which  obviates  the  necessity  of  carrying  a  purchase  ledger  in  which 
are  kept  the  accounts  of  those  from  whom  purchases  are  made.  The  distri- 
bution of  vouchers  audited  account  at  the  end  of  the  month  should  be  made 
direct  to  the  different  factories  getting  the  materials  and  re-distributed  to 
the  various  commodity  accounts.  There  is  one  important  account  which  is 
carried  in  the  vouchers  record  which  the  auditor  is  compelled  to  scrutinize 
very  closely,  and  that  is  General  Expense.  In  order  to  conveniently  exam- 
ine it  and  at  the  same  time  keep  the  classification  of  the  accounts  from  the 
others,  it  is  suggested  that  the  general  expense  of  the  company  be  charged 
to  this  one  account  and  classified  according  to  the  various  classes  of  ex- 
pense by  prefixing  a  number  to  the  account,  and  in  case  a  subdivision  of 
the  account  is  required,  it  can  carry  a  number  and  a  letter. 

As  the  object  of  a  cost  department  is  to  obtain  accurate  costs  of  every 
article  manufactured,  a  correct  distribution  of  the  various  items  in  con- 
nection therewith  is  essential.  It  becomes,  therefore,  necessary  to  provide 
a  system  that  will  account  for  every  item  of  expenditure,  such  as  materials, 
pay  rolls,  supplies,  etc.,  which  cannot  be  successfully  accomplished  unless 
it  is  a  part  of  the  general  accounting  system,  having  all  accounts  pertaining 
thereto  closed  monthly  into  the  general  books.  The  inauguration  of  such  a 
system  commends  itself  over  one  where  all  charges  entering  into  the  cost 
of  production  are  charged  into  one  general  account,  generally  termed 
'^manufacturing  account,"  with  an  "estimated"  system  used  for  getting  at 
costs  unattached  to  the  books;  the  latter  costs  never  balance  with  the 
"manufacturing  account"  at  any  period,  while  the  former  actually  accounts 
for  every  cent  of  receipts  and  expenditures,  proven  by  the  books  being 
in  balance  each  month  with  all  factories  and  branches.  The  correct 
distribution  of  same  over  the  various  cost  accounts  at  the  different  fac- 
tories and  warehouses  depends  largely  upon  the  efficiency  of  the  help  and 

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their  correct  interpretation  of  the  instructions.  The  general  ledger  at  the 
central  office  will  contain  an  account  with  each  factory  or  warehouse,  the 
same  as  with  any  customer  to  whom  goods  are  sold,  being  charged  with 
all  materials  on  hand,  purchases,  pay  rolls,  etc.,  and  credited  with  sales, 
transfers  of  materials  to  other  works,  etc.,  corresponding  entries  being 
made  on  the  ledgers  at  the  factory  with  the  general  office  account.  Dis- 
tributions of  the  various  items  passing  through  the  central  office  account 
are  made  to  the  numerous  cost  and  inventory  accounts.  Having  an  inven- 
tory account  with  each  class  of  goods  produced  enables  a  company  to 
keep  an  accurate  book  account  of  its  stock  by  charging  same  with  produc- 
tion and  returned  goods,  and  crediting  same  with  sales  and  transfers  to 
other  departments  to  be  used  in  producing  other  commodities.  Having 
a  cost  account  containing  every  item  of  expense  pertaining  thereto  enables 
it  to  furnish  a  cost  of  production  for  use  in  charging  materials  produced 
to  the  inventory  account.  With  the  adjustment  of  the  sales  accounts, 
profit  and  loss  account  is  opened,  receiving  the  difference,  in  addition  to 
which  there  will  be  such  other  accounts  of  a  profit  and  loss  nature  as 
appear  on  the  books.  This  will  give  the  profit  and  loss  for  the  factory, 
the  inventory  of  materials  on  hand,  accounts  receivable  and  accounts 
payable,  all  of  which  must  be  ascertained  and  closed  into  the  central  office 
account  before  the  general  books  can  close.  Cost  sheets  showing  every 
item  entering  into  the  cost  of  production  can  be  made  up  from  the  ledger 
account.  The  closing  of  all  these  factory  accounts  into  the  general  books 
makes  it  possible  to  show  the  profits  and  losses  for  every  plant  as  well 
as  the  profits  and  losses  on  each  article  sold;  in  fact,  there  is  not  much 
that  would  be  asked  for  that  could  not  be  given  promptly.  Not  all  of 
the  expense  that  accrues  at  any  particular  factor}^  and  territory  adjacent 
thereto  enters  into  the  cost  of  production,  but  on  the  other  hand  only 
expenditures  that  directly  enter  into  the  cost  of  producing  any  particular 
commodity.  On  account  of  the  various  processes  that  goods  sometimes 
go  through,  certain  items  of  expense  cannot  be  applied  directly  against 
any  one  article  manufactured  in  a  certain  department,  and  in  such  cases 
certain  distribution  of  such  expense  will  be  made  over  the  various  articles 
that  it  affects  on  the  basis  of  percentage  generally  according  to  production. 
Outside  of  this  comes  the  local  office  expenses,  insurance,  taxes,  etc.; 
also  expenditures  for  improvements,  maintenance,  etc. ;  such  expenditures, 
although  pertaining  to  any  particular  factory,  do  not  enter  into  the  direct 
or  first  cost  of  goods,  but  as  in  any  well  organized  institution  will  be 
closed  into  profit  and  loss  against  the  earnings  of  the  commodities  sold 
from  that  particular  factory.  For  the  guidance  of  the  salesmen,  it  is 
essential  that  these  expenditures  be  distributed  on  some  particular  basis 
over  the  various  articles  manufactured,  and  treated  as  an  additional  cost 
to  be  taken  care  of  in  formulating  the  selling  price  of  goods.  In  addition 
to  the  local  expense  the  general  expense  of  the  company  should  not  be 
lost  sight  of,  but  treated  in  like  manner,  so  that  if  the  salesman  finds  he 

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can  get  the  additional  price  to  cover  the  expenses  of  the  company,  both 
local  and  general,  he  can  do  so,  and  if  it  becomes  necessary  to  meet  com- 
petition he  can  distinguish  between  the  first  cost  and  the  total,  including 
selling  expense  of  the  company.  While  in  many  instances  the  application 
of  this  system  to  obtain  accurate  costs  may  result  in  the  appearance  of 
high  costs  for  some  particular  article,  those  not  informed  would  imme- 
diately condemn  the  system  as  inaccurate  and  unreliable,  but  the  real  facts 
are  the  system  is  correct  if  the  books  are  in  balance  and,  furthermore, 
an  explanation  of  each  item  can  be  readily  given.  As  this  division  is  one 
of  the  most  important  in  the  company  which  is  under  the  auditor,  too 
much  attention  cannot  be  given  to  it. 

When  arranging  the  accounting  system  one  should  have  in  mind  the 
numerous  statistics  which  the  management  will  call  for  at  any  time,  and 
endeavor,  therefore,  to  have  every  form  of  report  emanating  from  the 
several  departments  as  complete  in  detail  as  possible,  so  that  information 
of  whatever  nature  desired  can  be  quickly  produced  by  the  statistical 
division. 

After  all  reports  are  in,  the  statistical  division  enters  upon  its  work 
of  recapitulating  and  verifying  them.  The  auditing  done  in  this  division 
should  be  correct  in  every  detail,  as  all  statements  pass  direct  to  the 
executive  officers,  necessitating  that  the  work  should  be  done  so  thorough 
that  criticism  be  unnecessary.  To  accomplish  this  it  requires  that  the 
division  be  lined  up  so  completely  that  all  manner  of  checks  be  had  on 
the  various  reports  to  prove  their  correctness  without  reference  to  the 
auxiliary  books.  This  means  a  great  deal  of  study  at  the  time  the  general 
forms  are  drafted  for  the  accounting  system,  as  the  omission  of  a  certain 
form  or  the  wrong  drafting  of  another  may  prove  expensive  to  rectify. 
The  statistical  division  is  in  a  sense  a  thermometer,  indicating  the  rise 
and  fall  of  business  temperature  or  pulse,  showing  the  condition  normal, 
active  or  unhealthy.  As  the  management  does  not  request  any  particular 
statements  for  its  guidance,  it  is  left  with  the  auditor  to  provide  in  such 
forms  as  will  determine  the  condition  of  the  company.  The  following  are 
a  few  of  the  most  essential  reports: 

Financial  Statement, 

Profit  and  Loss, 

Inventory, 

Sales, 

General  Expense, 

Number  of  Employes  and  Pay  Rolls, 

Additions  to  Plant, 

Improvements, 

Maintenance, 

Production, 

and  other  important  items  according  to  the  nature  of  the  business.  These 
reports  should  be  comparative  and  classified  according  to  the  commodities, 
showing  quantity,  average  price,  percentage,  profit  and  loss,  by  territorial 


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division.  General  expenses  should  be  classified  according  to  the  various 
kinds  of  expense  as  well  as  by  territorial  division.  Not  only  does  the 
statistical  division  pay  particular  attention  to  the  reports  concerning  the 
business  done  by  the  company,  but  has  other  work,  such  as  ascertaining 
the  expense  incurred  by  each  department  of  the  company,  and  seeing  that 
the  proper  distribution  of  every  item  of  expense  in  the  shape  of  pay  rolls, 
stationery,  etc.,  is  made.  The  keeping  of  expense  statistics  by  departments 
permits  the  management  to  force  measures  of  economy  unknown  to 
heads  of  departments.  As  all  large  companies  have  investments  in  other 
concerns  of  which  they  own  all  or  a  controlling  interest,  the  statistics  of 
these  companies  are  as  carefully  looked  after  as  those  of  the  controlling 
company,  for  the  reason  that  in  some  cases  it  becomes  necessary  to 
combine  results  of  subsidiary  companies  with  those  of  the  controlling 
company  to  arrive  at  certain  issues.  It  is,  therefore,  necessary  that  the 
reports  of  the  subsidiary  companies  reach  the  central  office  as  early  as  the 
reports  from  the  factories.  This  plan,  therefore,  becomes  self-proving  and 
self-balancing,  resulting  in  economy  of  labor  and  promptness  in  arriving  at 
details. 

One  of  the  most  important  features  in  the  successful  operation  of  an 
accounting  system  is  the  arrangement  of  forms,  records  and  ledgers.  It  is 
necessary  that  the  auditor  be  "up  to  date"  in  the  very  latest  methods  and 
short  cuts  used  in  the  construction  of  records,  as  the  adoption  of  some 
forms  and  records  which  may  appear  necessary,  will  result  in  being  cum- 
bersome and  jeopardize  the  whole  system.  One  should  always  have  before 
him  the  motto,  "No  Red  Tape,  No  Duplication,"  and  strive  in  every  way 
possible  not  to  deviate  from  it.  Posting  should  be  done  as  far  as  possible 
from  original  entries,  refraining  from  transferring  these  entries  in  any 
manner ;  for  instance,  the  book-keeper,  in  order  to  expedite  the  work  given 
him,  should  receive  his  cash  entries  on  sheets  from  the  treasury  depart- 
ment at  a  certain  time,  and  should  not  be  compelled  to  wait  until  his 
neighbor  has  attended  to  such  items  as  belong  to  him,  and  the  same  rule 
should  apply  as  regards  the  invoice,  journal  and  other  divisions.  Experi- 
ence has  taught  that  this  can  only  be  successfully  accomplished  by  the  use 
of  loose  forms  emanating  from  the  different  departments  as  original 
entries. 

A  great  saving  of  time  can  be  had  in  the  book-keeping  division  if  the 
proper  ledger  is  installed.  Some  companies  have  demonstrated  that  the 
loose  leaf  ledger  meets  all  requirements.  This  is  undoubtedly  a  fact  in 
small  concerns.  They  are  also  valuable  for  large  companies  starting  an 
accounting  system  where  no  definite  plan  has  been  determined,  but  after 
a  plan  has  been  agreed  upon,  the  loose  leaf  system  will  prove  expensive, 
both  as  regards  the  number  of  books  used  and  the  labor  necessary. 

Ledgers  should  be  so  constructed  that  the  book-keepers  will  not  be 
compelled  to  stop  their  current  work  at  the  first  of  the  month,  and  this  can 
be  done  by  the  construction  of  a  book  containing  two  columns  each,  debit 

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and  credit,  respectively,  having  each  month's  entries  alternate.  With  such 
a  book,  the  book-keeper  should  always  be  up  with  his  work.  The  ledgers 
should  also  be  arranged  with  proper  division  of  accounts  to  permit  of  a 
large  number  being  kept  within  a  small  number  of  pages ;  this  will  result 
in  economy.  As  every  business  is  peculiar  to  itself,  the  application  of  one 
good  ledger  may  fail  while  another  with  less  of  a  reputation  would  meet 
the  conditions,  consequently  suggestions  only  can  be  given.  This  is  also 
true  of  other  forms  of  reports. 

It  is  often  the  case  that  the  office  boy,  who  receives  a  very  small  com- 
pensation, has  his  worth  appraised  according  to  his  salary  in  his  capacity 
of  "director"  of  envelopes  and  general  utility  boy.  A  large  company  can- 
not afford  to  look  lightly  upon  the  qualifications  of  a  boy  for  such  work. 
He  handles  all  of  the  important  letters,  invoices,  memoranda,  etc.,  and 
should  he  misdirect  an  invoice,  for  instance,  of  one  large  customer  and 
another  equally  large,  and  it  should  happen  that  they  were  competitors  in 
the  same  line  of  business,  and  upon  receipt  by  one  of  the  wrong  invoice 
should  discover  the  company  giving  his  competitor  any  advantage,  the 
result  of  such  an  error  would  cost  the  company  making  the  mistake  con- 
siderable money ;  yet  this  happens  frequently,  not  only  with  invoices,  but 
with  important  letters.  It  is,  therefore,  economy  to  put  good  help  in  such 
positions. 

One  of  the  greatest  problems  for  a  large  corporation  to  solve  is  the 
filing  of  old  records  as  well  as  of  current  records ;  the  very  best  place  to 
file  them  where  they  are  easy  of  access,  the  method  of  filing  or  storing 
them  for  convenience  of  ready  reference,  the  length  of  time  certain  records 
should  remain  in  the  office  before  being  permanently  filed,  and  last  of  all, 
how  long  records  should  be  kept  before  being  destroyed.  There  are  so 
many  conditions  to  consider,  depending  largely  upon  the  nature  of  the 
business  the  company  is  engaged  in,  the  system  of  conducting  the  busi- 
ness, whether  through  a  central  office  or  independent  branches,  that  no 
particular  plan  can  be  suggested;  however,  as  these  records  (most  of  them 
being  from  the  accounting  department)  are  frequently  consulted,  and 
there  being  many  branches,  a  central  storage  should  be  built  of  fire-proof 
material,  properly  located  so  that  it  can  be  reached  promptly  from  any 
office  of  the  company  and  so  constructed  that  it  shall  be  partitioned  to 
contain  each  class  of  records,  separated  according  to  offices  and  depart- 
ments, boxes  unpjacked  and  contents  carefully  filed  in  accordance  there- 
with. A  good  man  should  be  in  charge,  with  a  record  of  everything  that 
goes  in  and  out.  Records  filed  in  dift'erent  places  devoid  of  system  is 
entirely  unsatisfactory,  causing  annoyance  and  delay  in  getting  desired 
information  and  probably  loss  of  money  in  failure  to  produce  certain  docu- 
ments, which  have  been  lost. 

Prominent  amongst  the  characteristics  of  persons  in  authority  should 
be  a  reputation  for  strict  integrity  and  truthfulness,  as  the  exercise  of 
these  virtues  has  a  powerful  influence  over  employes.     When  deciding 

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questions  in  dispute,  which  is  frequently  necessary,  strict  impartiality  and 
firmness  are  absolutely  essential,  so  that  the  natural  confidence  existing 
between  employer  and  employe  be  not  disturbed.  Fair  play  is  the  essence 
of  discipline,  and  the  latter,  coupled  with  common  sense,  is  the  basis  of 
business  of  whatever  nature. 

Persons  selected  for  various  important  positions  should  be  individually 
adapted  for  the  duties  required  of  them.  Unless  skill  be  exercised  in  the 
allotment  of  work  to  those  who  must  perform  it,  it  often  happens,  unfor- 
tunately, that  men  who  are  capable  and  willing  in  many  directions  are 
placed  in  positions  where  their  energies  are  thrown  away,  so  that  in 
appearance,  though  not  in  reality,  they  work  unwillingly  and  incapably. 
Unfortunately,  many  heads  have  had  little  or  no  experience  in  clerical  work 
or  the  duties  devolving  upon  the  various  clerks  in  their  departments,  are 
unable  to  correctly  discriminate,  and  their  inexperience  is  frequently  the 
cause  of  misunderstanding,  because  they  do  not  know  the  exact  time  it 
will  take  to  perform  any  particular  work,  or  how  it  should  be  done.  Such 
conditions  simply  irritate  and  annoy  the  employe  and  unfit  him  in  the 
performance  of  his  duties.  The  head  of  a  department  should  show  uniform 
coolness  and  self-possession,  otherwise  the  employes  will  become  nervous 
and  confusion  will  likely  end  all  the  good  that  might  be  derived  from 
close  supervision. 

The  question  of  priority  is  one  that  deserves  more  attention  than  it 
usually  receives.  Under  no  circumstances  should  one  employe  be  given 
a  position  interfering  with  another,  so  that  the  duties  of  one  will  in  no 
way  overlap  the  other.  This  means  that  it  becomes  essential  to  distinctly 
outline  every  position  and  specify  to  whom  reports  should  be  made.  Those 
in  charge  of  departments  should  be  given  full  swing  to  exercise  the  duties 
imposed  upon  them,  with  the  knowledge  that  their  superior  has  full  con- 
fidence in  their  ability  to  satisfactorily  run  the  department  and  that  results 
are  wanted.  A  chief  cannot  perform  his  work  when  continually  hampered 
by  the  thought  that  every  moment  he  is  being  watched  by  his  superior. 
He  thus  quickly  recognizes  the  responsibility  upon  him  and  that  criticism 
will  result  detrimentallv. 

The  recommendation  of  a  central  system  of  accounting  with  secrei: 
methods  of  checking  and  verifying  reports  in  the  absence  of  auxiliary 
books,  where  there  are  many  branches,  is  good  in  so  far  as  its  moral  effect 
is  concerned.  Every  man  knows  that  his  work  must  be  gotten  out  cor- 
rectly and  promptly,  or  he  will  be  notified  from  headquarters  that  it  is 
not  satisfactory ;  it  is  unnecessary  to  say  that  he  will  not  court  many  such 
notifications.  It  seems  to  be  human  nature  to  work  better  when  one 
knows  he  is  being  held  for  results. 

As  accounting  is  simply  common  sense  with  the  application  of  a  few 
well-settled  principles  and  mathemetical  formulae,  the  auditor  of  any  cor- 
poration must  be  able  to  meet  and  overcome  unforseen  difficulties  at  times, 
besides  putting  into  succesful  operation  a  system  applicable  to  a  certain 

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business     His  ability,  therefore,  cannot  always  be  strengthened  by  experi- 
en™  any  parti  Jar  line  of  business.    On  the  -^l^Hy-XZlS' 
up-to-date  by  reading  technical  literature  on  the  subject  of     accounting 
and  seeking  association  with  accountants  of  all  classes. 

The  professional  accountant  is  brought  into  contact  with  various 
kinds  of  trade,  permitting  him  to  get  actual  experience  while  the  less 
fortunate  must  employ  other  means,  such  as  accountants  organizations 
.  Considering,  therefore,  there  is  no  authority  on  these  matters,  it  remains 
for  he  progressive  man  to  carve  out  his  own  success  at  the  head  of  a 
large  corporation  by  the  application  of  his  past  experience  and  his  ability 
and  nerve  to  introduce  methods  to  meet  the  requirements. . 
'  Up-to-date  American  authority  on  the  subject  of  the  duties  of  the 
auditor,  is  furnished  by  R.  H.  Montgomery,  C.  P.  A.,  in  an  address  de- 
livered before  the  Evening  School  of  Accounts  and  Finance,  University 
of  Pennsylvania. 

Only  three  kinds  of  audits,  in  a  narrow  sense  prevail,  viz. : 

1  The  examination  which  involves  a  mechanical  checking  of  the 
books*  and  records,  the  placing  of  red  ink  check-marks  opposite  certam 
figures  in  certain  books,  and  the  making  of  like  check-marks  opposite  sup- 
posedly like  figures  in  other  books;  and  the  verification  of  a  mass  of  foot- 
ings vouchers,  etc.,  which  enables  the  auditor  to  say  that  the  arithmetical 
work  is  perfect. 

2  The  examination  which  consists  of  a  mere  inspection  of  results, 
involving,  as  it  may  be,  the  analysis  of  certain  accounts,  but  on  unscientific 

lines. 

3  An  examination  which  combines  three  methods :  First,  the  veri^ 
fication  and  testing  of  enough  clerical  work  to  insure  its  accuracy,  havmg 
always  in  mind  the  co-ordination  of  the  accounts,  the  actual  rather  than 
the  physical  relation  of  one  book  to  the  other ;  second,  a  careful  analysis 
of  the^accounts,  a  searching  inquiry  into  the  entire  organization  under 
investigation  by  a  careful  search  for  errors  of  principle  as  well  as  tech- 
nical errors  and  evidences  af  fraud ;  and,  third,  an  intelligent  study  of  the 
balance   sheet. 

Much  harm  has  been  done  through  the  practice  of  making  audits  of 
the  class  first  mentioned.  A  good  business  man  with  no  knowledge  of 
book-keeping  can  make  a  better  audit  than  a  so-called  auditor  who  does 
not  understand  how  to  make  an  audit.  A  business  man  can  tell  very  soon 
whether  an  audit  is  worth  while,  and  if  it  is  not  conducted  intelligently 
he  does  not  want  a  second  one.  The  third  form  of  audit  is  the  only  one 
which  will  commend  the  accountant  to  an  intelligent  client. 

The  underlying  principles  of  auditing  are  theoretical,  and  are  not  sub- 
ject to  change  to  fit  particular  businesses  or  special  systems  of  account. 

These  underlying  principles  are  few  in  number  and  can  be  applied  in- 
definitely.    Let  us  examine  them: 

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1  The  auditor  must  ascertain  that  all  of  the  assets  shown  by  the 
books  to  be  on  hand  at  a  certain  date  are  or  were  actually  on  ham.. 

2.  He  must  ascertain  whether  any  other  assets  not  on  the  books 
should  be  or  have  been  on  hand.  ,     ^     ,     ^    , 

3  He  must  ascertain  that  the  liabilities  shown  by  the  books  to  be 
owing  at  a  certain  date  are  or  were  actual  liabilities. 

4.  He  must  ascertain  whether  or  not  all  liabilities  are  in  fact  shown 

by  the  books. 

5.  He  must  ascertain  whether  or  not  liabilities   so  shown  have  been 

properly   incurred.  ,       ,      ,      , 

6     He  must  ascertain  whether  the  earnings  shown  by  the  books  are 
properly  accounted  for,  and  whether  any  of  the  earnings  are  omitted  there- 
from. ,  ^  , 
7.    He  must  ascertain  whether  or  not  the  expenses  and  losses  have 

been  properly  stated  and  supported. 

Are  these  principles  sufficient  in  given  cases? 

Single-Entry  Books.— No  modification  of  the  above  rules  is  neces- 
sary. If  the  assets  and  liabilities  are  not  properly  set  up,  the  auditor  can 
buUd  up  his  own  balance  sheet  and  proceed  as  if  the  items  were  on  the 

books. 

The  application  of  all  of  the  above  rules  will,  I  believe,  result  in  a 
proper  audit  of  any  undertaking.  In  commencing  an  audit  secure  a  balance 
sheet,  if  one  has  been  drawn  up,  together  with  a  trial  balance,  before 
closing.  A  careful  survey  of  all  the  accounts  shown  thereon  will  suggest 
the  proper  procedure.  After  a  little  experience  the  auditor  will  be  able 
to  recognize  every  caption  on  the  trial  balance,  except  that  sometimes  a 
"yellow  dog"  account  is  called  "Hanover  Bank,"  or  some  other  misleading 
title.  A  glance  at  some  of  the  entries  is  usually  enough,  however,  to  set 
one   straight. 

Verification  of  Assets.  An  untrained  auditor  should  inspect  phy- 
sically all  assets,  otherwise  he  may  be  deceived ;  but  an  auditor  with  the 
requisite  training  and  experience  will  find  that  many  assets  are  susceptible 
of  actual  verification  without  the  physical  scrutiny  otherwise  required. 
Bank  balances,  for  instance,  may  be  proved  without  visiting  the  bank,  and 
requiring  them  to  show  your  client's  money,  even  if  banks  earmarked  all 
funds  in  their  possession.  A  bank  pass  book  indicating  a  balance  in  excess 
of  that  called  for  in  the  cash  book  is,  however,  by  no  means  conclusive. 
Bank  pass  books  are  easily  duplicated  and  forged.  Outstanding  checks 
may  more  than  exhaust  the  nominal  balance  shown  by  the  bank— more 
than  wiping  out  the  balance  claimed.  The  procedure  in  these  two  instances 
is  plain:  The  auditor  should  himself  secure  the  pass  book  from  the  bank 
or  ask  for  direct  information,  even  if  it  were  balanced  the  day  before  the 
audit,  and  as  audits  are  usually  made  at  a  later  date  than  that  of  the 
balance  sheet,  an  inspection  of  the  checks  received  subsequently  will  prob- 
bly  disclose  any  discrepancy  in  the  list  of  outstandings  at  the  time  of 
the  balance  sheet.    It  is  hardly  necessary  to  state  that  the  only  currency 

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which  should  appear  in  the  cash  drawer  is  that  issued  by  the  Ln.ted  States 
government.  Sundry  notes  of  hand  issued  by  the  cashier  himself,  or  other 
employes,  are  no  longer  regarded  as  quite  so  good  as  gold  com  of  the 
present  weight  and  fineness. 

Bills  Receivable,  Stocks.  Bonds,  ETC.-After  the  verification  of  the 
cash,  which  is  the  most  "liquid"  asset,  and  is,  therefore,  more  liable  to 
change  and  requires  immediate  attention,  will  come  the  exammation  of 
promissory  notes,  stocks,  bonds,  etc.  Without  going  into  details  it  is 
sufficient  to  say  that  no  one  should  attempt  to  pass  on  the  adequacy  of 
securities,  unless  thoroughly  acquainted  with  the  general  laws  and  customs 
regarding  them.  This  equipment  includes  a  knowledge  of  commercial 
paper-  familiarity  with  corporate  stocks  and  bonds  of  various  kinds; 
enough  knowledge  of  law  to  distinguish  between  a  third  mortgage  and  a 
ground  rent ;  and,  above  all,  enough  common  sense  and  everyday  knowl- 
edge of  the  markec  to  be  able  to  detect  false  values  placed  upon  beautifully 
printed  certificates  and  bonds.  It  is  quite  true  that  the  securities  of  many 
sound  enterprises  are  not  quoted  daily,  but  as  a  rule  they  speak  for  them- 
selves, and  securities  concerning  which  a  trained  auditor  finds  himself 
unable  to  secure  any  independent  valuation  should  not  be  left  to  the 
handling  of  an  officer  who  is  anxious  to  show  a  profit.  If  the  cost  of 
this  entire  class  of  assets  is  not  shown  clearly  by  the  books,  the  auditor 
should  be  careful  in  accepting  the  estimates  of  officers  as  to  their  value. 

In  this  connection  it  should  be  noted  that  all  overdue  or  protested 
notes  should  be  transferred  immediately  to  the  personal  account  of  the 
debtor.  The  bills  receivable  account  in  the  ledger  is  for  live  notes  not 
due.  and  its  use  as  a  morgue  must  be  condemned  by  every  auditor. 
Accounts  receivable  can,  as  a  rule,  be  valued  without  difficulty.  If  the 
business  has  been  long  established,  past  results  can  be  profitably  used, 
and  from  these  results  an  allowance  for  bad  and  doubtful  debts  can  be 
ascertained.  The  accountant  should  be  as  generous  as  possible  in  this 
reserve.  Of  course,  all  recent  accounts  are  good.  But  were  not  all  bad 
debts  at  one  time  "recent"? 

Stocks  on  Hand.— As  an  auditor  acting  in  his  professional  capacity 
is  not  an  appraiser,  he  is  not  held  responsible  for  the  value  nor  quantity 
of  the  stock  of  merchandise,  materials  or  product  which  is  shown  by  the 
balance  sheet,  unless^  of  course,  he  chooses  to  accept  responsibility. 

In  practically  every  audit  of  a  commercial  undertaking  the  audit  is 
commenced  after  the  date  of  the  balance  sheet.  If  the  auditor  ascertains 
that  the  stock  has  been  taken  by  competent  persons;  certified  to  by 
responsible  officials ;  the  extensions  and  footings  verfied  by  himself  or  his 
assistants;  numerous  items  critically  examined  to  see  that  the  stock  is 
priced  at  cost  or  the  market,  whichever  is  the  lower ;  that  a  careful  analysis 
of  the  profit  and  loss  account  does  not  reveal  any  marked  discrepancy  be- 
tween the  inventory  in  question  and  that  of  former  years,  unless  readilj 

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explained — he  may  feel  reasonably  safe  in  accepting  it.  In  all  cases,  how- 
ever, his  certificate  should  set  forth  how  far  his  certification  has  extended. 
.  The  inventory  should  be  examined  first  if  there  are  collateral  indica- 
tions that  the  business  has  been  profitable,  even  though  the  books  show  a 
loss.  Inventories  are  frequently  taken  hurnedh',  materials  in  transit  are 
often  omitted,  or  included  when  the  bills  therefor  have  not  been  entered. 
An  inventory  at  the  beginning  of  a  period  might  be  over-valued,  and  at 
the  end  under-valued,  and  numerous  other  causes  of  errors  might  be  cited 
which,  if  not  detected,  would  result  in  misleading  statements  of  profit  and 
loss.  An  auditor  will  find  the  inventories  one  of  the  most  fruitful  sources 
of  error.  Here  also  an  auditor  will  have  to  use  good  judgment  in  passing 
values,  for  each  increase  or  decrease  in  an  inventory  affects  the  profit  and 
loss  account  to  correspond.  It  is  almost  as  harmful  to  pass  under-values 
as  over-values  where  the  result  of  the  audit  may  be  improperly  used. 
The  flagrant  cases,  however,  concern  over-valuations,  with  which  an  aud- 
itor must  deal  without  fear  or  favor. 

Plant,   Machinery,   Real   Estate,   Etc. — If  possible,  ascertain   the 

exact  book  costs  of  these  assets,  and  apply  proper  rates  of  depreciation. 

This  answer,  though  short,  is  sufficient.    Its  ramifications,  however,  cause 

the  auditor  more  trouble  than  all  the  other  asset  and  liability  items  on  the 

balance  sheet  combined.    An  auditor  whose  work  covers  perhaps  one  year 

only  must  accept  the  responsibility  of  the  whole  previous  history  of  the 

undertaking,  so  far  as  capital  assets  are  concerned,  unless  he  specifically 

disclaims  it,  and,  even  then,  stockholders  will  probably  hold  him  liable  if 

mistakes  are  made.    This  brings  up  the  question  of  the  auditor's  relation 

to  the  work  of  a  predecessor.     If  the  predecessor  is  a  reliable  accountant 

his  balance  sheet  should,  of  course,  be  accepted,  but  this  contingency  does 

not  often  arise.     Most  reliable  auditors  retain  their  clients,  so  that  the 

work  of  a  preceding  auditor  will  usually  bear  as  careful  scrutiny  as  that 

of  the  book-keeper. 

If  an  appraisal  indicates  a  greater  valuation  of  capital  assets  than  the 

books  disclose,  due  perhaps  to  excessive  depreciation  charges,  it  may  be 
good  accounting  to  increase  the  book  valuations  and  correspondingly  in- 
crease the  surplus.  The  surplus  so  raised,  however,  should  not  be  used 
for  dividend  purposes,  and  in  view  of  the  fact  that  an  appraisal  may  affect 
values  at  a  time  when  materials  of  all  description  happen  to  be  far  above 
actual  cost,  it  is  rarely  advisable  to  disturb  the  book  valuations,  unless  to 
reduce  them  where  found  excessive.  Even  then,  if  at  cost  and  properly 
depreciated,  the  present  apparent  value  should  not  govern.  Re-valuations 
are  valuable  to  adjust  insurance  schedules,  etc.,  but  are  not  so  scientific 
from  an  accounting  standpoint  as  cost  and  depreciation.  In  rare  cases, 
where  accounts  are  kept  too  conservatively,  items  properly  chargeable  to 
plant  have  been  charged  to  maintenance.  An  appraisal  should  not,  how- 
ever, be  required  to  discover  such  a  condition.  A  proper  audit  will  be 
sufficient.  It  is  frequently  no  easy  matter  to  distinguish  between  addi- 
tions to  plants  and  renewals,  but  the  auditor  can  usually  rely  on  the  state- 


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ment  of  an  engineer  or  superintendent,  unless,  of  course,  there  is  ground 
for  suspicion  of  fraud. 

Renewals  must  not  be  classed  with  re-valuations,  although  they  have 
some  points  in  common.  For  instance,  if  an  engine  costing  $15,000  has  50 
per  cent  or  more  greater  efficiency  than  a  $10,000  machine  which  it  re- 
places, there  should  be  an  increase  in  the  machinery  account  of  $5,000. 
If  proper  depreciation  has  been  provided  there  would  have  been  a  sufficient 
sum  set  aside,  plus  scrap  value,  to  contribute  $10,000  of  the  $15,000  re- 
quired. If,  for  instance,  depreciation  were  only  $3,000  and  the  old  engine 
sold  for  $1,200  net,  there  would  have  to  be  an  immediate  charge  against 
profit  and  loss  of  $5,800. 

With  respect  to  accrued  interest,  unexpired  insurance,  etc.,  a  careful 
analysis  of  the  nominal  accounts  will  disclose  all  prepaid  items,  and  a 
careful  examination  of  the  assets  will  show  up  accrued  items.  As  these 
assets  vary  from  year  to  year,  it  is  never  safe  to  overlook  them,  and  they 
should  be  placed  on  every  balance  sheet. 

L|abi.ities. — The  audit  of  liabilities  need  not  be  discussed  in  detail. 
The  principal  point  to  be  urged  is  that  Rule  4  is  the  most  difficult  to  cover 
of  all  those  mentioned,  and  perhaps  the  most  important.  A  reasonably 
careful  audit  of  the  facts  and  figures  in  the  books  will  be  sufficient  to 
vouch  the  liabilities  per  the  balance  sheet,  but  it  requires  more  than  a 
careful  audit  to  ascertain  whether  or  not  all  liabilities  are,  as  a  matter  of 
fact,  in  evidence.  It  requires  intuition,  almost,  in  certain  cases  to  locate 
large  bills  payable  or  other  debts,  the  existence  of  which  has  been  hidden 
from  the  auditor.  Sometimes  these  omissions  are  intentional  and 
fraudulent,  very  often  unintentional  and  due  to  carelessness,  but  in  either 
case  the  auditor's  duty  is  the  same.  His  responsibility  does  not  end  with 
the  books.  He  is  not  a  machine  to  add  up  columns ;  he  is  supposed  to  have 
all  the  skill  and  experience  which  should  always  be  expected  of  each  mem- 
ber of  a  skillful  profession.  Therefore,  if  the  "account  payable"  does  not 
appear  in  the  voucher  record  he  must  notice  its  absence.  This  caution 
also  covers  the  auditing  of  items  which  do  not  usually  appear  until  the 
closing  of  the  books,  such  as  accrued  interest  payable,  unpaid  wages,  or 
commissions  to  agents,  etc. 

Income  and  Expenses. — The  audit  of  income  and  expenses  can  be 
treated  of  here  only  in  the  most  general  manner.  As  a  rule,  the  audit  of 
earnings  is  more  important  than  the  audit  of  cash  payments.  Not  that 
the  audit  of  payments  is  not  important,  but  the  auditor  who  discovers  a 
leak  in  earnings,  due  either  to  faulty  methods  or  to  fraud,  is  rendering 
far  more  valuable  service  to  his  client  than  one  who  spends  practically  all 
of  his  time  on  vouchers,  footings  and  postings,  and  whose  entire  report 
consists  of  twelve  pages  containing  nothing  else  than  a  list  of  vouchers 
not  submitted  or  not  approved  by  three  persons. 

As  a  rule,  a  paid  check,  properly  indorsed,'  is  a  very  good  voucher 
wherever  the  signing  of  checks  means  anything.    True,  it  does  not  state 


the  purpose,  but  the  competent  auditor  can  usually  read  a  purpose  into  a 
bank  check.  It  may  be  supported  by  original  invoices  showing  the  suc- 
cessive records  of  receiving  clerks,  purchasing  clerks,  heads  of  departments, 
book-keepers,  et  al.,  but,  if  a  test  indicates  that  all  of  these  precautions 
are  taken,  then,  as  a  rule,  the  chance  of  fraud  or  error  in  this  branch  of 
the  work  is  greatly  diminished,  and  too  much  time  should  not  be  spent 
upon  it. 

The  auditor  should  not  be  too  technical.  If  the  minute  book  of  a 
corporation  whose  stock  is  all  owned  by  four  or  five  persons  does  not 
indicate  a  meeting  for  several  years,  although  the  stockholders'  personal 
accounts  indicate  that  profits  have  been  credited  thereto,  the  auditor  should 
not  assure  them  that  they  are  in  a  bad  way.  If  the  profits  have  been 
equitably  credited,  if  the  concern  has  actually  earned  these  profits,  and  is 
solvent,  and  if  the  state  has  not  been  defrauded  out  of  taxes,  the  accountant 
should  not  concern  himself  if  the  stockholders  wish  to  continue  as  of 
yore.  Since  no  court  would  stop  them,  the  auditor  is  not  called  upon  to 
interfere. 

Above  all,  the  auditor's  work  should  be  of  value  to  his  client.  The 
audit  should  be  worth  more  than  the  amount  of  the  auditor's  fee.  Take 
the  case  of  the  manufacturer  who  also  owns  horses,  and  where  horse 
feed  has  been  sold;  not  one  such  man  in  fifty  cares  whether  or  not  his 
book-keeper  credits  a  sale  of  oats  to  the  stable  account  or  to  the  general 
sales  account,  but  fifty  out  of  fifty  men  have  a  reasonable  cause  for  com- 
plaint against  an  auditor  who  would  fail  to  discover  that  oats  were  being 
sold,  and  that  stable  expenses  were  increasing  beyond  reason,  the  latter 
being  readily  discovered  by  analyzing  the  accounts  and  making  up  of  a 
comparative  statement;  this  discovery  in  turn  uncovering  the  fraud. 

In  conclusion,  the  auditor  should  be  practical.  No  accountant  should 
attempt  the  work  of  a  professional  auditor  unless  he  is  able  to  take  such 
a  broad  view  of  a  balance  sheet  that  he  can  see  not  only  what  it  contains, 
but  what  it  should  contain. 

(180)  AUTHORIZED  CAPITAL. 

Another  term  for  "Nominal  Capital."  The  amount  of  capital  offered 
for  subscriptions. 

In  some  countries  a  certain  proportion  of  the  subscribed  capital  is  left 
"uncalled,"  i.  e. — it  is  payable  by  instalments  as  called  for  by  the  directors. 

This  uncalled  capital  is  used  as  a  form  of  collateral  security  in  various 
ways,  the  stockholders  being  liable  to  the  extent  of  the  stock  subscribed. 

(181)     AUXILIARY  BOOKS. 

Auxiliary  books  of  accounts  may  be  defined  as  records  other  than 
those  of  original  entry.  Statistical  records  of  all  kinds,  manufacturing 
expense  and  cost  distribution  books  would  be  classified  under  this  heading. 

In  businesses  affected  day  by  day  by  market  variations,  these  auxiliary 


242 


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American  Business  and  Accounting 


Encyclopedia       182-183 


A  .re  of  the  Utmost  importance  and  are  constantly  consulted.  As 
rmpleHf  such^^^^^  n.ay  be  mentioned  records  of  options  bought  and 
sold  by  brokers  on  the  board  o£  trade. 

(182)    AVERAGE. 

A  varvin-  quantity  on  which  a  fixed  rate  is  to  be  charged.  To  find 
the  —  of 'such  cLrge.  proceed  as  per  the  compound  ave^a^e  rule 
given  under  the  head  of  "Averaging  Accounts."  The  d^'<=/'  J^'^"  '»' 
MHs  to  be  rendered  is  taken  as  the  focal  date  from  wh.ch  the  average 
^torlge  of  goods  received  and  delivered  is  calculated.  The  followmg  w.ll 
Illustrate  the  problem  to  which  the  above  definition  refers: 

DELIVERIES. 
RECEIPTS. 


May  19  1.000  cases 

May  30  2,000  cases 

June   10 2,000  cases 

June  15  


500  cases 


May   26  200  cases 

^jay  28  100  cases 

June  "l  I'^OO  cases 

June    7  1'OOO  cases 

June  20  


300  cases 


Total    5,500  cases 

On   hand      2,500  cases 

Average  oi  cases  on  which  to  charge  storage 1,579  cases 

PROCESS  OF  OPERATION. 

1000  X  33= 

^^ay  ^^  2000  X  22= 

^ay  30  2000x11= 

J«"e  ^0  ■/. 500X  6= 

June  15  


-pQtal  3,000  cases 


33000 

44000 

22000 

3000 


5500 

200  X  26= 

^iay  26  .".'!!..... 100x24= 

^lay  28  •  •  •  •  • j^QQ  y.  20=: 

1000  X  14= 

...   300  X  1= 


June 
June  7 
June  20 


3000 


102000 

5200 

2400 

28000 

14000 

300 

49900 


102000 — i9990=52100-^33 

^'^^ribirLirrsumes  that  each  case  was  in  -rage  ^r-  *e 
aateTeceived  until  June  20th.  and  by  this  a-rage  P^o^ss  we  ^^^ 

,He  number  of  days'  ^^f^ -J^Xr^wal  n;re  pHor\o  June  20th. 
we  take  the  length  "' ^.me  that  eachdeln     y  ^^^^  ^^  ^^^^^ 

by  which  we  obtain  the  total  of  "'^^^""l^^^^^^^.m  cases  divided  by 
Deduct  deliveries  from  '^ce-pts  a"d  Ae  difference  ^^^^ 

33  is  the  number  of  cases  on  which  to  charge  the  storage  a 
is  fixed. 

(183)     AVERAGING  ACCOUNTS. 
There  are  manv  methods  of  "averaging  accounts,"  which  is  one  title 
of  thit  arXeS-formnla  known  as  "equation  of  payments"_the  deter- 

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_      .  .  ..  _  Av. 

183 

mining  or  finding  of  the  balance  of  interest  due  on  an  account,  or  finding 
the  common  time  of  maturity  of  bills  due  at  different  times. 

The  general  principle  involved  is  simple.  Charge  interest  from  due 
date  on  amount  owing;  credit  interest  on  accounts  received  in  payment, 
or  part  payment;  the  balance  will  be  the  interest  due.  On  large  ac- 
counts with  numerous  charges  and  credits  it  is  a.  laborious  task  to  obtain 
this  balance,  and  hence,  mathematicians  have  devised  many  methods  which 
were  more  or  less  short-cuts.  In  fact,  so  many  methods  have  been  devised 
that  it  is  quite  confusing,  and  a  thankless  task,  to  study  them  all  and  follow 
up  the  different  reasons  for  the  different  rules. 

The  rules  appended  for  Single  and  Double  Average  are  simple,  good, 
and  easily  borne  in  mind,  and  will  answer  every  purpose. 

Single  Average.— Set  down  the  items  in  their  order  of  due  date. 

Calculate  the  number  of  days  between  the  first  and  second  items,  and 
multiply  the  amount  of  the  second  item  by  the  number  of  days.  This  is 
called  the  product  of  average.  Proceed  in  like  manner  with  each  succeed- 
ing item. 

Foot  the  items  and  products  for  average. 

Divide  the  latter  amount  by  the  first.  The  result  will  give  the  number 
of  days  forward  from  the  date  of  the  first  item,  which  added  to  that  date 
will  give  the  average  due  date  of  the  account. 

Calculate  interest  at  the  required  rate  on  the  sum  of  the  account  from 
the  average  due  date  to  the  date  of  rendering  statement. 


^ -1 



Matured      |   Amount 
DATE           1  or    BlLI- 

Days  roRW'o  moM 
Date  or  i«-  Bh-l 

Product  roul 

AVC1»A*C    \                                                                       ^ 

: 

Mch. 

IS 
1"; 

/oo 

100 
lOO 

1  oo 

4-0 
SO 

4000 
6000 

90  oo 

■ 

D«f«  of  •'firider.'^  Stot€nw'»t 

June  \^ 
J  nie rest-  6% 

r^^ 

-400 

^ 

\<3oOO 

1    .               .   . r^^. 1 

AvC^^e    du*   dote   Ap(  SA 

Proof: 
Interest 
Interest 
Interest 
Interest 

on 
on 
on 
on 

$100  at  6 
$100  at  6 
$100  at  6 
$100  at  6 

per  cent  from  Feb.  15 
per  cent  from  March 
per  cent  from  April  1 
per  cent  from  May  15 

to  June  1. . .  .$1.75 
25  to  June  1..  1.08 
5  to  June  1 . . .     .75 

to  June  1 25 

$3.83 
Double  Average.— Assume  as  the  basis  for  finding  the  average  the 
1st  of  the  month  in  which  the  first  charge  is  made.      This  is  called  the 
Tocal  Date." 

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183 


DEEiTS.-Calculate  the  number  of  days  from  the  focal  date  to  the  date 
of  each  charge,  or  to  the  due  date  if  it  is  a  time  charge. 

iMultiply  the  amount  of  each  charge  by  the  number  of  days  obtained. 
This  gives  the  "product  for  averaging." 

Add  the  debit  items  of  the  statement  and  the  "product  for  averagmg- 

column.  P      1  J  +1, 

Credits.— Calculate  the  number    of    days  from  the  focal  date  to  the 

date  of  each  credit.  .^  -     ^ 

IMultiply  the  amount  of  each  credit  by  the  number  of  days  obtamed, 

which  gives  the  "product  for  averaging." 

Add  the  credit  items  of  the  statement  and  the  "product  for  averaging" 

column. 

Deduct  the  total  of  the  credits  from  the  total  of  the  debits,  and  the 
total  of  the  credit  "products"  from  the  total  of  the  debit  "products." 

Divide  the  balance  of  the  "product"  columns  by  the  balance  of  the 
"items"  or  "amount"  columns.  This  will  give  the  number  of  days  for- 
ward from  the  focal  date  when  the  balance  of  the  account  was,  or  will 
be,  due.    This  is  the  average  due  date  of  the  account. 

Calculate  interest  on  the  balance  of  the  account  for  the  period  of  time 
elapsed  between  the  average  due  date  and  date  of  rndering  statement. 


Date   of  ^ettl^ment Qjji.  y  '", 

Focal.  Date     Feb   I^ 

DEBITS                                                         J 

C  f^EOITS 

DATf 

Amount     \OArs  ^onwAno 
Of  Giuu    \Fr*oM  Focal  Date 

AvEftACE      1 

OAre        A.ou.r  l,^:-^;rr;/ 

AvEfTAaes 

■  ^:^ 

/=•& 

/-»" 

loo 

_ 

/S 

/jroo 

Apr 

lO 

lOO 

70 

Tooo 

- 

Mch 

zs 

too 

- 

SS 

ss  oo 

May 

/o 

lOO 

loo                 loooo 

- 

Afif. 
May 

IS- 
IS 

1  OO 

1  OO 

- 

7S 

1  OS 

7SOO 

lOSOO 

June 

lo 

s-o 

/30              esoo 

f  ^ ■ ' ^- — 

A-oo                                              2  5000 

ZSO                                                     Z3-500 

ZSO                                                  Z3SOO 

ISO                                                   1  s  oo         — 

loday^    fonwancJ  from   Fefo-I'^ 

Average  Due  Dot 
6X    lntere%f^  on  i 

a   Fei>  1 
flSO    fn 

orn   / 

^ch  10 

tlL. 

to  July  l^-1tJi£s. 

Proof.— Total  time— Feb.  1    (focal  date)   to  July  1    (date  of  settle- 
ment)— 5  months=150  days. 


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Av. 


Divide  total  "product"  of  debts  by  amount  of  charges. 

Deduct  result  from  total  days  and  calculate  interest  on  total  charges 
for  balance  of  days  obtained. 

Divide  total  "product"  of  credits  by  amount  of  credits. 

Deduct  result  from  total  days  and  calculate  interest  on  total  credits 
for  balance  of  days  obtained. 

The  difference  between  debit  interest  and  credit  interest  will  be  the 
amount  of  interest  due. 

As  a  matter  of  fact  the  formula  of  the  proof  is  as  good,  if  not  better, 
than  the  formula  of  the  original,  because  it  seems  more  complete.  A 
further  illustration  is,  therefore,  given,  showing  the  double  average  thus 
obtained. 


FocAu  Date     Ja-n    (**■ 


DEBITS 


BaTC  or  StTTLtMENT    MAY  1^ 


C  RE  D/T^ 


MATURE  O 

DATE  ■ 


Jon 
7eb. 
Mch 
Apl 


(5 
\S 
IS 
IS 


eo 
oo 

4-0 

5-0 


SJO 


Amount    BDays   fowawo 
OF    B  1 1-«-      FROM  Focal  Qati 


Pro 
Av 


OUCT    FOrIH  |Dav»  row»«d     W»COwCT    ro« 

eRA«e     1°'^"''^     AMOUNT  ||^,^rot*iO*i J       a»«..*o« 


IS 
4-5 

75- 
/OS 


9oo 

3600 

3000 
5  2  50 


-^di 


»2  750 


MCK 
Apl 


5  O 

TTb 

'   JO 

I  o  o 


V 


jEH 


(O 


10 


50 
50 


11    /oo 


70 

'OO 


JjTOO 

i"oco 


&SOO 


i*'7) 


-H%-, 


^v 


OJ 


00 
00 


Total  days  from  Jan.  1  (focal  date)  to  May  1  (date  of  settlement)  120 


days. 


Debits— Total  days  120— 55^^=643^^.    Interest  at  6  per 

cent  on  $230   $2.47 

Credits— Total    days    120—85=35.      Interest   at   6   per 

cent  on  $100 58 


Interest  due  May  1 $1.89 


Date  or  Settlement 


May  »st 


DEBITS 


DATE 


Jan. 
Feb. 
Mch. 
Apl 


AMOUNT 


60 
60 
40 
SO 


RATE 


Days    to 
May  »« 


(NTE,REST 


6% 


/05 

76' 
45- 
15 


Les:  Credits 
Int.  do 


I'MayPt 


o5 
oo 
30 
/  ^ 


47 
56 


Q9 


CREDJTS 


DATE 


Mch 
Apl 


AMQUNT 


50 

1     5o 


RATE 


I  Days  to 
MAYl« 


6% 


50 
20 


INTEREST 


4X 
/6 


sa 


What  is  called  the  "Interest  Process  of  Averaging  Accounts"  is  so 
generally  used  that  an  illustration  is  hereto  appended  in  order  to  complete 
the  subject.    By  this  method  the  interest  is  separately  extracted  in  each 


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Av.  American  Business  and  Accounting  Encyclopedia  183 

calculation,  the  credits  are  subtracted  from  the  debits,  and  the  result  is  the 

same  with  a  little  more  labor.  j       j  +«c 

There  are  numerous  other  methods  of  obtammg  average  due  dates. 

and  amount  of  interest    due    at   a   given   date,   but   the    methods   above 

described  will  answer  every  ordinary  business  requirement. 

In  cases  of  "freak"  averages,  where  the  average  due  date  will  be  found 

prior  to  date  of  first  charge,  it  will  be  well  to  bear  in  mind  that  where  the 

preponderance  of  weight  is  all  on  one  side  no  average  can  be  struck. 

The  average  due  date  of  an  account  is  the  theoretical  time  the  NET 

balance  must  have  run  to  produce  at  a  given  date  the  correct  amount  of 

interest  on  that  balance. 

ILLUSTRATION. 

Date  of  settlement  assumed  as  Focal  Date. 
Nov.  \st  date  of  settlement. 
Dr.  Cr. 

1894.  1^^*-  . 

May    14,  $300X166 $  83,000     July         9,  $400X111 $44,400 

June  16,     800X134 107,200      Sept.      11,    600 X  49 29,400 

July    21      300X98 29,700      Oct.       29,     200X     1 -^        200 


$1,600 
1.200 


$    400 


$219,900 
74,000 

$145,900 


$1,200 


$74,000 


364  days  back  of  Nov.  1st. 
Average  date,  Oct.  26,  1893. 


Cr. 


ILLUSTRATION. 

Credit  amounts  in  excess  of  Debit  amounts. 
May  1st,  Focal  Date. 

Dr. 

1894.  1894. 

May      14,  $500X14 $  7,000     June      9,  $400X  69 $27,600 

June      16,     800X46 36,800      Sept.    11,     600X131 78,600 

July       21,     300X81 24,300      Oct.     29,     200X179 35,800 


1,600 
1,200 

400 


$68,100 


1,200 


$142,000 
68,100 


4/739/184   days   back   of   May 

1st   $73,900 

Average  date  Oct.  26,  1893. 

363  days'  interest  at  6%  on  $400.00 $24.20 

May  1st  to  Nov.  1st  date  of  settlement— 180  days. 
1200/14200/118  days. 

Proof. 
1600/68100/43  days. 
64000 


4100 

180—  43=137  days'  interest  on  $1,600.00  at  6  per  cent $36.54 

180—118=  62  days'  interest  on  $1,200.00  at  6  per  cent 12.40 

Interest  due    $24.14 

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183  American  Business  and  Accounting  Encyclopedia  Av 

Another  Method  of  Averaging  Accounts  and  Computing 

Interest. 
Simple  Average.    Arrange  the  items  in  order  of  date.    Use  due  date, 

if  anv. 

Carry  out  balance  of  account  on  each  date  after  items  on  that  date 

have  been  entered.    With  every  new    entry    there    is,    therefore,  a  new 

balance. 

Multiply  each  balance  by  the  time  intervening  between  its  date  and 

the  next  succeeding  entry. 

Add  amounts  so  obtained  and  divide  by  balance  of  account.  The 
quotient  will  be  the  number  of  days  to  count  backward  from  latest  date, 
which  will  give  average  due  date. 

Compute  one  day's  interest  on  total  of  "amounts"  column  (if  time  has 
hMen  computed  in  days)  which  will  be  the  balance  of  interest  due  at  latest 
d*te. 

ILLUSTRATION. 

Int.  rate  5%.  Daily 

1905  Dr.  Balances.    Days.      Amounts. 

Dec.    23     $1,000  $1,000  15  $15,000 

1896.  (Dec.  23  to  Jan.  7). 

Jan  7  ...• 500  1,500  20  30,000 

Jan.  27 2,000  3,500  14  49,000 

Feb  10      200  3,700  15  55,500 

Feb!  25 300  4,000  10  40,000 

March  7 1.000  5,000  ^     

$5,000  74  $189,500 

$189,500  divided  by  5000=37.9  days  back  from  March  7= January  28 

equated  due  date. 

$189,500  @  5  per  cent  for  one  day=$25.96,  interest  due,  March  7. 

Total  due  March  7,  $5,025.96. 

CoMPOUUND     Average.— Proceed    as    before,    but    deducting    credit 
"amounts"  from  debit  "amounts"  and  dealing  with  the  balance. 

ILLUSTRATION. 

Required  amount  due  Feb.  19,  '96.     Int.  rate  7%. 

Dr.  Cr.  Dr.              Cr. 

1895.                       Dr.  Cr.         Bals.  Bals.    Days.  Am'ts.        Am'ts. 

Dec.   1    $1,000  $1,000  7  $  7,000 

Dec    8         $800             200  12  2,400 

Dec!  20    500  $300        20  $6,000 

1896. 

Jan    9    600  300  •  2,700 

Jan.   18    700  1,000  32  32.000       

Feb.  19 $*^'10°        ^^'^ 

44^10(>--60G0=38,100  divided  by  1000  (net  Dr.  balance)  =38.       1-10 

days  back  from  Feb.  19 — average  due  date,  Jan.  12. 

38,100  @  7  per  cent  for  one  day=$7.31,  interest  due  Frb.  19.    Total 

due  Feb.  19  -$1,007.31. 

249 


f 


. 


Av. 


American  Business  and  Accounting  Encyclopedia 


Examples  of  Single  and  Double  Average  and  Proof. 


183 


Fir^  Dep\or)5trcit;oi^ 
3ii)^l€  Average 
Focal  dotfe  May  ^9  Oo  Aiys  to Hje  n\of)fHj. 
Stat«f*\CQt  rendered  Septer^bcr  i**" 

Debits 

No.  of  day*  Aryoaijt 

1 16  4^ 

86  ^ 

^6  (00 

26  45 


M<tyJ 
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^600 
1170 


260 


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SecoQd  Bep\orjjitr<jtio-t^ 
D)>el>«>tcs.  SeptteP\b«r  t«-5odoy4  to-Hje  rr^tp^. 

Debits 
May  5  ^6^0  0 
June  5  ^0.00 

JulY  -5  100.00 

Ao^.  S  4^  00 


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^Z5.00- 

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Oberntion&. 
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Jane  si  toSspteinber  :^-86  dOY4X5o  =  45oo 
July  5*  tocieptember  1^-56  days X  100  -  ,?60O 
AU6..5*tb  =)CpteB\ber   i«t-  26  daysx  45  '    Il70 — 

Credits  .  . 

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Aug.  l«f  to  September   i^  -  3o.  day*  xioo  »_^^oaoo. 

18.610-7500  =  11,110  8^11,110/  iSodoys  bac»(^fron\  Sejjterr\ber  1*^ 

Aver«i&e  d»e  daTfc,  April   ZO^-  ,  a       ..    ^«4L   ^     «.    .^.^    .  .st    a  ,  ««. 

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'' 


CONTENTS  OF  VOL.  I 


Abatement,  1. 

Abstract,  2. 

Acceptor,  3. 

Accommodation,  4. 

ACCOUNT,  5. 

Account   Books — Manufacture  of,  6. 

Accounts  Payable  Account,  7. 

Accounts  Payable  Book,  7a. 

Accounts  Payable  Record,  7a. 

Accounts  Payable  Register,  7a. 

Accounts  Payable  Ledger,  8. 

Accounts  Receivable  Account,  9. 

Accounts  Receivable  Book,  10. 

Accounts  Receivable  as  Capital,  IL 

Accounts  Receivable  Discounted,   13. 

Accounts  Receivable  Ledger,  13. 

Adjustment  or  Controlling  Account,  14. 

Adventure  Account,  15. 

Advertising  Account,  16. 

Approbation  Sales  Account,  17. 

Asset  Accounts,  18. 

Balance  Account,  19. 

Balancing  Accounts,  20. 

Bank  Account,  21. 

Bank  Deposit  Account,  22. 

Bills  Payable  Account,  23. 

Bills  Receivable  Account,  24. 

Bills  Receivable  Suspense  Account,  25. 

Book  Account,  26. 

Buildings  Account,  27. 

Capital  Accounts,  28. 

Cash  Accounts,  29. 

Cash  and  Bank  Account,  30. 

Columnar  Account  Books,  31. 

Commission  Account,  32. 

Consignment  Accounts,  33. 

Construction  Account,  34. 

Copyright  Account,  35. 

Creditor's  Account,  36. 

Current  Accounts,  37. 

Customer's  Accounts,  38. 

Dead  Account,  39. 

Deficiency  Account,  40. 

Departmental  Accounts,  40a. 


Development  Account,  41. 

Distribution  Account,  42. 

Donation  Account,  43. 

Doubtful  Accounts,  44. 

Equipment  Account,  45. 

Error  Account,  46. 

Expense  Account,  47. 

Establishment  Expense  Account,  48. 

Guaranteed  Accounts,  49. 

Impairment  Account,  50. 

Impersonal  Account,  51. 

Income  and  Expenditures  Account,  h'a 

Individual  Account,  53. 

Insurance  Account,  54. 

Inventory  Account,  55. 

Investment  Account,  56. 

Jobbing  Account,  57. 

Labor  Account,  58. 

Lease  Accounts,  59. 

Live  Stock  Account,  60. 

Liquidation  Account,  61. 

Loan  Account,  62. 

Machinery  Account,  63. 

Maintenance  Account,  64. 

Manufacturing  Account,  65. 

Material  Account,  66. 

Merchandise  Account,  67. 

Negative  Account,  68. 

Nominal  Account,  69. 

Open  Account,  70. 

Organization  Account,  71. 

Over  and  Short  Account,  71a. 

Personal  Account,  72. 

Plant  Account,  73. 

Postage  Account,  74. 

Private  Account,  75. 

Profit  and  Loss  Account,  76. 

Promotion  Account,  77. 

Purchase  Account,  78. 

Purchase    Ledger    and     Controlling 

count,  79. 
Raw  Material  Account,  80. 
Real  Account,  81. 
Receipts  and  Payments  Account,  82. 


Ae- 


250 


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Rent  Account,  83. 

Representative  Account,  84. 

Revenue  Account,  85. 

Revenue  Accounts,  86. 

Royalty  Account,  87. 

Sales  Account,  88. 

Sales  Ledger  Controlling  Account,  89. 

Sample  Account,  90. 

Stock  Account,  91. 

Summary  Account,  92. 

Snudries  Account,  93. 

Surplus  Account,  94. 

Suspense  Account,  95. 

Trading  Account,  96. 

Treasurer's  Account,  97. 

Treasury  Stock  Account,  98. 

Undivided  Profits  Account,  99. 

Venture  Account,   100. 

Vessel   Account,   101. 

Voyage  Account,  101. 

Wages  Account,  102. 

Work  in  Process  Account,  103. 

ACCOUNTANT.  105. 

Accountants'  Association,  106. 

Accountancy,  (Errors  in  Principle),  107. 

Accountancy— Ethics  of,  108. 

Accountants'  Accounts,  109. 

Accountants'   Investigations,  110. 

Accountants   and    Subsequent    Information, 

111. 
Accounting— History  of,  112. 

Accounting  Systems,  113. 

Accounts,  Science  of,  114. 

Accrued,  113. 

Active  Partner,  116. 

Actuary,  117. 

Adequation,  118. 

Additions  and  Betterments,  119. 

Addition,  120. 

ADJUST,  121. 

Adjusting  Books,  122. 

Adjusting  Entries,  123. 

Adjusting  Fire  Losses,  124. 

Adjustments— Accounting,  125. 

Administrators'  Accounts,  126. 

Ad  Valorem,  127. 

ADVERTISING,  128. 

Advertising  Agencies— Accounting    Method 

for,  1:^8. 

Advertising  Clippings,  129. 

Advertising  Direct,  130. 

Advertising  in  the  Magazines,  131. 

Advertising— Checking  Insertions  of,  132. 

Advertising  System   for  a  Monthly   Publi- 
cation, 133. 


Advertising  Rate  Cards,  134. 
Advertising— Statistical  Reports  of,  135. 
Advertising— The  Requirements  of  a  Suc- 
cessful Manager,  136. 
Accounting  Problems,  Solution  of,  137. 
Agenda  Book,  138. 
Agent,  139. 

Agents'  Accounts,  140. 
Alligation,  141. 
Aliquant,  142. 
Aliquot,  143. 
Alotment,  144. 
Allotment  of  Shares,  145. 
Allowance,  146. 
Amalgamation,  147. 
Amortization,  148. 
Amount,  149. 
Analysis  of  Ledger,  150. 
Annual  Statement,  151. 

Annuties,  152. 

Annuity  Calculations,  153. 

Annual  Payments  of  Principal  and  Interest 
How  to  Compute  Equal,  154. 

Anticipating  Bills,  155. 

Apportionment,  156. 

Appraise,  157. 

Appraiser,  158. 

Appreciation,  159. 

Appreciation  of  Buildings,  160. 

Approbation  Sales,  161. 

Approximate  Inventory,  162. 

Architects— Accounting  for,  163. 

Arithmetic,  164. 
Arithmetic   (Amusing),  165. 
Arrangement  of  Accounts,  166. 
Assembling  of  Costs,  168. 
Assessment,  169. 
Assessment  Record,  170. 

ASSETS,  171. 

Assets  and  Expenses,  171. 

Assets— Fixed,  171. 

Assets— Active  or  Floating,  171. 

Assets— Passive,  171. 

Assets— Wasting,  171. 

Assignees'  Accounts,  172. 

Assigned  Accounts,  173. 

Attorneys— Accounting  for,  174. 

Audit,  175. 

Auditing,  176. 

Auditor,  177. 

Auditors'  Certificates,  178. 

Authorized  Capital,  180. 

Auxiliary  Books,  181. 

Average,  182. 

Averaging  Accounts,  183. 


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American 
Business  and  Accounting 

Encyclopedia 


REVISED  EDITION 


A  Standard  Reference  Book  for  Accountants  and  Business  Men, 
profusely  illustrated  with  hundreds  of  special 

forms  and  plates 


VOL  II. 
COMPLETE  IN  SIX  VOLUMES 


The  Business  Man's  Publishing  Company,  Limited 

DETROIT.  MICHIGAN 


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Entered  according  to  Act  of  Congress, 
in  the  year  1908,  by 

JPhb  Business  Man's  Publishing  Company,  Limixbi) 
Detroit,  Michigan 

In  the  office  of  the  Librarian  of  Congress 
All  rights  reserved 


s.  --a 


J)  4-0^ 


V  .  2- 


184-186       American  Business  and  Accounting  Encyclopedia 


Ba. 


(184)     BACK  ORDERS. 

See  unfilled  or  waiting  orders.  . 

(185)     BAD  DEBTS. 

Debts  uncollectible  and  on  which  there  appears  to  be  no  prospect  of 
collection. 

In  preparing  financial  statements  a  provision  should  always  be  made, 

not  only  for  debts  which  are  known  to  be  bad,  but  to  offset  a  probable 

loss  which  at  the  time  of  calculating  profits  cannot  be  anticipated. 

(186)     BAD   DEBTS  RESERVE. 

The  following  method  of  treating  doubtful  accounts  receivable  has 
been  found  to  work  satisfactorily: 

In  the  first  place  go  through  your  entire  accounts  and  make  up  a  list 
of  those  you  know  to  be  absolutely  worthless.  The  portion  of  such  accounts 
contracted  during  the  current  year  should  be  charged  to  "Current  Loss" 
account  and  the  portion  of  such  accounts  contracted  prior  to  the  current 
year  should  be  charged  to  profit  and  loss  account  with  a  suitable  journal 
entry  for  each. 

Accounts  not  ascertained  to  be  uncollectible,  but  still  considered  wholly 
or  partially  doubtful,  should  next  be  dealt  with  individually  by  estimating 
the  probable  ultimate  loss,  and  while  leaving  the  accounts  in  their  present 
condition,  provision  should  be  made  to  meet  the  loss  in  the  future.  This 
would  be  done  as  follows: 

In  making  trial  balance  show  opposite  each  doubtful  account  (in  addi- 
tion to  the  balance  of  the  account  and  in  two  extra  columns)  the  estimated 
probable  ultimate  loss,  showing  in  the  first  additional  column  the  estimated 
loss  on  accounts  or  portions  of  accounts  contracted  during  the  current  year, 
and  in  the  other  column  the  estimated  probable  ultimate  loss  on  accounts 
or  portions  of  accounts  contracted  prior  to  the  current  year.  In  addition 
to  providing  for  accounts  you  know  to  be  doubtful,  you  should  set  aside 
a  certain  amount  on  accounts  contracted  during  the  current  year,  as  you 
have  found  from  past  experience  a  certain  percentage  of  these  turn  out  bad. 
This  amount  to  go  in  column  No.  1.  After  you  do  this,  make  a  journal 
entry,  charging  "Current  Loss"  with  the  total  of  column  No.  1  and  profit 
and  loss  account  with  the  total  of  column  No.  2,  crediting  "Bad  Debts 
Reserve"  account  in  each  case.  Afterwards  when  the  loss,  if  any,  is  ascer- 
tained, it  will  be  charged  to  this  "Bad  Debts  Reserve"  account  whether  it 
is  exactly  the  estimated  amount  or  not  as  some  will  probably  be  higher 
and  some  lower  than  estimated. 

The  total  of  "Current  Loss"  account  should  be  charged  to  profit  and 
loss  account. 

♦      253 


l^ 


Ba. 


American  Business  and  Accounting  Encyclopedia       186-187 


187 


American  Business  and  Accounting  Encyclopedia 


Ba. 


After  you  go  over  the  accounts  at  next  year's  closing  date  (and  before 
making  any  further  credit  to  "Bad  Debts  Reserve"  for  the  estimated  cur- 
rent year's  probable  loss),  the  total  of  the  column  showing  the  probable 
losses  on  accounts  contracted  prior  to  the  current  year,  should  be  compared 
with  the  balance  remaining  in  "Bad  Debts  Reserve"  account  and  if  found 
to  exceed  the  balance  of  "Bad  Debts  Reserve"  account  an  entry  should  be 
made  charging  profit  and  loss  and  crediting  "Bad  Debts  Reserve"  account 
with  sufficient  to  increase  the  latter  amount  to  such  extent,  but  if  the 
estimated  total  of  such  probable  losses  on  accounts  contracted  prior  to  the 
current  year  does  not  exceed  the  balance  of  "Bad  Debts  Reserve"  account 
no  such  entry  will  be  required. 

By  this  plan  your  "Current  Loss"  account  will  show  all  losses  sustained 
in  connection  with  accounts  contracted  during  each  current  year  so  far  as 
the  information  available  at  the  close  of  each  year  will  enable  you  to  esti- 
mate the  result.  In  the  same  manner  you  will  be  able  to  increase  "Bad 
Debts  Reserve"  account  where  necessary  to  fully  take  care  of  accounts 
contracted  prior  to  the  current  year  still  remaining  unsettled. 

(187)     BAKERS'  BUSINESS  ACCOUNTING  METHODS. 

Manufacturing,  Wholesale  and  Retail. — The  manufacturing 
wholesale  and  retail  bakery  establishment  of  the  ^lorton  Baking 
and  Manufacturing  Company  of  Detroit  possesses  one  of  the 
most  up-to-date  accounting  systems  it  is  possible  to  find,  arranged  by 
an  accounting  organization  of  national  reputation,  the  records  all  being 
devised  with  a  view  to  furnishing  the  most  complete  information  with  the 
least  possible  trouble. 

Owing  to  the  nature  of  the  business  and  the  unvarying  constituents 
of  the  product,  the  problem  of  obtaining  information  as  to  the  cost  of  pro- 
duction is  a  comparatively  simple  matter,  presenting  no  special  com- 
plexities. 

Stores.  The  stores  and  supplies  are  charged  as  received  to  material 
and  supplies  accounts  carried  in  a  loose  leaf  stores  ledger.  As  requisitions 
are  received  from  the  foremen  of  the  departments  the  material  is  credited 
on  the  stores  ledger  and  debited  to  the  departmental  accounts. 

The  departments  in  this  particular  business  are: 

Bread  Sales. 

Fried  Cake  Sales. 

Pound  Cake  Sales. 

Cake  and  Pie  Sales. 

Merchandise  Sales. 

The  cost  of  the  material  and  supplies  furnished  to  the  departments  on 


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requisition,  as  per  Form  1,  is  filled  in  by  the  stock-keeper  each  day,  and  the 
total  of  these  requisitions,  therefore,  constitutes  the  cost  of  the  day's  raw 
materials  as,  with  very  rare  exceptions,  all  material  issued  is  used  on  the 
dav  of  issue. 

The  quantities  of  bread,  cake,  pies,  etc.,  manufactured  is  based  on 
expected  requirements  arrived  at  by  general  experiences  of  averages,  and 
as  merchandise  of  this  kind  does  not  improve  with  age  it  will  be  understood 
that  there  is  very  little  on  hand  at  the  close  of  each  day's  business  transac- 
tions, so  that  inventory  of  finished  product  and  actual  statements  of  con* 
ditions  can  be  readily  obtained  at  any  time. 

Departmental  Trading  Accounts.  As  the  product  of  the  bakery  is 
received  for  shipment,  or  sale,  the  departmental  accounts  are  credited,  thus 
making  of  each  department  account  a  trading  account  exhibiting  gross 
profit. 

Purchases.  A  separate  accounts  payable  book  on  the  loose  leaf  plan 
is  carried  in  which  accounts  are  kept,  covering  all  expenditures  for  all 
purposes.    This  accounts  payable  book  is  practically  a  loose  leaf  purchase 


254 


255 


r^ 


187 


American  Business  and  Accounting  Encyclopedia 


Ba. 


187 


American  Business  and  Accounting  Encyclopedia 


Ba. 


1 

! 

1 


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record  as  no  ledger  accounts  are  kept  with  creditors.  A  special  column 
is  carried  in  the  cash  book  for  accounts  payable,  and  a  controlling  account 
with  the  accounts  payable  book  is  carried  in  the  ledger  on  the  plan  gen- 
erally known,  i.  e.,  the  controlling  account  is  credited  with  all  purchases 
entered  in  the  accounts  payable  book  and  debited  with  the  total  payments 
made,  as  per  the  column  provided  in  the  cash  book.  The  balance  of  the 
controlling  account  is  then  agreed  at  the  end  of  each  month  with  a  reca- 
pitulation of  unpaid  bills  obtained  from  the  accounts  payable  book. 

Sales  and  Customers'  Accounts.  The  city  customers  are  attended 
to  by  wagon.  Most  of  the  out-of-town  customers  have  standing  orders 
for  certain  quantities  of  bread,  etc.,  each  day  but  are  liable,  of  course,  to 
require  extra  supplies  occasionally.  A  standing  order  card  is  therefore 
made  out  for  each  customer  and  placed  in  a  file  for  the  next  day's  deliveries. 
Any  extras  are  put  on  a  memorandum  which  is  attached  to  the  card.  After 
the  deliveries  have  been  made  the  card  is  removed  to  the  next  day's  file. 
These  cards  are  indexed  territorially. 

In  addition  to  sales  to  out-of-town  customers  there  are  the  city  cus- 
tomers, whose  business  is  registered  as  wagon  sales,  and  retail  sales  made 
in  the  house. 

The  wagon  drivers  make  out  requisitions  each  night  for  goods  required 
next  day  and  are  furnished  with  supplies  accordingly,  the  value  of  which 
is  charged  against  their  personal  accounts  in  a  petty  ledger.  On  their 
return  from  their  rounds  the  wagon  drivers  must  produce  cash  and  charge 
tickets  to  cover  the  amount  debited  against  them. 

The  house  sales  are  provided  for  by  a  special  column  in  the  cash  book. 

Check  on  Ledger  Postings.  A  recapitulation  is  made  daily  of  all  the 
sales,  cash,  charge,  and  wagons,  and  is  made  by  departments  as  per  Form  3. 
The  total  of  this  recapitulation  must  agree  with  the  total  of  the  cash  sales 
entered  in  the  cash  book  plus  charge  sales.  The  amounts  of  the  charge 
sales  are  obtained  from  the  day's  ledger  posting,  thus  furnishing  a  proof 
at  the  same  time  of  the  accuracy  of  those  postings,  so  far  as  the  total 
amount  is  concerned. 

Sales  and  Customers'  Ledger  Account.  Owing  to  the  style  of  ledger 
used  it  is  not  very  easy  to  post  a  charge  to  the  wrong  account  so  that  the 
check  above  described  is  generally  satisfactory  and  efficient.  The  cus- 
tomer's ledger  is  a  loose  leaf  arrangement,  allowing  two  pages,  or  one 
opening,  to  each  account.  On  the  right  hand  page  the  daily  charges  are 
entered  in  duplicate,  so  that  at  the  end  of  the  month  the  original  of  this 
right  hand  page  is  footed  up  and  mailed  to  the  customer  as  a  statement. 
The  amount  of  this  statement  is  debited  to  the  regular  customer's  ledger 

256 


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American  Business  and  Accounting  Encyclopedia 


187 


account,  which  is  on  the  left  hand  page,  making  one  posting  per  month. 

Invoices  are  made  to  customers  in  duplicate  before  the  order  is  filled. 
The  shipping  tags  are  attached  to  the  duplicate  bills  and  sent  to  the  ship- 
ping room.  The  original  bill  is  placed  in  the  package  delivered  to  the 
customer. 

In  the  cash  book  special  columns  are  provided  on  the  cash  received 
side  for  accounts  receivable,  wagon  sales  (from  drivers),  and  house  sales 
(retail  department).  The  total  receipts  are  deposited  each  day.  All  expen- 
ditures are  made  by  check.  The  imprest  petty  cash  system  is  used  which 
may  be  described  as  follows: 

An  account  in  the  general  ledger  with  petty  cash  is  opened  and  a  check 
drawn  for  an  amount  sufficient  to  cover  a  week's  or  month's  expenditures, 
charging  same  either  to  petty  cash  account,  or  to  cashier  through  general 
cash  book.  All  expenditures  are  entered  as  made  in  the  petty  cash  book, 
and  either  daily  or  weekly  such  expenditures  are  O.  K.'d  by  a  responsible 
officer  of  the  business.  At  the  end  of  the  arranged  period  the  totals  of  the 
petty  cash  columns  are  carried  into  the  general  cash  book  and  the  cashier, 
or  the  petty  cash  account,  credited  with  the  amount. 

General  Ledger.  A  general  ledger  is  carried,  containing  the  usual 
representative,  revenue  and  asset  accounts,  also  controlling  account  with 
accounts  receivable  ledger.  This  controlling  account  is  debited  with  the 
total  credit  sales  and  credited  at  the  end  of  each  month  with  the  total  of 
the  sales  ledger  net  and  discount  columns.  The  balance  then  of  this 
account  must  agree  with  the  total  of  the  individual  balances  of  the  accounts 
carried  in  the  sales  ledger. 

In  this  business  monthly  statistics  are  obtained  and  the  profits  shown 
by  each  department  are  credited  at  the  end  of  each  month  to  surplus 
account.  This  practice  is,  of  course,  a  matter  of  convenience,  and  in  a  large 
number  of  similar  businesses  it  would,  no  doubt,  be  considered  unnecessary 
to  close  the  books  each  month. 

Very  important  blanks  are  those  headed  "Business"  and  "Department 
Statements,"  covering  the  monthly  balance  sheet  and  profit  and  loss 
account,  detailed  record  of  inventories,  distribution  of  general  expense, 
and  details  of  the  department  expenses.  It  will  be  noted  that  the  general 
expense  is  prorated  over  the  departments  so  that  when  the  department 
expense  plus  percentage  of  general  expense  is  deducted  from  the  sales  the 
actual  net  department  profit  is  obtained. 

There  is  also  the  question  of  keeping  track  of  the  delivery  wagons, 
so  that  the  amount  of  bread  delivered  can  be  checked  with  the  amount 
charged  according  to  the  driver's  reports  and  the  amount  returned  by  the 
driver.    One  method  very  much  used  in  this  connection  is  to  furnish  each 


258 


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American  Business  and  Accounting  Encyclopedia 


187 


MORTON   BAKING   «   MANUFACTURING  CO 

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American  Business  and  Accounting  Encyclopedia       187-190 


driver  with  a  ticket  on  which  will  be  entered  the  amount  of  supplies  taken 
out  by  him,  with  space  provided  so  that  he  can  record  on  this  ticket  the 
supplies  delivered,  where  delivered,  cash  received,  amount  to  be  charged, 
etc.  On  his  return  to  the  store,  these  tickets  are  checked  over  and  the 
balance  of  supplies  not  accounted  for  compared  with  the  driver's  returns. 

A  good  check  on  the  honesty  of  drivers  who  deliver  to  customers  in 
the  city  is  to  provide  a  form  of  triplicate  order  blank.  The  original  may 
be  used  as  the  customer's  bill,  the  duplicate  retained  in  the  office,  and  the 
triplicate  sent  to  the  shipping  room.  The  latter  should  be  provided 
with  a  form  of  receipt  at  the  foot,  detachable  by  perforation,  so  that  the 
customer  may  acknowledge  the  delivery  of  the  goods  by  signing  same. 

After  this  triplicate  has  been  used  for  the  checking  of  the  order  as 
received  for  delivery,  it  will  be  placed  in  the  hands  of  the  teamster  who  is 
to  deliver  the  goods. 

(188)     BALANCE. 

The  difference  between  the  debit  and  credit  side  of  an  account. 

"The  surplus,  or  deficiency,  shown  on  a  balance  sheet,  or  profit  and 
loss  account." 

The  inherent  quality  in  the  system  of  double-entry  book-keeping, 
whereby  every  debit  entry  must  have  its  offsetting  credit  entry,  and  every 
credit  entry  must  have  its  offsetting  debit  entry. 

(189)     BALANCE  ACCOUNT. 

A  summary  account  into  which,  at  a  given  date,  the  balances  of  other 
accounts  are  transferred. 

In  France  the  system  is  used  of  establishing  a  balance  account  when 
closing  the  books.  All  outstanding  balances,  debit  or  credit,  are  transferred 
to  this  account. 

See  adjustment  and  controlling  accounts. 

(190)     BALANCE  LEDGER. 

A  ledger  containing  separate  columns  for  the  exhibition  of  daily, 
weekly  or  monthly  balances. 

It  has  at  all  times  been  found  useful  to  show  the  balance  of  a  ledger 
account  at  frequent  intervals,  so  that  it  has  now  become  quite  customary 
to  provide  a  special  column  for  the  purpose.  The  prominent  display  of 
the  balances  in  customers'  ledgers  is  a  great  aid  to  the  credit  man, 
especially  if  a  due  date  column  is  provided  in  front  of  the  balance  column 
in  which  the  due  dates  are  brought  forward. 

The   provision   of   balance   columns   also   does   away   with   the   old- 

260 


190 


American  Business  and  Accounting  Encyclopedia 


Bal. 


fashioned  method  of  ruling  off  accounts  each  month  and  bringing  down 
the  balances,  which  absorbs,  or  wastes,  a  great  deal  of  entirely  unnecessary 
time,  interferes  with  the  convenient  chcking  off  of  bills  paid,  and  increases 
the  possibilities  of  error.  The  monthly  ruling  off  of  nominal,  or  repre- 
sentative, accounts  is  especially  to  be  discouraged,  as  it  is  absolutely 
essential  for  the  convenient  preparation  of  comparative  statistics  that  the 
totals  of  debits  and  credits  of  these  accounts  be  obtainable  at  any  time 
without  labor  of  "digging." 

The  separate  balance  column  is  also  a  great  improvement  on  that 
other  old-fashioned  plan  of  disfiguring  the  ledger  pages  with  balances 
written  in  pencil. 

As  instances  of  well-known  balance  ledgers,  we  may  cite  the  Boston 
bank  ledger,  the  "Safeguard"  commercial  ledger;  the  Havill  bank  ledger. 


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in  which  a  silicate  margin  is  attached  to  the  right  hand  side  of  the  ledger, 
on  which  the  daily  balances  of  changing  accounts  are  entered  by  erasing 
the  old  balances  with  a  soft  rubber  and  writing  the  new  balances  from  the 
accounts.  This  is  a  very  useful  device  for  bank  ledgers  where  a  daily 
balance  is  a  necessity;  but  would  not  be  practicable  in  any  ordinary 
commercial  business  where  there  are  a  large  number  of  accounts  receivable. 
The  Havill  balance  ledger  carries  accounts  in  the  old-style  way,  but  with 
the  improved  Boston  bank  ledger  columnar  ruling.  The  lines  on  the 
silicate  strip  on  the  margin  are  numbered  to  correspond  with  a  similar 
number  of  pages  containing  accounts.  Thus,  if  the  number  of  lines  on  the 
ledger  page  is  80,  the  silicate  strip  will  show  the  balances  of  80  accounts, 
thus  giving  an  opportunity  to  sectionalize  in  proving  when  desired. 

Other  examples  of  balance  ledgers  will  be  found  in  the  popular  loose 
leaf  forms,  such  as  the  following: 


261 


Bal. 


American  Business  and  Accounting  Encyclopedia       190-1!)  1 




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(191)     BALANCE  SHEET. 

A  statement  of  actual  assets  and  liabilities  at  a  given  date 
designed  to  exhibit  the  financial  condition  of  a  business.  It  con- 
sists of  the  balances  of  assets  and  liabilities  accounts  extracted  from  the 
ledger  after  inventory  has  been  taken  and  the  nominal  accounts  have  been 
closed  into  profit  and  loss,  and  of  outstanding  resources  or  liabilities  not 
included  in  the;  books  of  account. 

The  excess  of  assets  over  liabilities  represents  the  profit  made  by  the 
operations  of  the  business  during  the  period  covered  by  the  statement ;  the 
excess  of  liabilities  over  assets  represents  a  loss.  This  surplus,  or  defi- 
ciency, is  the  balance  of  the  balance  sheet,  and  must  agree  with  the  balance 
of  the  current  profit  and  loss  account. 

Items  such  as  "surplus,"  "reserve,"  "undivided  profit,"  etc.,  having 
separate  accounts  in  the  ledger,  are  in  reality  sections  of  the  balance  of  the 
balance  sheet,  and  should  be  classified  accordingly. 

"A  balance  sheet  is  a  statement  showing  upon  one  side  the  assets  of 
the  person  or  firm  in  question,  and  on  the  other  side  the  liabilities.  If  the 
assets  exceed  the  liabilities  the  surplus  is  the  capital  of  the  person  or  firm, 
and  is  entered  on  the  liabilities'  side  so  that  the  totals  of  both  sides  may 
agree.  On  the  other  hand,  should  the  liabilities  exceed  the  assets,  the 
difference  is  called  a  deficiency,  or  capital  overdrawn,  and  is  entered  on  the 
assets'  side." 

"A  balance  sheet  is  a  list  of  the  ledger  balances  of  a  system  of  books 
kept  by  double  entry,  which  has  been  extracted  after  the  nominal  accounts 
have  been  closed.  It  is  therefore  a  list  of  assets  and  liabilities,  and  shows 
the  financial  position  of  the  undertaking  as  at  the  date  thereof." 

How  TO  Prepare  a  Balance  Sheet.  After  the  trial  balance  has 
been  properly  taken,  together  with  complete  inventories  of  merchandise, 
etc.,  and  all  the  current  liabilities  entered  up,  the  next  step  is  to  close  the 
profit  and  loss  accounts  in  the  ledger,  transferring  the  balances  through 
the  regular  journal,  or  through  a  private  journal,  which  frequently  accom- 
panies the  special  ledger  in  which  are  carried  the  nominal  accounts.  The 
balance  of  these  accounts  will  then  show  the  net  profit  or  loss  made  during 
the  period  included. 

Before  closing  the  merchandise  or  other  accounts,  in  relation  to  which 

2e2 


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American  Business  and  Accounting  Encyclopedia 


Bal. 


inventories  have  been  taken,  it  is  necessary  to  credit  the  amount  of  the 
inventory  at  date  of  closing,  carrying  the  amount  of  the  inventory  forward 
as  a  debit  balance  for  the  new  year,  or  fiscal  period.  If  the  total  credits 
of  such  account  are  then  in  excess  of  the  total  debits,  the  difference  shows 
the  gross  profit  and  is  transferred  to  the  profit  and  loss  account. 

The  accounts  remaining  open  on  the  ledger  after  the  elimination  of  the 
profit  and  loss  accounts  as  above  described,  and  the  addition  of  the  inven- 
tories, will  constitute  a  balance  jheet. 

Classification  of  Accounts.  Considerable  differences  have  always 
arisen  among  accountants  in  regard  to  both  the  classification  of  accounts 
on  balance  sheets,  and  the  proper  form  which  can  be  used  with  the  best 
results.    With  regard  to  classification,  Dicksee  prefers  the  following: 

Liabilities.  "Upon  the  liability  of  a  balance  sheet  the  most  prom- 
inent item— in  case  of  a  limited  company,  at  least— is  the  shareholders' 
capital,  which,  of  course,  can  only  be  increased  beyond  its  original  limit, 
or  reduced,  after  due  compliance  with  important  legal  technicalities.  In 
stating  the  capital  account,  it  is  desirable  to  show,  first,  the  nominal  capital, 
i.  e.,  the  limit  sanctioned  by  the  memorandum  of  association;  secondly, 
the  number  and  value  of  each  class  of  shares  issued  and  the  amount  called 
up  thereon,  from  which  should  be  deducted  the  amount  of  calls  in  arrear, 
stating  the  number  of  shares  upon  which  such  calls  are  due.  In  France, 
and  also  in  South  America,  it  is  usual  to  state  the  full  amount  of  the 
capital  issue  as  a  liability,  and  the  amount  uncalled  as  an  asset;  but  this 
is  not  at  all  a  desirable  form  to  adopt,  as  it  can  hardly  be  said  that  uncalled 
capital  is  more  than  a  contingent  asset. 

"The  next  item  to  be  stated  is  the  amount  paid  up  upon  shares  for- 
feited, when  such  shares  have  not  been  re-issued  by  the  company;  when 
they  are  re-issued  this  item  may  appropriately  be  absorbed  in  the  reserve 
fund. 

"Next  comes  the  amount  due  upon  debentures,  the  amount  extended 
being  the  nominal  amount ;  or,  in  the  case  of  debentures  issued  at  a  dis- 
count, the  amount  actually  received.  In  the  latter  case,  however,  the 
nominal  amount  should  also  be  stated,  and  in  both  cases  the  rate  of  interest 
should  be  mentioned.  The  appropriate  place  for  premiums  received  upon 
issues  of  either  shares  or  debentures  is  in  the  reserve  fund. 

"The  next  item  upon  the  balance  sheet  will  be  the  amount  due  upon 
mortgage,  which,  like  most  debentures,  constitutes  a  preferential  liability, 
and  ordinarily  speaking  is  practically  permanent.  The  rate  of  interest 
should  be  stated  here  also. 

"Next  comes  the  ordinary  liabilities  of  the  company,  which  may  be 
separated  under  the  following  sub-headings: 

263 


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American  Business  and  Accounting  Encyclopedia 


191 


191 


American  Business  and  Accounting  Encyclopedia 


Bal. 


(a)  Debts  for  which  acceptances  have  been  given. 

(b)  Debts  to  tradesmen  for  supplies  of  stock-in-trade  and  other 
articles. 

(c)  Debts  for  law  expenses. 

(d)  D€bts  for  interest  upon  debentures  and  other  loans. 

(e)  Unclaimed  dividends. 

(f)  Debts  not  enumerated  above. 

"The  next  item  upon  the  liability  side  is  for  'Reserve  Fund,  showing 
the  amount  set  aside  from  profits  to  meet  contingencies.' 

"The  last  item  upon  this  side  of  the  balance  sheet  is  the  balance  of 
undivided  profit.  It  is  preferable  to  show  this  balance  without  elaboration 
upon  the  balance  sheet  and  in  a  'Profit  and  Loss  Apportionment  Account' 
(or  the  last  section  of  the  profit  and  loss  account)  to  show  the  connection 
between  the  balance  shown  upon  the  balance  sheet  and  the  balance  of  the 
profit  and  loss  account  for  the  current  period.  There  is,  however,  no 
more  serious  objection  to  showing  the  details  upon  the  balance  sheet 
except  that  it  does  not  appear  to  present  the  facts  of  the  case  so  clearly. 

"With  the  question  of  contingent  liabilities  it  is  not  necessary  to  deal 
at  length,  beyond  statmg  that  all  such  liabilities  must  be  noted  upon  the 
balance  sheet,  even  if  it  is  anticipated  that  they  will  not  ultimately  result 
in  a  claim  against  the  company." 

Assets.  Fixed  assets,  such  as  freehold  land,  leasehold  land  and  lease- 
hold buildings  stated  separately. 

Floating  assets,  such  as  stock-in-trade  and  plant;  debts  considered 
good,  for  which  the  company  holds  security;  debts  considered  good,  for 
which  the  company  holds  no  security;  debts  considered  doubtful  and  bad. 

Investments  which  should  be  stated  in  some  detail,  and  if  on  account  of 
reserve  fund,  or  sinking  fund,  the  circumstances  should  be  clearly  stated. 

Cash  on  hand  and  cash  at  bankers  on  deposit. 

At  the  first  examination  of  the  C.  P.  A.'s  of  New  York,  the  following 
classification  was  given  official  approval : — 

Assets.  "Commencing  with  the  most  available  asset,  namely,  cash, 
the  amounts  lodged  in  the  several  banks,  and  the  amount  in  hand  are 
separately  stated  and  the  figures  placed  in  the  indent  or  first  column 
adjoining  the  text  and  the  total  extended  into  the  next  or  final  column. 

The  properties  actually  in  the  possession  of  the  estate,  such  as  land, 
buildings,  plant,  equipment  and  stock-in-trade,  should  be  stated  next, 
placing  the  separate  values  of  each  in  the  first  column  and  extending  the 
total  of  all  into  the  outer  column  giving  full  particulars  of  deductions  for 
depreciation  and  basis  of  valuation  to  the  extent  that  responsibility  therefor 
is  to  be  assumed. 

264 


Bills  receivable  being  more  enforceable  or  generally  more  readily 
realized  upon  would  take  precedence  over  open  book  accounts  in  the  order 
of  arrangement,  and  the  latter  should  be  classified  into  good  and  doubtful, 
and  necessary  provision  for  losses  on  bad  accounts  should  be  shown  as  well 
as  reserve  for  customary  discounts  by  deducting  from  the  aggregate  sum 
the  amounts  respectively  charged  against  the  profits  to  provide  for  such 
contingencies.  ^ 

All  actual  assets  thus  available  for  the  satisfaction  of  the  liabilities 
in  the  event  of  liquidation  should  be  first  stated  and  totaled  before  any 
quasi  or  speculative  assets,  such  as  claims  against  the  private  estates  of 
partners  when  any  question,  as  to  their  realization  may  exist  (as  where 
the  same  are  unsecured  or  constitute  capital  deficits),  patent  rights,  good 
will,  or  similar  conditional  values. 

Liabilities.  Mortgages  against  the  realty,  with  reference  to  the  prop- 
erties stated  contra,  upon  which  they  are  encumbrances,  loans  secured  by 
collateral  pledged  therefor,  and  similar  items  would  rank  first  against  the 
assets. 

Bills  payable  or  other  written  pledges  would  precede  unsecured  trade 
creditors  on  open  account. 

After  stating  and  totaling  all  the  liabilities  and  obligations  to  outside 
creditors  it  would  then  be  proper  to  state  the  various  reserve  accounts  and 
the  capital  accounts. 

A  balance  sheet  thus  framed  will  show  first  in  classified  form  the 
actual  assets  as  opposed  and  in  juxtaposition  to  the  actual  liabilities,  and 
the  total  of  each,  and  thereafter  the  capital  or  surplus,  or  both,  as  qualified 
by  reserves  and  opposed  to  speculative  or  conditional  values. 

If  the  capital  precedes  the  liabilities  in  the  same  column  the  total 
liabilities  exclusive  of  the  capital,  is  not  shown,  and  if  conditional  values 
are  first  among  the  assets,  or  alternate  with  them  in  the  order  of  arrange- 
ment the  actual  assets  are  not  shown,  and  the  degree  in  which  the  capital 
as  stated  on  the  balance  sheet  may  be  qualified  by  reserves  or  surplus  as 
augmenting  features,  or  by  fictitious  or  uncertain  assets  as  diminishing 
features  cannot  be  expressed  without  a  rearrangement  of  the  statement. 

The  ledger  folio  from  which  the  balance  is  taken  should  be  prefixed 
to  each  account  stated  on  a  balance  sheet. 

It  will  be  noticed  that  in  the  first  form  of  classification  above  men 
tioned,  the  capital  of  the  business  is  the  first  item  on  the  liability  side  of 
the  balance  sheet,  while  in  the  second  capital  reserve,  undivided  profits, 
etc,  come  last.  We  append  a  sample  of  the  American  balance  sheet  and 
of  the  English  balance  sheet,  showing  the  differences.  It  will  also  be 
noticed  that  in  the  former  the  real  assets  are  scheduled  together  and 

265 


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American  Business  and  Accounting  Encyclopedia       191-193 


totaled,  after  which  speculative  or  doubtful  assets  are  added.  In  the  same 
way  the  outside  liabilities  are  scheduled  together  and  totaled  and  capital, 
etc.,  added.  Inasmuch,  however,  as  capital  is  as  much  a  liability  of  a 
business  as  an  outside  liability,  the  advantage  of  this  particular  classifica- 
tion is  somewhat  obscure  unless  it  is  intended  as  a  comparison  of  trade 
assets  with  trade  liabilities. 

(192)       CONTINENTAL    AND    AMERICAN    FORM    OF    BALANCE    SHEET. 


ASSKTS.     , 

Cash  on  hand. 

Cash  at  bank. 

Investments,  as  per  Schedule  A. 

Real  estate. 

Plant,  machinery,  etc. 

Inventories. 

Accounts  receivable. 

Bills   receivable. 

Good    will. 

Patents,  copyrights,  etc. 


LI.\BIL1TIES. 

Mortgages. 

Bonds. 

Interest  due  and  accrued. 

Accounts  payable. 

Bills  payable. 

Unpaid  taxes,  wages,  etc. 

Capital   stock. 

Reserve  for  depreciation. 

Reserve  for  discounts  on  Bills  Receivable 

Reserve  for  doubtful  and  bad  accounts. 

Surplus. 


(193)       ENGLISH    REGISTERED    COMPANY    FORM    OF    BALANCE    SHEET. 


LIABILITIES. 

Nominal  capital  ( ). 

Capital  subscribed  ( ). 

Less    calls    in    arrear. 

Debenture    stock    ( ). 

Bills    payable. 

Sundry  creditors. 

Interest  on  debentures. 

Unpaid   dividends. 

Reserve    fund. 

Profit  and   loss   account   (balance  avail- 
able   for    dividends,    etc.) 


ASSETS. 


( 


Leasehold   buildings   at  — 

Less  depreciation. 
Stock-in-trade  (at  cost)  viz: 

Materials, 

Goods  unfinished. 

Manufactured  goods. 
Plant  and  machinery: — 

Value  1st  January,  1892, 

Additions  during  the  year. 
Less  depreciation. 
Warehouse  and  office  fittings: — 

Value  1st  January,  1892, 
Less  depreciation. 
Bills   receivable. 
Sundrv  debtors. 
Investment  of  reserve  fund. 

Debenture  stock  at  .... 
Cash: — 

At  bank. 

In  hand. 


There  is  also  a  double  account  form  of  balance  sheet,  used  more  par- 
ticularly by  English  railroads,  in  which  a  balance  sheet  is  divided  into 
two  portions,  "one  showing  expenditure,  and  the  other  the  capital  raised 
to  meet  such  expenditure,  while  the  second  section,  or  general  balance 
sheet,  contains  what  may  be  conveniently  called  'Floating  Assets  and 
Liabilities'  arising  incidentally  in  the  course  of  carrying  on  the  under- 
taking."   An  illustration  of  this  form  of  classification  is  also  appended. 

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194-195      American  Business  and  Accounting  Encyclopedia 

(194)       FORM   OF  double  ACCOUNT   B.\L.\NCE  SHEET. 

CAPITAL  ACCOUNT. 


Bal. 


Dr. 


1. 
2. 
3. 
4. 


5. 
6. 
7. 
8. 


To  Land  and  freehold  buildings, 
"     Leasehold  buildings. 
"     Generating  machinery  and  tools. 
'     Accumulators,   motor   transform- 
ers   and    apparatus    in    sub-sta- 
tions. 
"     Mains. 
"    Meters. 

"     Electrical  instruments. 
"     Furniture  for  office. 

Less  renewals  and  depreciation 
Fund  account   No.   VI. 


By   Ordinary   shares    of    . 
per    share    paid. 
"  Debentures  paid  up. 


each 


Cr. 


(195)       GENERAL   BALANCE  SHEET. 


3. 
4. 


Dr. 

To  Capital  account — 

Amount   received    a.<5   per   account 
No.  III. 
"     Sundry  creditors. 

Net  revenue   account — 
Balance  at  credit  thereof. 


Cr. 


6. 


7. 


By  Capital  account — 

Amount  expended  as  per  account 
No.  III. 

Less    renewals    and    deprecia- 
tion fund  account. 
"    Stores  on  hand — 

Coal  oil,  waste,  etc. 
General   stores,  including  work 
in    progress. 
"     Sundry  debtors   for   current   sup- 
plied, etc. 

Less  bad   debts  deducted. 
"     Sundry    debtors    for    interest    on 

calls  in  arrear. 
"     Cash  at  bankers  and  in  hand. 


Position  of  Assets  and  Liabilities  on  the  Balance  Sheet.  While 
the  American  and  Continental  accountants  generally  place  assets  on  the 
left-hand  side  and  liabilities  on  the  right-hand  side,  English  chartered 
accountants  have,  for  a  long  time,  followed  the  opposite  course;  so  long, 
in  fact,  that  it  seems  to  be  quite  difficult  for  them  to  understand  the  reasons 
for  the  use  of  other  methods.  In  D'icksee's  auditing,  it  is  stated  that  "some 
years  ago  it  was  not  unusual  to  find  balance  sheets  stated  with  the  assets 
upon  the  left-hand  side  and  the  liabilities  upon  the  right-hand  side.  The 
circumstance  is,  doubtless,  at  first  sight  curious."  From  this  quotation 
the  reader  would  necessarily  imagine  that  the  custom  referred  to  was 
absolutely  obsolete,  and  it  entirely  ignores  the  fact  that  the  large  majority 
of  accountants  still  use  the  methods  referred  to  as  being  not  unusual  some 
years  ago. 

In  the  American  Accountants'  Manual,  which  contains  the  views  of 
the  certified  accountants  of  New  York,  this  question  is  gone  into  at  great 
length,  but  as  a  matter  of  fact,  it  is  simply  and  entirely  a  matter  of  form 
which  is  of  no  importance,  and  a  great  deal  too  much  fuss  has  been  made 

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195 


about  it.  If  the  English  accountants  prefer  to  place  their  liabilities. on  the 
left-hand  side,  they  may  do  so,  we  hope,  without  preventing  other  account- 
ants from  placing  them  on  the  right-hand  side,  nor  can  the  former  assert 
any  legal  or  other  authority  for  making  their  method  a  standard  even  in 
Great  Britain.  The  arguments  in  favor  of  the  English  Chartered  Account- 
ants' method  appear  largely  to  be  based  upon  the  idea  that  the  balance 
sheet  is  made  out  by  the  business  to  the  proprietor.  The  proprietor  is 
therefore  debited  with  the  liabilities  incurred  and  credited  with  the  assets 
on  hand. 

Special  Items.  There  are  a  number  of  components  of  a  balance 
sheet  which  are,  to  a  certain  extent,  unusual,  and  which,  therefore,  invari- 
ably cause  a  considerable  amount  of  trouble  to  the  inexperienced  book- 
keeper who  desires  some  authority  by  which  he  can  ascertain  their  proper 
disposition.    Some  of  these  we  will  now  proceed  to  illustrate. 

(a)  Wages  Accrued  but  Not  Payable.  These  should  be  included 
as  a  liability. 

(b)  Unexpired  Insurance.  A  proper  proportion  should  be  included 
as  an  asset.    Unexpired  licenses  should  be  treated  in  the  same  manner. 

(c)  Accounts  Receivable.  An  accurate  balance  sheet  should  include 
a  reserve  for  probable  bad  debts.  We  believe  it  to  be  a  fact  that  a  certain 
percentage  of  accounts  receivable  are  never  realized,  and  this  percentage 
should  not  be  included  in  the  divisible  profits. 

(d)  Plant,  Machinery,  Etc.  A  certain  percentage  should  be  written 
off  annually  from  any  asset  which  is  liable  to  depreciation,  otherwise  a 
portion  of  dividend  will  be  paid  out  of  capital  as  well  as  from  profits. 

(e)  Excess  of  Capital.  In  a  partnership  business,  if  one  partner 
draws  less  than  his  share  of  the  profits  and  allows  it  to  remain  in  the 
business  as  working  capital,  he  is  entitled  to  interest  unless  otherwise 
specifically  provided  in  the  partnership  agreement. 

(f)  Reserve  is  a  portion  of  undivided  profits,  and  is,  to  a  large  extent, 
synonymous  with  surplus. 

(g)  Discounts  from  Accounts  Receivable.  As  a  rule,  sales  are 
charged  to  customers,  less  trade  discount.  Where  they  are  charged  gross, 
of  course,  it  would  be  necessary  always  to  deduct  the  trade  discount  in 
making  up  the  balance  sheet. 

With  regard  to  cash  discounts,  it  may  be  safer  to  take  off,  say  2  per 
cent  as  a  reserve  against  possible  discrunts  of  this  kind,  but  as  the  amount 
of  cash  discount  taken  advantage  of  is  extremely  irregular  and  uncertain, 
it  is  quite  legitimate  to  ignore  it. 

(h)     Present   Value.     Articles,   the   value  of  which   is   subject  to 

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195-196       American  Business  and  Accounting  Encyclopedia 


Bal. 


market  fluctuations,  should  always  be  included  in  the  balance  sheet  at 
present  market  price.  This  is  a  generally  recognized  principle,  but  is  very 
larely  carried  out.  If,  for  instance,  goods  are  purchased  at  a  price,  the 
market  value  of  which  subsequently  declines  and  which  may  shortly  again 
appreciate,  the  proprietors  of  the  business  naturally  object  to  reducing 
profits  which  they  consider  to  be  only  fictitiously  and  temporarily  affected. 

(i)  Interest.  Interest  charged  upon  uncollectible  loans  or  bad 
investments  should  be  written  off  to  profit  and  loss. 

(j)  Preliminary  Expenses  of  Promotion.  These  may  be  with  pro- 
priety spread  over  the  first  few  years  after  a  company's  incorporation, 
so  that  the  total  expense  of  promotion  does  not  come  out  of  the  first  year's 
profits. 

With  regard  to  liabilities  accrued,  but  not  payable,  and  similar  items, 
it  is  usual  to  include  them  in  the  balance  sheet  without  incorporating  them 
in  the  ledger.  If,  however,  the  balance  sheet  is  desired  to  be  an  exact 
record  of  balances  shown  on  the  ledger,  accounts  can  be  opened  in  this 
way:  Charge  wages  account  and  credit  unpaid  wages  account.  When 
the  wages  are  paid  cash  is  credited  and  unpaid  wages  account  debited  with 
the  amount,  thus  closing  the  account. 

(196)     the  balance  sheet  and  the  statement  of  assets  and  liabilities. 

A  text-book  defines  the  difference  between  these  two  accounting  forms  as 
follows : 

"  'Statement  of  affairs'  is  a  term  generally  used  to  describe  the  state- 
ments of  assets  and  liabilities  prepared  in  bankruptcy  and  insolvency 
cases.  It  is  also  frequently  used  in  connection  with  the  accounts  of  retail 
traders,  who  keep  their  books  by  single  entry,  or  who  have  kept  no  proper 
books  enabling  a  balance  sheet  to  be  prepared. 

"Balance  Sheet  is  the  term  almost  universally  applied  to  the  statements 
of  assets  and  liabilities  of  ordinary  going  concerns,  or  of  concerns,  the 
books  of  which  have  been  correctly  kept  by  double  entry.  The  tendency 
rather  is  to  restrict  the  application  of  the  term  'balance  sheet'  to  these  latter 
cases,  and  to  use  the  term  'Statement  of  Assets  and  Liabilities,'  in  the  fre- 
quent instances  where  we  are  called  in  to  ascertain  a  trader's  position,  and 
have  to  make  up  the  statement  from  imperfect  books,  and  where  we  have 
practically  no  such  means  of  testing  the  completeness  and  the  arithmetical 
accuracy  of  the  statement,  as  a  set  of  books  kept  by  double  entry  affords." 

As  a  matter  of  fact,  however,  what  used  to  be  called  the  balance  sheet 
is  now  preferably  known  as  the  "Statement  of  Assets  and  Liabilities"  or  the 
"Statement  of  Affairs  of  a  Business."    The  reason  of  this  preference  is 

269 


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American  Business  and  Accounting  Encyclopedia      196-197 


obvioas.  In  making  up  a  correct  statement  of  the  assets  and  liabilities  of 
a  business,  the  accountant  must  include  unscheduled  liabilities  which  may 
have  been  partly  or  wholly  incurred  and  discard  unearned  assets.  For 
instance,  an  insurance  company  must  not  schedule  unearned  premiums  as 
assets,  but  only  that  proportion  of  the  premium  actually  earned  to  date. 
It  is  evident,  therefore,  that  the  statement  of  assets  and  liabilities  will  not 
agree  with  the  regular  books  or  show  the  balances  shown  by  the  books.  It 
will,  however,  be  a  more  correct  representation  of  the  condition  of  the 
business  than  any  balance  sheet  drawn  from  the  books,  and  this  statement 
is,  therefore,  appropriately  named  "Statement  of  Assets  and  Liabilities." 

Objection  is  sometimes  made  that  as  expenditures  are  frequently 
included  on  the  asset  side  of  the  balance  sheet  for  the  reason  that  the  full 
benefit  of  such  expenditures  will  be  spread  over  a  considerable  period  of 
time,  the  headings  "Assets"  and  "Liabilities"  are  incorrect,  or  to  that  extent, 
misleading.  While  we  do  not  consider  this  objection  to  be  of  any  real 
importance  this  may  be  a  convenient  time  to  recommend  a  new  definition 
for  the  balance  sheet. 

It  is  true  that  it  includes  an  exhibit  of  the  actual  assets  and  liabilities 
of  a  business,  but  it  also  includes  other  things.  It  includes  what  we  may 
term  "Potential"  assets,  i.  e.,  expenditures  which  are  carried  on  the  books 
on  account  of  the  possible  actual  assets  which  may  be  derived  therefrom 
hereafter. 

It  is  well  understood  that  an  expenditure  made  for  the  purpose  of 

acquiring  fixed  assets  is  accepted  as  a  capital  expenditure  and  takes  its  place 

on  the  asset  side  of  the  balance  sheet.     These  potential  assets  represent 

expenditures  which  are  expected  to  result  in  the  acquisition  of  revenue. 

,    The  former  represent  fixed  assets — the  latter  floating  assets. 

It  is  evident,  therefore,  that  the  balance  sheet  represents  not  only 
current  assets  and  liabilities,  but  future  expected  assets,  liabilities  and 
revenues;  and  as  a  result  the  ordinary  balance  sheet  does  not  represent 
the  actual  condition  of  a  concern  but  simply  an  approximation. 

Under  these  circumstances  we  recommend  that  the  term  "Balance 
Sheet"  be  discontinued  and  the  substitution  of  "Approximate  Statement 
of  Affairs." 

(197)     working  balance  sheet. 

This  is  a  technical,  distinctive  term  applied  to  a  preliminary  state- 
ment of  assets  and  liabilities,  trading  and  profit  and  loss  items, 
intended  to  facilitate  the  correct  distribution  from  the  trial  balance.  The 
illustration  here  given  relates  to  a  business  consisting  of  three  departments, 
and  exhibits  very  clearly  the  agreement  between  the  net  profit  shown  in 

270  .      • 


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American  Business  and  Accounting  Encyclopedia 


Bau. 


271 


Bal. 


American  Business  and  Accounting  Encyclopedia       197-198 


the  profit  and  loss  account  and  the  surplus  exhibited  in  the  balance  sheet. 
The  following  criticism  of  this  form  of  balance  sheet  is  quoted  from 
The  American  Accountants'  Manual : 

"While  this  form  affords  an  excellent  illustration  of  the  process  of 
roughly  analyzing  a  trial  balance  preparatory  to  framing  a  balance  sheet 
and  a  revenue  account,  it  is  but  a  working  paper  and  incapable  of  giving  the 
adequate  expression  to  the  contemplated  articulation  and  relation  of  values 
called  for  in  a  balance  sheet  suitable  for  presentation  as  a  financial  state- 
ment. It  is  only  because  of  the  fact  that  the  works  in  which  it  appears  hold 
out  to  the  student  as  the  form  of  balance  sheet,  and  it  consequently  (al- 
though seldom)  appears  under  such  title  as  a  finished  statement,  that  any 
notice  whatsoever  is  given  to  it  in  this  work,  as  from  an  accountancy 
standpoint  it  is  valueless,  its  manifest  limitations  not  admitting  of  its  use 
even  as  a  working  paper.  It  therefore  can  be  only  regarded  as  a  somewhat 
neat,  schoolroom  exercise,  and  that,  no  doubt,  is  all  its  originator  intended 
it  should  be." 

(IS^)       MUNICIPAL  balance  SHEET. 

Municipal  accounting  as  at  present  developed  differs  from  com- 
mercial accounting  in  that  there  is  actually  nothing  that  comes  under  the 
heading  of  capital,  and  the  constitution  of  the  balance  sheet  differs  there- 
fore from  the  commercial  balance  sheet  in  that  respect.  Some  accountants 
however,  regard  the  surplus  of  assets  over  liabilities  as  capital,  as  will  be 
seen  from  the  attached  specification  for  a  municipal  balance  sheet  designed 
by  F.  H.  Macpherson,  C.  A. 

Some  municipalities  present  a  general  balance  sheet  in  which  funded 
debts,  notes  and  trusts  are  listed  as  capital  liabilities.  The  fixed  assets 
and  sinking  funds  are  listed  as  capital  assets. 

Some  municipalities  present  separate  balance  sheets  of  the  current 
assets  and  liabilities,  as  per  illustration,  while  others  submit  separate 
balance  sheets  for  each  fund,  as  per  example. 


CURRENT  ASSETS. 

Cash  in  Treasury  for  general  purposes 

Uncollected    Taxes    

Licenses  and  revenues  receivable   

Other  accounts   receivable 

Supplies,  etc.,  on  hand , 

Other  current  assets: 

Total    Current  Assets    . . . . . 

272 


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Bal. 


Specification  for  Municipal  Balance  Sheet, 

Analysis  and  Classification* 


Rcvtnucs  and  Disbursements. 


Revenue. 


OROINARV  ; 

Cuh  oo  liud  aad  la  ■*■« 


Expemfiture 


SchwU.  diTM(4  u  lo  Psbllc.  Hist  ud 
Water  tLmtn 

Praarhl««* 
Flam  aad  Fm* 
K*Ma 
laUrM 
Otber  aoarcci 

CXTRAOROINARV: 

Vo*B*-  Cvrrcat  Accf^al 
Dvbcatnm    Ccb«t«1 
Dcbcntami.  Local  I; 
•lakiiW  Faad 
MaUw  Faad  lotcml 
Othrr  Bouicw 

ORDINARY  : 
■alartn 
Walerworkt 
Blcctfic  LirM 
Cnao  aad  CkarUia* 
•oaf«  of  Verka 
Fin 

AalBtaluratloo  ol  JaaUe* 
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Hmkli 
rarka 


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lalCTcai 

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CdulaffFQclva 

Otkcr  aourcta 

CXTRAOROINARV : 
tioaaa.  Carraat 
Dcbaalarva.  Gcacfal 
Dabcalarva.  Local  improvc«cal 
IMcical— Ccacral  IMbraturaa 
latrmc — Cocal  liaprovawrai  Oahaatam 
Uakiac  Faad 
rablk  Warka  la  pwtaaa 
Lacal  ImproTgiaaala  la  pratrraa 
l)tWt  aource. 


AsMts  and  Uabilitks. 


Acnvt.. 


Caahos  habd 
Caab  io  Bank 

'""    {     ^^A 

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Ocala 

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"^  "  Advaacc* 


Rbskrvi.., 


FlXKD- 


Siakinc  Fund.  Gearnl 

SiakiDf  Fand.  (.ocai  ImanacmcBta 

•aadalTniai  Faad> 

NCCCSSARV   INVESTMENTS. 

•aienaarks  Sratcai 
Bcctric  LIclM  (ralca 
Mr  HaUa  aad  Apvaiatai 
■arkd 


gi?;s9Kfi5"*-"- 


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SI»ECULATIVE  INVESTMENTS. 


•lock  la  KaihaaTs 

Mock  la  Gravel  aoa^Coagaaita 

Other  ■oacalalior  laraataaaau 


!  hWWft 


BOMDBD 
FUMTIMe...! 

Cafitau.-..  { 


"-liaUiia  daa— iiaa^t 
Ojj I ■«,:*»  — <  ■—■ft 


l>«aisac«  bv  F.  K. 


Mr.  Macpherson's  Specification. 


CURRENT  UABILITIES. 

Audited  vouchers,  drafts  or  warrants  unpaid 

Other   accounts   payable    

Temporary  tax  loans  payable , , 

Accrued    interest    payable 

Advance   to   be    refifnded 

Other   current   liabilities    ..y.... ...[.. ....[.. 

Total   Current   Liabilities    

Revenue    surplus    (being   net    current    assets    available    for 
greneral    purposes)     

Total     

The  following  extract  from  a  paper  read  before  a  recent  conference, 
relative  to  uniform  municipal  accounts,  balance  sheets,  reports,  and  statis- 
tics, will  be  found  instructive: 

"Numerous  balance  sheets  have  lately  appeared  in  municipal  reports 
and  have  also  been  stated  pro  forma  in  schemes  of  municipal  accounting. 
These  lean  to  the  merchant  traders  idea,  and  array  among  the  assets,  in 
addition  to  cash  and  elements  realizable,  such  items  as  the  cost  or  conceded 
values  of  parks,  bridges,  schools,  police  station  houses,  and  other  public 

273 


Bal. 


American  Business  and  Accounting  Encyclopedia 


198 


5      1  A^ 


I 


as** 

411 

km  ^O  *  ^  SS 

"  ■;  «.  o 


£  &. 


«  o 


e 

-  8 


4»    "'    C««.    O" 


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e   s  S 
o  .B 
w  <o-o 


o_2-o 

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?  w  •;  8 
4-gJ  8 


-    **    w    w  gP  » 


198 


American  Business  and  Accounting  Encyclopedia 


Bal. 


274 


buildings,  waterworks  and  similar  possessions  broadly  designated  as 
'unavailable'  and  'fixed'  assets;  on  the  other  hand,  they  array  as  liabilities 
the  floating  and  funded  debt. 

"As  an  indication  of  the  extent  to  which  such  an  army  of  assets — which 
determine  nothing  as  to  the  true  condition  of  the  municipal  trust  nor  even 
remotely  indicate  the  sum  of  its  financial  credit — has  been  seriously  con- 
sidered and  stated  as  proper  elements  for  inclusion  on  a  municipal  balance 
sheet,  I  would  crave  your  indulgence  while  now  submitting  an  exhibit  of 
the  'Assets  of  a  City'  presented  in  a  proposed  'Digest  of  the  Public  Affairs 
of  a  City,'  promulgated  by  an  association  of  public-spirited  citizens  whose 
zealous  interest  in  the  proper  administration  of  that  city's  affairs  has 
prompted  them  on  various  occasions  to  seriously  oflfer  and  urge  the  recog- 
nition of  what  they  considered  were  improvements  in  city  book-keeping 
and  the  plan  of  presenting  its  annual  reports. 

"assets  of  a  city." 

Cash  in  treasury $  13,566,738 

Uncollected    taxes    44,656,942 

Sinking   fund    110,636,438 

City   Hall    9,757,000 

Police  Department   4,780,599 

Fire  Department  7,813,325 

Schools     46,421,756 

Libraries    300,000 

Art  galleries,  museums,  etc 19,810,000 

Parks     296,871,791 

Jails     5,958,000 

Workhouses,  reformatories,  etc 6.989,500 

Hospitals     10,625,500 

Asylums,   almshouses,  etc 6,095,250 

Docks   and  wharves    67,336,000 

Ferries  and  bridges    28,838,250 

Markets     9,288,000 

Cemeteries 56,000 

Bath  houses,  etc 280,000 

Water  works    115,526,748 

Other    assets 28,386,865 

Total     $833,984,712 

"The  foregoing  table  gives  'book  values'  of  city  properties  so  far  as 
obtainable  from  the  records;  supplemented  by  approximate  estimates.  It 
seemingly  excludes  streets  and  highways  from  the  list  of  public  assets; 
nor  do  sewers  or  street  lights  appear  in  the  schedule;  unless  covered  by 
the  item  'other  assets.'  If  the  cost  of  street  openings  and  pavements  were 
included,  the  total  of  city  assets  would  be  much  greater.  For  example, 
one  great  street  improvement  alone  cost  some  $40,000,000;  and  another 
street  opening  has  likewise  cost  an  enormous  sum. 

"Even   cemeteries,    streets  and   highways,  the   cost  of  street   openings, 

275 


f 


Bal.  American  Business  and  Accounting  Encyclopedia       198-199 

pavements,  and  widening  were  all  to  be  included  and  shown  as  assets  of 
the  municipality  for  the  purpose  apparently  of  opposing  these  by  certain 
liabilities.  * 

"As  an  appendix  to  a  municipal  balance  sheet— displaying  on  the  first 
form  the  elements  of  cash  funds  and  realizable  assets  as  opposed  and  in 
juxtaposition  to  the  cash  liabilities  upon  warrants  registered,  etc.,  and 
on  the  second  form,  a  stated  percentage  of  the  total  taxable  value  of  realty 
etc..  as  opposed  to  the  total  funded  debt-a  properly  classified  schedule' 
settmg  forth  the  appraised  values  of  city  properties,  such  as  public  build- 
mgs.  parks  and  squares,  bridges,  tunnels  and  other  subways,  waterworks, 
etc.,  etc.,  stating  separately  and  in  the  aggregate  the  values  of  sites,  build- 
mgs  and  equipment,  would  prove  of  much  popular  interest,  but  to  include 
such  as  an  integral  part  of  a  municipal  balance  sheet  would  be    in  fact 
to  repeat  values  that  were  already  merged  into  and  had  become  1  part  of 
the  values  of  the  taxable  real  estate  on  which  the  faith  and  credit  of  the 
municipality  was  based  and  which  measured  its  right  to  or  precluded  it 
from  engaging  in  further  public  undertakings.    Wherever  it  were  possible 
to  trace  back  through  a  city^s  accounts  the  total  cost  of  public  buildings 
parks  and  other  properties  referred  to  herein,  a  third  statement,  in  balance 
sheet  form  showing  on  the  one  side  the  conceded  current  valuations  and  on 
the  other  the  total  cost  to  the  community,  would  be  also  of  important 
and  popular  interest." 

See  also  Municipal  Accounts. 

(199)       BANK    balance    SHEET. 

The  api^nded  illustration  exhibits  the  usual  form  of  statement  of 
resources  and  liabilities  issued  by  banks  in  the  United  States. 

RESOURCES. 

Loans  and  discounts  

Overdrafts,  secured  and  unsecured   ......!.. 

U.  S.  Bonds  to  secure  circulation 

U.  S.  Bonds  to  secure  U.  S.  Deposits. . .'. 

U.  S.  Bonds  on  hand  

Preminms  on  U.  S  Bonds  ....!..!..!.!.!. 

Stocks,  securities,  etc 

Banking  house,  furniture,  and  fixtures 

Other  real  estate  owned 

Due  from  National  Banks  (not  reserve  agents) 

Due  from  State  Banks  and  Bankers  

Doe  from  approved  reserve  agents    

Internal-revenue    stamps 

Checks  and  other  cash  items 

Exchanges  for  clearing  boose    .     

Notes  of  other  National  Banks  . .' 

Fractional  paper  currencj,  nickels  and  cents! .".'.'! 

Lawful  Money  Reserve  in  Bank,  viz—  

Specie    

276 


J~ 


199  American  Business  ani3  Accounting  Encyclopedia  Bal. 

Legal-tender   notes    

Duf  JJo^^n^'^'^T'"'*^  ^-  ^-  TrVaVuVeV(*5%' of 'circulation): 
Due  from  U.  S.  Treasurer,  other  than  5%  redemption  fund 

Total  

LIABILITIES. 

Capital  stock  paid  in   

Surplus    fund 

Undivided  profits,  less  expense  and  taxes  paid! ." 

National  Bank  notes  outstanding 

State   Bank   notes   outstanding   

Due  to  other  National  Banks   ! ! ! ! 

Due   to  State   Banks   and   Bankers    ! ! ! ! ! 

Due  to  Trust  Companies  and  Savings  Banks !!!!!!!! 

Due  to  approved  reserve  agents 

Dividends  unpaid    !!!!!!!! 

Individual  deposits  subject  to  check  .!!!!!!!!! 

Demand  certificates  of  deposit   !!!!!!!!!!!! 

Time   certificates   of  deposit    !!!!!! 

Certified   checks    !!!!!!!!!!!!! 

Cashier's   checks   outstanding    

United  States  deposits   !!!!!!!!!! ' 

Deposits  of  U.  S.  disbursing  officers   !!!!!!!! 

Notes  and  bills  rediscounted 

Bills  payable,  including  certificates '  of '  deposiVfor'money 
borrowed  

Liabilities  other  than  those  above  stated  !!!!!!!!!!!!!!!!!! 

Total  — 

The  form  of  this  balance  sheet  has  been  severely  criticised  by  many 
competent  accountants,  particularly  in  the  arrangement  of  the  liabilities 
the  assertion  being  made  that  unless  properly  segregated  an  intelligent 
conception  of  the  status  of  the  institution  cannot  be  arrived  at.     The 
following  comparative  classification  is  recommended: 


RESOURCES. 

Specie. 

Legal  tender  notes. 

Checks  and  other  cash  items. 

Fractional  paper  currency,  etc. 

Exchanges  for  clearing  house. 

Notes  of  other  national  banks. 

Due  from  approved  reserve  agents. 

Due  from  national  banks  (not  reserve  agents) 

Due  from  state  banks  and  bankers. 

Loans  (collateral)   (a)— demand— time. 

Discounts   (b). 

Bonds  (face  value). 

Securities,  etc.,  (face  value). 

U.  S.  bonds  to  secure  circulation. 

U.  S.  bonds  to  secure  U.  S.  deposits. 

Other  bonds  to  secure  U.  S.  deposits 

PrtSTon  "us"  bonds.'-  '"""'"'"  ^'  ""  ""'  -""'"!°")- 
Banking  house,  furniture  and  fixtures. 

277 


y~ 


Bal. 


American  Business  and  Accounting  Encyclopedia      199-200 


201-203      American  Business  and  Accounting  Encyclopedia 


Bal. 


LIABILITIES. 

Certillcd  checks. 
Demand  certificates  of  deposit. 
Individual  deposits  subject  to  check. 
Cashier's  checks  outstanding. 
Due  to  approved  reserve  agents. 
Due  to  other  national  banks. 
Due  to  state  banks  and  bankers. 
Due  to  trust  companies  and  savings  banks. 
National  bank  notes  outstanding. 
U.  S.  deposits. 
Bonds  borrowed. 
Capital  stock  paid  in. 
Surplus  fund. 
Undivided  profits,  less  expenses  and  taxes  paid. 

C^OO)       COMIUN.VTION  working  I5ALANCE  SHEET  AND  COMPARATIVE  STATEMENT. 


(201)       IJALANCE  SHEET   OF  A   BUILDING  AND   LOAN    SOCIETY. 


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1 

COMPARATIVE    STATEMENT  OF  MONTHLV  SALES 

DEPARTMENT               ]    Tmi6    YLAR    |    LAST    YEAR  I         INCREAS 

>L 

OecREASL 

— 

Coyrpy    Sfll*S                                                    73^t| 

♦a!             6'97 

24 

'•^^ 

rs 

CiTyVn^of)   No.  1 

1197 

51 

llo4 

o7 

95 

24 

^'►Z 

67 

iZifc 

7ft 

124 

?    -9 

No.  a 

iZ6l 

39 

n4i 

2& 

I2« 

II 

No.  •♦ 

Whel#  »«!•  {-rop\  St5r« 

6&55 

41 

9'7 

oft 

y9a« 

.  54 

1597 

9fc 

2li4 

73 

2ft 

I   73 

TStil 

Total 

2o^+a 

95                 "2491 

i7 

77$-: 

1   a 

f5nmwk»s 

2^7a 

5-J-                    iZofc 

oS- 

772 

.    To 

Total 

12927 

♦«                 I9S97 

22. 

««•$ 

.24 

P^AM.fk^J    M/l     AMi>roi/«J 

\7"  'i 

r 

r 

r  - 

R*aJ«^  n^r 

RESOURCES. 

First  mortgages,  real  estate $315,463  10 

Advances  on  stock  as  collateral.       8,882  00 

Instalments  in  course  of  collec- 
tion and  in  hands  of  local 
treasurer 33,426  60 

Interest  and  premium  in  course 
of  collection  and  in  hands  of 
local  treasurers    5,361  50 

Fines,  due   1,141  30 

Semi-annual  instalment  on  paid- 
up  stock    6,447  61 

Discount  advance  payments  on 
.stock    1,836  54 

Fixtures  and  furniture 2,473  65 

Real  estate  acquired  by  foreclos- 
ure           7,069  41 

Cash  on  hand  and  in  bank 27,286  28 


LL\BILITIES. 

Capital  stock  paid  in 

instalment    stock.  .$172,505  43 
In    hands    of    local 

treasurers     33,426  60-$20:),932  03 

Prepaid  stock  111.157  00 

Full-paid  stock   40.702  Oi) 

Duo  to  complete  advances  on  real 

estate  6.650  Oo 

Profits     44,946  9r> 


$409,387  99 


$409,387  99 


(202)      BALANCE  SHEET  OF  A   STEAM   RAILROAD. 


ASSETS. 

Cost  road  and  equipment. . 

Stocks  of  other  companies 
owned  

Bonds  of  other  companies 
owned 

Lands  owned  

Land  grants  of  the  state 

Foreign  land  grants  (extra- 
state)    : 

Cash  on  hand 

Bills  receivable   

Due  from  solvent  companies 
and  individuals  

Other  cash  assets 

Sundries  (rights  way,  fran- 
chises,  terminals,   etc.) 

Operating  expense  (from  op- 
erating expense  books) 

Interest  funded  debt   

Other  interest  account 

Rentals   

Taxes  

Due  from  agents 

Dividends  on  common  stock.. 

Due  from  connecting  lines... 

Materials  and  supplies  on  hand 

Leased  rolling  stock 


$67,435,772  37 

4,121,731  73 

4,749.871  48 

512,244  89 

1,977,155  82 

94,257  29 

29,735  47 

7,172  66 

378,067  79 
1,000  00 

367,985  96 

7,528,805  55 

2,438,886  40 

230,032  52 

437.622  10 
257,766  72 

19.685  21 

515.623  50 
10,408  12 
37,629  50 
70.000  00 


LLVBILITIES. 

Gross  earnings  $10,676,112 

Surplus    carried    down    from 

previous  year 3,853.841 

Capital  stcck  paid  in 25,788,925 

Funded  debt  44,876,454 

Loans  and  bills  payable 2,180.069 

Matured  interest  coupons  un- 

pajd  375,627 

.Audited  vouchers  and  accounts  894,876 

Wages  due  and  salary  account 

""paid   ' 782,557 

Rentals  due 68,000 

Net  traffic  balances  due  other 

companies   64,666 

Dividends  uncalled  for 171.840 

Construction  contracts   495,250 

Miscellaneous  taxes,  etc 292,809 

Interest  account   542.968 

Income    from    other    sources. 

dividends  on   stocks  owned  134,056 

Income  from  bond  coupons..  1,750 

Miscellaneous  income,  less  ex- 
pense    21,649  97 


43 

21 

on 

01 
79 

8.-! 
4(» 

6M 
OJ 

36 


2.> 

11 
00 


$91,221,455  14 


$91,221,455  14 
(203)       FORM  OF  ANNUAL  BALANCE  SHEET  FOR  HOTEL. 


ASSETS. 


278 


Real  Estate 

Crandall  Farm  (build- 
ings, stock  and  im- 
plements)     

Dairy   Account  (build- 


LL\BILITIES. 

$20,000  00      By      proprietors'      ac- 
counts    forward     to 

current  year  

6,025  00      By  loan  account  (Ma- 
rine Bank)   

279 


$89,853  l;; 
30,000  00 


Bal. 


American  Business  and  Accounting  Encyclopedia      203-204 


ings,   stock  and  im-  By    sinking    fund    No. 

plements)    2,160  00         1  (buildings)   25,000  00 

Livery     Account     In-  By   sinking   fund    No. 

ventory   4,700  00          2   (loan  account)..,                         8,000  00 

Supplies    (from  steward's  books):  By    accounts    payable 

(Current     year     pur-  (forward)    $3,902  22 

chases    $38,862  05  By     accounts     current 

Forward    from    last  including  interest   . .  23,204  62 

fiscal  year 7,294  16  By    accounts    payable, 

loan   interest    666  67 

46,156  21  27,773  51 

Charged     off     against  ,            By  contractor's   credit 

losses,  etc   1,354  68  balances    9,625  25 

44,801  53      By  paving  assessments 

Add  supplies  in  tran-  due  with  interest  add                        4,315  00 

sit    at    time  of  this  Undivided  Profits $40,827  10 

report   400  00      Profits  current  sched- 

Building      and       Im-  unattached 24,752  44 

provement     Account  65,579  54 

forward   $69,164  55.  ' 

Current  maintenance 
and  addition  costs 
shown  by  ledger...     7,888  40 


$260,146  43 


77,052  95 
Deduct    for    deprecia- 
tion 6%   4,623  17 


Office  Inventory  

Furniture  and  Fix- 
tures forward $10,826  10 

Added  current  fiscal 
period    2,640  00 

Renewals  current  period      505  20 


72,429  78 
860  85 


14,061  30 
Deduct  8%,  wear  and 
tear   1,124  90 


12,936  40 

5,808  66 


Banks  deposits  as  per 

passbooks  written  up 
Treasurer,  amounts  not 

deposited  at  time  of 

report   120  00 

Open  accounts  current. $19,628  75 
Add  accrued  interest..  359  04 
Interest  Acc't  No.  2..        266  42 

20,254  21 


68,000  00 


Insurance,      buildings, 

livery,  etc $58,000  00 

Furniture  and  fixtures 

6,500 

00 

Farm  and  Dairy  Acc't 

3,500 

00 

Inventories : 

Advertising        and 

Printing    $ 

300  00 

Fuel  Account 

600 

00 

Electric    light    con- 

tracts     

750 

00 

1,650  00 
$260,146  43 
(204)       BALANCE    SHEET, 

(Auditing.)    In  the  general  program  for  the  audit  of  a  balance  sheet 


204 


American  Business  and  Accounting  Encyclopedia 


Bal. 


is  neither  more  nor  less  than  authorized  by  its  charter.  The  minute  book, 
subscription  book  and  stock  ledger  should  be  examined  to  ascertain  the 
actions  of  directors  and  stockholders;  also  see  if  all  stock  is  paid  up, 
whether  there  are  any  delinquents  or  forfeitures. 

The  accounts  with  sundry  creditors  should  be  checked  in  detail  or 
compared  with  an  adjustment  account  consisting  of  the  totals  of  the  debits 
and  credits  obtained  from  the  various  books  of  original  entry.  These 
accounts  can  also  be  verified  by  calling  for  statements  from  the  different 
creditors.  See  that  the  reserves  are  not  excessive,  as  a  certain  portion  of 
the  annual  profits  of  the  company  are  set  aside  for  the  purpose  of  creating 
a  reserve  fund  to  meet  reverses  or  unforseen  emergencies,  etc.  No  well 
regulated  company  will  declare  a  dividend  equal  to  the  net  gain. 

The  amount  advanced  by  the  bank  should  be  carefully  looked  into  to 
see  if  there  is  any  accrued  interest  on  same  and  if  so  whether  paid. 

It  should  be  the  duty  of  the  auditor  to  see  that  no  inflated  statements 
are  made  for  the  purpose  of  aiding  dividends,  and  that  dividends  have  not 
been  paid  out  of  capital.  An  auditor  should  vigorously  oppose  a  dividend 
so  declared,  or  that  has  not  been  legitimately  earned.  Should  the  directors 
persist  in  so  doing,  the  auditor  should  so  state  in  his  report. 

A  proper  amount  should  be  written  off  for  depreciation  on  buildings, 
fixtures  and  fittings,  stocks  of  plates,  stocks  of  engravings  and  cost  of 
copyrights,  the  balance  being  carried  as  an  asset  to  represent  its  true  or 
present  value.  These  accounts  should  all  be  examined  carefully  to  ascer- 
tain whether  or  not  the  values  have  been  inflated,  comparing  same  with 
those  of  former  years. 

It  is  quite  common  in  this  business  to  find  obsolete  plates  and  engrav- 
ings carried  on  the  books  at  cost,  when  they  should  have  been  written 
off  long  ago. 

Inasmuch  as  wiping  out  these  values  would  probably  obliterate  the 
profit  shown,  it  is  evident  that  here  is  more  than  a  suspicion  of  paying 
dividends  out  of  capital.  It  is  a  somewhat  difficult  matter  for  an  auditor 
to  determine  as  to  the  present  value  of  plates  and  engravings,  but  a  fair 
idea  may  probably  be  obtained  by  ascertaining  what  demand  exists  for 
them. 

Sundry  debtors  should  be  checked  the  same  as  sundry  creditors,  seeing 
that  bad  and  doubtful  debts  are  not  included  in  good  accounts  receivable. 
These  accounts  should  be  verified  by  mailing  an  itemized  statement  to  each 
customer  with  the  request  for  their  O.  K.  as  to  balance  still  owing.  The 
cash  balance  should  be  vouched  by  checking  all  postings  and  additions 
thereof,  also  verify  balance  at  the  bank  and  on  hand.    Separate  vouchers 


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should  be  required  for  petty  disbursements — if  not  available  the  petty  cash 
book  should  be  signed  by  some  responsible  official  of  the  company,  vouching 
for  the  accuracy  of  that  portion  of  the  books. 

Where  the  columnar  cash  books  are  used  the  auditor  should  satisfy 
himself  that  all  amounts  have  been  entered  in  the  proper  column. 

(205)  BALANCE  SYSTEM  (IMPROVED )  OF  COST  ACCOUNTING. 

This  system  is  based  on  an  accurate  determination  of  the  cost  of 
material,  labor  and  direct  expense,  and  an  equitable  distribution  of  indirect 
af'd  general  expense,  including  work  in  process. 

The  records  of  material  and  labor  are  maintained  in  the  ordinary  way 
by  means  of  purchase  and  stores  records  and  requisitions ;  shop  orders,  time 
cards  and  cost  summaries. 

Apportionment  of  indirect  and  general  expense  is,  under  ordinary 
circumstances,  based  on  the  cost  of  actual  productive  labor,  same  being 
compared  each  month  with  the  volume  of  output,  and  the  average  thus 
obtained  applied  on  the  next  month's  product.  By  this  plan  the  variations 
are  exceedingly  small,  and  these  are  taken  care  of  by  an  expense  adjustment 
account  so  that  the  factory  records  are  always  in  balance  with  the  general 
office  books. 

The  following  explanation,  quoted  from  "The  Iron  Age,"  will  explain 
and  illustrate  one  method  by  which  the  balance  system  is  applied. 

The  method  covers  the  following  particulars: 

Accurate  records  of  direct  or  productive  labor. 

Accurate  cost  of  materials  entering  into  the  manufacture  of  the 
articles. 

A  percentage  based  on  the  direct,  or  productive,  labor,  to  cover  all 
non-productive  manufacturing  expenses,  including  depreciation  of  plant 
and  appurtenances. 

A  percentage  based  on  the  total  manufacturing  expenses  to  cover 
commercial  expenses. 

In  this  article  selling  expenses  are  not  included  in  the  latter,  being 
added  as  a  separate  item  on  the  cost  sheet.  If  found  desirable  they  could, 
however,  be  included  with  the  commercial  expenses. 

It  will  be  seen  that  the  distinct  advantage  in  keeping  the  manufac- 
turing cost  separate  from  the  commercial  cost  is  to  find  the  cost  of  goods 
at  the  factory  door.  Suppose,  for  instance,  the  factory  is  located  in  a  New 
England  town  and  the  executive  and  selling  headquarters  are  in  New  York. 
The  advantage  of,  and  necessity  for,  knowing  the  cost  of  the  goods  up  to 
the  time  they  leave  the  factory,  is  obvious ;  likewise  the  proper  charge  to 


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r.AL. 


add  to  cover  the  executive  and  commercial  expenses.    There  is   therefore 
no  reason  why  this  same  information  is  not  just  as  important  and  essential' 
even   though   the   headquarters   are   at  the   factory  office;   its   usefulness' 
remams  m  precisely  the  same  degree. 

The  first  thing  to  do.  then,  is  to  separate  these  various  expenses  shown 
on  the  department  account  report.  By  referring  to  Fig.  A  it  will  be  seen 
that  the  Items  comprising  all  the  non-productive  manufacturing  expenses 

!"h  tLX'^!"i°"'  *"'"  ^'^'^^^.U.  The  amount  paid  for  productivj 
labor,  $244,798.71,  divided  into  this  gives  59.16+  per  cent  to  add  for  the 
non-productive  manufacturing  expenses,  or.  as  some  prefer  to  stvle  it  the 
indirect  manufacturing  expenses.  The  total  materials  are  shown  at  '(B» 
and  at  (C)  are  shown  materials,  productive  labor  and  non-productive  man- 
ufacturing expenses  combined,  which  total  $764,238.48.  At  (D)  is  grouped 
the  commercial  expenses,  which  total  $71,698.52.  Dividing  this  latter 
amount  by  the  total  manufacturing  expenses,  $764,238.48,  gives  9384- 
per  cent,  to  be  added  for  commercial  expenses.  . 

For  the  purpose  of  illustration,  an  assumed  cost  sheet  for  10,000  metal 
disks  IS  shown.  The  blanking,  center  punching  and  polishing  operation, 
(all  productive  labor)  amount  to  $150.  To  this  is  added  59.164-  per  cent 
for  non-productive  manufacturing  expenses,  in  one  item,  and  the  cost  of 
material  used  m  another,  giving  a  total  of  $338.75,  which  gives  the  total 
cost,  to  which  must  be  added  selling  expenses  and  profit.  The  question 
may  now  arise,  is  this  true  and  correct?  "e  question 

To  verify  its  accuracy,  what  is  called  a  "proof"  is  illustrated.    From 
he  total  column  of  the  department  account  report  are  taken  the  amounts 
for  material,  steel  for  manufacturing,  tin  and  productive  labor.     Non-pro- 
ductive manufacturing  expenses  are  then  figured  at  59.16376-^  per  cent 
(on  productive  labor).    The  total  of  these  figures  gives  $764,23847     To 
this  total  we  add  9.381694+  per  cent  (figured  out)  for  commercial  expenses 
giving  ,„  all  $835,936.98,  which  represents  the  total  manufacturing  a  .d 
commercial  expenses  combined.     Now  take  the  balance  of  merchandise 
accoun  ,  which  represents  the  difference  in  value  of  inventories  Decembe 
31,  190.,  and  December  31,  1906;  the  amounts  for  loss  and  gain,  and  cal 
<l.scounts,  which  are  deductions  of  accounts  receivable,  and  the  sel  h  g 
expenses   (which   latter  it  will  be  remembered,  are  added  separateU    on 
cost  sheets),  and  the  above  amount  representing  the  combined  manufac 
tunng  and  commercial  expenses,  the  whole  of  which  totals  $1,018  507  8' 
being  the   total   business   charges   for   the  year.     From   the   depart ett' 
account  report  we  now  take  the  returns  from  the  business,  which  consis 
of  sales,  foreign  exchange  and  the  balance  of  the  reserve  account    the 
latter  being  the  difference  between  the  amounts  December  31,  1905,'  and 


28 


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205-206      American  Business  and  Accounting  Encyclopedia     Bal.-Bank 

December  31,  1906,  the  total  of  which  amounts  to  $1,096,857.14.  If  from 
this  amount  the  total  business  charges,  $1,018,507.82  are  deducted,  a  balance 
of  $78,349.32  is  left,  which  is  the  amount  of  net  profit  called  for  according 
to  this  computation. 

Now  from  the  department  account  report  (Fig.  3)  we  find  the  gross 
profit  is  $100,826.96;  from  this  deduct  depreciation,  $22,477.66  (which  is 
included  on  cost  sheets  among  the  non-productive  manufacturing  expen- 
ses), and  we  have  the  actual  net  profit— $78,349.30— which,  according  to 
the  income  statement,  is  the  net  amount  of  profit  carried  to  surplus  account. 
By  comparing  this  amount  with  the  computation  for  proof  it  will  be  noticed 
the  difference  is  two  cents,  which  attests  the  accuracy  of  the  method 
described. 

(206)     BANK    ACCOUNTING    SYSTEM    FOR    A    MEDIUM-SIZED 

BANK. 

Within  recent  years  book-keeping  in  country  banks  has  been  com- 
pletely transformed.  While  the  tendency  has  been  to  abridge  and  simplify 
methods,  this  has  been  accomplished  without  the  sacrifice  of  system  and 
adequate  record. 

In  large  banks  the  business  is  specialized  and  systematized  to  a  remark- 
able degree  of  efficiency.  The  various  departments  of  the  bank  are  divided 
and  subdivided,  every  branch  so  closely  interwoven  as  to  work  in  perfect 
harmony,  like  the  movements  of  a  great  clock.  With  such  organized  admin- 
•  istration,  systematic  book-keeping  naturally  develops  itself. 

But  system  should  obtain  in  small  banks  as  well  as  in  large  ones. 
Some  bankers  seem  to  think  that  because  the  volume  of  their  business 
is  small  they  are  justified  in  following  crude  methods;  but  loose  and 
indiflFerent  methods  of  book-keeping  will  inevitably  lead  to  serious  com- 
plications. 

The  same  system  of  book-keeping,  however,  is  not  adaptable  to  all 
banks  alike.  Methods  which  meet  every  requirement  of  a  country  bank 
might  be  wholly  inadequate  in  a  city  bank.  While  country  banks  do  not 
require  such  elaborate  specializing,  it  is  possible  to  maintain  a  splendid 
system  of  accounting  in  the  smallest  bank. 

Before  entering  into  a  detailed  description  of  country  bank  accounting, 
the  reader  should  have  a  more  definite  conception  of  what  constitutes  a 
typical  "country  bank"— that  is,  some  idea  concerning  the  size  of  such 
an  institution,  the  volume  of  its  business,  the  number  of  officers  and  clerks 
actively  employed,  and  the  labor  devolving  upon  each  of  them. 

The  term  "country  bank,"  as  it  is  generally  used,  applies  to  all  banks 
situated  outside  of  the  "Central  Reserve"  and  "Reserve"  cities.     In  con- 


286 


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American  Business  and  Accounting  Encyclopedia 


20G 


nection  with  these  articles,  however,  the  name  will  be  used  as  descriptive 
of  a  bank,  of  which  the  following  description  may  serve  as  an  example : 

The  name  of  the  bank  is  the  First  National  Bank.  It  has  a  capital, 
say,  of  $50,000,  surplus  of  $25,000,  deposits  subject  to  check,  $200,000; 
time  certificates  of  deposit  $50,000,  and  a  working  force  consisting  of  the 
following  officers  and  clerks:  Cashier,  assistant  cashier,  individual  book- 
keeper, assistant  book-keeper,  or  messenger. 

The  Cashier.  There  is  a  prevailing  opinion  that  the  cashier  of  a  bank 
has  exclusive  control  of  its  cash,  personally  attending  to  the  receiving  and 
paying  out  of  money.  The  title  itself  conveys  a  wrong  impression,  for 
while  the  cashier  may  have  the  general  supervision  of  the  cash,  the  detail 
work  connected  with  it  does  not  necessarily  engage  his  personal  attention. 
In  fact,  it  is  a  duty  generally  delegated  to  some  other  employe  of  the  bank. 
The  title  "cashier"  more  properly  gives  that  officer  the  rank  of  "general 
manager,"  and  he  is  frequently  the  executive  head  of  the  institution.  The 
president  and  vice-president  are  usually  inactive  officers,  the  duty  of  the 
president  being  chiefly  to  preside  over  directors'  meetings. 

The  duties  of  a  country  bank  cashier  are  numerous  and  varied.  Besides 

having  general  supervision  of  the  bank,  he  must  meet  personally  many  of 
his  clients  during  business  hours,  converse  with  them  pleasantly,  and  by 
no  word  or  act  intimate  that  he  is  impatient  to  terminate  the  conversation 
on  account  of  "pressing  business."  He  considers  all  applications  for  loans, 
and  is  usually  required  to  pass  upon  them  at  once,  using  his  own  judgment 
independently  of  the  directors.  He  keeps  the  stock  ledger  and  attends  to 
all  transfers  of  stock;  also  the  discount  register,  personally  looking  after 
the  notes  falling  due  each  day.  He  opens  the  mail  and  does  all  of  the 
special  correspondence,  replying  to  many  inquiries  about  the  financial 
standing  of  the  people  in  the  community ;  purchases  the  stationery  and 
bank  supplies ;  signs  drafts  and  cashier's  checks,  certified  checks,  and  makes 
regular  quarterly  statements  to  the  comptroller  of  the  currency.  He 
advises  with  clients  in  regard  to  purchasing  bonds  and  making  other 
investments,  and  should  be  competent  also  to  rightly  judge  and  recommend 
securities  available  for  their  own  investment.  He  calls  the  meetings  of 
the  directors,  at  which  he  brings  up  the  business  to  be  transacted,  makes 
reports,  acts  as  secretary,  and  keeps  the  minutes  of  the  meetings.  He  goes 
through  the  individual  ledger  periodically  in  order  to  keep  informed  as  to 
the  state  of  customers'  accounts,  keeps  in  constant  touch  with  the  daily 
statement  book  and  general  ledger,  and  well  informed  especially  concerning 
the  profit  and  loss  account  and  expense  account.  When  not  otherwise 
employed  he  may  take  in  deposits  and  pay  out  money. 

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206  American  Business  and  Accolnting  Encyclopedia  Bank 

There  are  many  other  matters  of  more  or  less  importance  which  from 
time  to  time  may  engage  the  attention  of  the  cashier.  The  extent  and 
diversity  of  his  employment  is,  indeed,  almost  unlimited. 

The  next  officer  in  rank  to  the  cashier  is  the  assistant  cashier. 
The  Assistant  Cashier.  The  duties  of  the  assistant  cashier  are  less 
responsible  than  those  of  the  cashier.  In  fact,  his  work  is  chiefly  of  a 
clerical  nature,  but,  of  course,  in  the  absence  of  the  cashier,  he  assumes 
many  of  the  more  important  duties.  He  keeps  the  general  ledger,  does 
most  of  the  counter  work,— that  is,  receives  and  pays  out  money,  counting 
and  balancing  the  cash  at  the  end  of  each  day's  business,— and  has  charge 
of  the  collections.  He  may  also  write  the  cash  and  remittance  letters,  if 
such  work  is  not  entrusted  to  the  assistant  book-keeper. 

The  Individual  Book-keeper.  The  nature  of  the  work  devolving 
upon  the  individual  book-keeper  is  more  or  less  mechanical  and  makes  him 
somewhat  of  a  machine.  His  sole  duty  consists  in  keeping  the  individual 
ledger  and  balancing  pass  books,  and  in  this  he  is  assisted  to  some 
extent  by  the  assistant  book-keeper. 

The  Assistant  Book-keeper.  The  assistant  book-keeper's  principal 
duty  is  to  assist  the  individual  book-keeper.  He  also  collects  drafts  and 
does  errands.  For  the  individual  book-keeper  he  assorts  and  cancels  checks 
and  deposit  slips,  lists  on  the  adding  machine  the  canceled  vouchers  when 
pass  books  are  left  to  be  balanced,  calls  back  ledgers,  and  assists  in  taking 
off  trial  balances. 

Having  briefly  sketched  the  duties  of  each  member  of  the  working 
staff  of  a  country  bank,  let  us  see  what  books  and  methods  of  accounting 
the  business  requires.  First,  there  is  the  teller's  cash  book,  which  exhibits 
the  state  of  the  cash  in  detail,-that  is,  it  shows  the  amount  of  gold  on  hand, 
the  amount  of  currency,  classifying  it  as  to  "bank  notes,"  legal  tenders." 
and  "silver  certificates,"  and  the  amount  of  silver  in  "halves,"  "quarters" 
and  "dimes,"  also  "nickels"  and  "pennies." 

The  cash  book  is  the  original  book  of  entry  for  recording  every  tran- 
saction made  during  the  day,  and  provides  a  means  of  "proving"  the 
general  ledger. 

It  exhibits  on  the  debit  side  the  cash  balance  on  hand  in  the  morning 
Money  received  and   items  credited  elsewhere  are  entered  on  the  debit 
side ;  payments  and  items  debited  elsewhere  are  entered  on  the  credit  side 
The  difference  between  the  debit  and  credit  pages  will  show  the  cash  bal- 
ance at  the  close  of  business. 

The  individual  ledger  is  the  ledger  in  which  the  accounts  with  the 
depositors  are  kept.    It  is  a  small  loose  leaf  book,  with  a  capacity  of  from 

289 


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American  Business  and  Accounting  Encyclopedia 


20G 


ten  to  twelve  hundred  accounts.  This  ledger  is  kept  by  the  individual 
book-keeper,  deposits  being  credited  and  checks  charged  to  the  separate 
accounts  at  certain  intervals  of  the  day.  At  every  posting  the  balance  is 
forwarded  to  the  "balance"  column. 

The  journal  and  proof  ledger  is  kept  for  the  double  purpose  of  proving 
the  individual  ledger  and  to  furnish  the  "debit"  and  "credit"  totals  for  the 
general  ledger  account  of  "deposits." 

The  general  ledger  is  the  book  in  which  all  the  general  accounts  ar^ 
kept — that  is,  all  those  accounts  making  up  the  "Resources"  and  "Liabili- 
ties" of  the  bank.  The  form  and  scheme  of  this  book  combines  the  general 
ledger,  journal,  and  daily  statement. 

The  discount  register  and  tickler.  These  are  two  separate  books.  In 
the  first,  notes  discounted  by  the  bank  are  entered,  showing  the  total  loans 
for  each  day  with  a  full  description  of  each.  On  the  tickler  the  notes  are 
entered  under  the  date  of  their  maturity,  showing  all  notes  falling  on  every 
business  day. 

The  collection  register.  All  items  received  for  collection  and  not 
credited  as  cash  are  registered  in  this  book  under  the  date  of  their  receipt. 
Unless  the  bank  handles  a  great  many  collections  it  is  unnecessary  to  keep 
a  separate  collection  tickler,  as  such  items  may  be  entered  on  the  discount 
tickler  and  designated  as  "Collections,"  Notes,  collections,  and  all  other 
items  payable  out  of  town,  whether  they  belong  to  the  bank  or  not,  are 
also  entered  on  the  collection  register  when  forwarded  for  collection. 

Certificate  of  deposit  registers.  ]\Iany  banks  issue  both  demand  and 
time  certificates  of  deposit,  and  as  they  are  kept  separate  it  is  necessary  to 
employ  two  registers,  though  both  are  alike.  These  books  afford  a  complete 
record  of  certificates  of  deposit  issued  and  paid. 

The  certified  check,  cashier's  check,  and  dividend  check  registers. 
These  registers  are  all  similar  in  form,  the  first  being  a  record  of  checks 
certified,  the  second  of  cashier's  checks  issued,  and  the  third  of  the  divi- 
dend checks  issued  to  stockholders  upon  the  declaration  of  dividends. 

The  liability  ledger  is  designed  to  keep  a  line  on  the  total  credit 
extended  to  borrowers.  It  contains  an  account  with  every  borrower  of 
the  bank,  showing  the  amount  of  his  liability  both  as  principal  debtor  and 
as  indorser. 

The  stock  ledger  contains  an  account  with  every  stockholder  of  the 
bank,  showing  the  number  of  shares  held  by  each  of  them  and  a  record 
of  all  transfers  and  new  certificates  issued. 

The  Cash.  In  a  country  bank  the  paying  out  and  receiving  of  money 
is  a  duty  not  always  performed  by  a  particular  clerk,  but  any  of  the  officers 
or  employes  may  attend,  or  a?^sist,  at  the  "counter." 

290 


206 


American  Business  and  Accounting  Encvc 


LOPEDIA 


Bank 


OATC 


Teller's  Cash  Book 

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Bank  American  Business  and  Accounting  Encyclopedia 


206 


In  the  larger  banks  more  precaution  is  taken,  one  or  more  clerks, 
according  to  the  size  of  the  bank,  being  held  responsible  for  the  cash,  while 
the  rest  of  the  force  have  no  access  to  it  at  all.  In  such  banks  this  employe 
is  known  as  the  teller.  In  some  banks  the  same  person  may  receive  and 
pay  out  both,  others  may  have  a  paying  and  receiving  teller,  or  even  several 
paying  tellers  and  several  receiving  tellers. 

In  every  bank  the  handling  of  the  cash  should,  so  far  as  possible,  be 
confined  to  a  single  person.  Where  the  employes  of  the  bank  generally 
have  free  access  to  it  the  responsibility  for  "differences"  cannot  be  definitely 
fixed,  and  consequently  there  will  be  less  care  and  caution  exercised.  Mis- 
takes in  other  departments  of  the  bank  may  be  easily  rectified,  but  when 
made  in  connection  with  the  cash  it  is  often  impossible  to  trace  them. 

The  employe  to  whom  the  cash  is  entrusted  should  be  a  man  of  good 
character,  courteous,  and  obliging  at  all  times.  A  grumpy,  ill-tempered 
person,  whether  he  be  the  cashier  or  president,  has  no  business  whatever 
at  the  bank  counter.  Coming  in  contact  as  he  does  almost  every  day  with 
the  patrons  of  the  bank  his  disposition  could  not  help  but  create  an  unfavor- 
able impression  among  them.  The  position  is  a  rather  trying  one.  There 
are  all  kinds  and  conditions  of  people  to  deal  with,  and  to  please  all  the 
teller  must  use  tact  and  discretion.  He  should  be  patient  under  the  most 
aggravating  circumstances,  never  combative,  and  always  pleasant.        ■• 

He  should  be  a  good  judge  of  human  nature,  a  close  observer,  and 
possess  a  good  memory  for  names  and  faces,  so  as  not  to  have  to  require 
identification  more  than  once.  Most  people  become  very  much  annoyed 
at  being  asked  for  identification  at  their  home  bank,  even  if  they  have  never 
before  been  in  the  institution.  By  not  being  too  exacting,  and  by  using 
a  little  tact  with  such  people,  a  bank  may  very  often  secure  a  valuable 
account. 

There  are  so  many  crooks  abroad,  however,  that  a  bank  has  to  be  on 
its  guard  continually.  It  is  even  unsafe  to  accept  deposits  from  strangers 
unless  they  secure  identification  and  come  well  recommended  as  to  their 
character  and  financial  standing.  Country  banks  are  not  usually  so  strict 
in  this  regard,  but  it  is  their  duty  to  know  every  man  with  whom  they 
have  business  dealings. 

Many  people  have  a  queer  conception  of  what  identification  is.  Some 
show  their  bank  pass  books;  others  produce  letters  addressed  to  them. 
These  things  are  useless  as  a  means  of  identification  because  in  the  case 
of  a  lost  or  stolen  check,  the  pass  book  and  letters  may  have  been  stolen  or 
found  with  the  check. 

The  teller  should  be  quite  as  familiar  with  the  accounts  on  the  indi- 

292 


206 


American  Business  and  Accounting  En 


cyclopedia 


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114 


Diagram   2. 


vidual  ledger  as  the  individual  book-keeper  himself,  in  order  to  avoid  the 
necessity  of  looking  up  an  account  when  a  check  is  presented,  as  this  may 
excite  the  suspicions  of  the  person  presenting  the  check  and  thus  reflect 
upon  the  credit  of  the  bank's  customer. 

In    well-regulated    banks    the    "cash-counter"    is    always    neat    and 

293 


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American  Business  and  Accounting  Encyclopedia 


20(5 


206 


American  Business  and  Accounting  Encvclopedia  Bank 


orderly.  The  money  is  kept  conveniently  "stacketr'  and  "sorted"  to 
facilitate  counting  and  to  avoid  confusion.  Torn  and  soiled  bills  are  put 
away  temporarily  in  a  separate  till  known  as  the  'Tag  bag,"  and  from  time 
to  time  may  be  shipped  to  Washington  for  redemption,  or  to  the  treasurer 
of  the  United  States  for  credit  to  the  account  of  the  five  per  cent  redemp- 
tion fund. 

Most  of  a  bank's  "cash  reserve"  is  always  kept  locked  up  in  its  vaults, 
only  a  sufficient  amount  being  retained  on  the  counter  and  in  the  cash 
drawers  to  run  the  bank  during  the  day. 

The  loose  currency  of  the  counter  is  usually  stacked  in  $100  piles, 
except  ones  and  twos,  which  are  stacked  in  $50  piles.  The  cash  drawer  is 
divided  into  small  compartments,  or  tills,  into  which  the  currency  is  dis- 
tributed according  to  the  denominations  of  the  bills,  as  it  is  received 
during  the  day. 

For  the  convenience  of  making  change  and  for  the  purpose  of  keeping 
the  silver  in  such  shape  as  to  make  it  easy  to  count,  several  mechanical 
devices  are  now  in  use. 

Currency  is  usually  put  up  in  small  packages  of  convenient  amounts, 
according  to  denominations,  and  wrapped  with  paper  straps,  heavily 
gummed,  and  labeled  with  the  amount  and  denomination  of  the  bills. 
Curency  is  wrapped  as  follows : 

$100  bills  in  $5,000  or  $10,000  packages. 

$50  bills  in  $5,000  packages. 

$20  bills  in  $500  packages. 

$10  bills  in  $500  packages. 

$5  bills  in  $250  and  $500  packages. 

$1  and  $2  bills  in  $50  packages. 

Silver  is  rolled  in  paper  wrappers  made  for  that  purpose.  These 
wrappers  are  made  in  such  a  way  as  to  hold  the  coins  securely  without 
gumming.  The  amount  and  denomination  is  printed  on  each  wrapper. 
Silver  is  usually  pt:     ip  as  follows : 

Dollars  in  $20  rolls. 

Half-dollars  in  $10  or  $20  rolls. 

Quarters  in  $5  and  $10  rolls. 

Dimes  in  $3  and  S5  rolls. 

Nickels  in  $1  and  $2  rolls. 

Pennies  in  25c  and  50c  rolls. 

In  the  vault  the  packages  of  currency  are  stacked  away,  while  the 
silver,  properly  wrapped,  is  put  up  in  canvas  bags  with  the  amount  and 

kind  of  coin  printed  on  both  sides. 

In  connection  with  the  cash,  for  the  purpose  of  ascertaining  at  any 

294 


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AGRAM     J. 


moment  the  exact  amount  of  every  kind  of  monev  "in  stock,"  the  bank 
keeps  a  little  book  called  the  "teller's  cash  book."  While  it  is  compulsorv 
for  a  bank  to  keep  on  hand  a  certain  amount  of  cash,  it  is  evident  that  this 
cash  should  not  be  all  one  kind  of  money.  The  requirements  of  the  busi- 
ness, of  course,  make  it  necessary  to  keep  a  supply  of  fractional  silver  and 

295 


Bank  American  Business  and  Accounting  Encyclopedia 


206 


206 


American  Business  and  Accounting  Encyclopedia  Bank 


bills  of  different  denomination.  The  teller's  cash  book  is  especially  adapted 
for  use  by  the  national  banks,  as  the  national  banking  laws  require  a 
this  book.  Each  page  furnishes  the  record  for  two  days*  business,  the 
detailed  statement  of  the  cash  corresponding  with  the  record  contained  in 
items  being  printed  down  the  center  of  the  page,  while  on  the  left  are  two 
columns  for  the  figures  of  one  day,  and  on  the  right  two  columns  for  the 
figures  of  the  day  following. 

Diagram  1  will  fully  explain  the  use  of  this  book. 

The  Cash  Book.  When  a  customer  of  a  bank  hands  in  his  deposit 
at  the  window,  the  clerk  receiving  it  first  counts  the  cash  and  verifies  it 
with  the  amount  on  the  "deposit  ticket."  Each  listed  check  or  item  is 
carefully  scrutinized,  notice  being  taken  of  the  date,  the  amount,  the 
signature,  and  the  indorsements.  More  particular  attention  is  given  to  the 
indorsement  of  the  depositor  himself,  as  it  is  upon  his  signature  that  the 
bank  relies  for  its  protection.  These  things  are  all  taken  in  at  a  glance 
by  the  experienced  clerk  accustomed  to  the  handling  of  hundreds  of  checks. 

As  the  items  are  being  compared  with  the  amounts  on  the  deposit 
tickets,  they  are  plainly  checked  with  blue  pencil  in  order  that  any  missing 
items  might  not  be  overlooked.  The  footing  is  also  verified,  and  if  correct 
the  date  and  amount  of  the  deposit  are  entered  on  the  pass  book. 

Depositors  do  not  always  make  out  their  own  deposit  ticket,  although 
it  is  important  that  they  should  do  so.  In  the  large  city  banks  the  tellers 
refuse  to  accept  a  deposit  unaccompanied  by  a  deposit  ticket.  Most 
country  banks  are  not  so  particular,  while  some  are  wholly  indifferent. 
Every  bank  should  endeavor  to  educate  its  customers  to  this  way  of  making 
deposits.  Such  precaution  is  necessary  for  the  protection  of  the  customer 
as  well  as  the  bank.  The  customer  who  hastily  thrusts  his  deposit  in  the 
"window"  without  a  ticket  runs  the  risk  of  failing  to  get  proper  credit  for 
it,  as  the  teller  in  his  rush  to  get  rid  of  a  line  of  waiting  customers  may 
forget  to  make  it  out  for  him.  In  such  a  case  the  depositor  would  have 
to  prove  to  the  bank's  entire  satisfaction  that  the  deposit  was  actually 
received  by  them  before  they  would  be  willing  to  credit  it  to  his  account. 

Let  us  see  what  "items"  may  be  received  over  a  bank  counter  besides 
actual  cash : 

Checks  on  the  bank  itself. 
Checks  on  other  banks  in  the  same  town. 
Checks  on  banks  outside  of  town. 
Certificates  of  deposit  issued  by  the  bank  itself. 
Certificates  of  deposit  issued  by  other  banks. 
Bank  drafts. 

296 


Drafts  drawn  by  one  person  or  firm  upon  another.  These  drafts, 
however,  are  not  usually  credited  as  cash  unless  accepted  and  made  payable 
at  some  bank. 

Notes  given  by  another  person  or  firm  to  the  depositor,  and  which 
the  bank  has  accepted  for  discount. 
Depositors'  own  individual  notes. 
Coupons. 

Of  the  disposition  of  these  various  items  we  will  learn  more  later.  The 
teller,  however,  temporarily  disposes  of  each  deposit  as  it  is  received.  The 
cash  is  first  distributed  in  the  separate  tills.  The  deposit  tickets  and  the 
checks  drawn  upon  the  bank  itself  are  placed  on  separate  spindles,  while 
the  foreign  checks  (those  that  are  drawn  on  banks  out  of  town)  are'placed 
in  a  separate  pigeon-hole,  or  perhaps  there  is  a  pigeon-hole  for  each  bank 
with  which  the  bank  corresponds. 

The  checks  drawn  on  the  bank  itself  are  never  canceled  until  after  they 
have  been  posted  to  the  individual  ledger,  as  a  check  which  is  not  good 
and  has  been  overlooked  elsewhere  may  be  discovered  in  time  to  prevent 
payment  when  it  is  posted  to  the  ledger. 

The  cash  book  is  the  book  of  original  entry  in  the  country  bank,  a 
journal  in  fact,  from  which,  however,  none  of  the  entries  are  posted  to 
other  books.  There  are  ten  columns  on  each  page— or  more  if  the  require- 
ments of  the  business  justify  it— and  a  full  double  page  is  used  for  each 
day's  business.  Diagram  2  contains  the  entries  for  the  day's  business, 
as  of  December  4,  1902. 

The  Debit  Side.  Deposits.  The  amount  in  this  column,  $15,965.40. 
represents  the  total  of  all  the  deposit  tickets,  they  having  been  sorted  in 
alphabetical  order  and  listed  on  the  adding  machine. 

New  York.  A  "cash  letter"  containing  checks  on  the  bank  amount- 
ing to  $279.30  was  received  from  the  First  National  Bank  of  New  York. 
The  checks  contained  in  this  letter  were  listed  on  the  machine,  and  the  total 
corresponding  to  their  letter  was  posted  from  the  "slip,"  and  are  designated 
"Rem."  (Remittance.)  There  were  also  drafts  issued  on  the  First  Na- 
tional Bank  of  New  York,  perhaps  to  cover  collections  sent  by  other  banks 
as  follows:    $35.85  and  $65.52.     These  items  are  entered  under  "Drafts."' 

Pittsburg.  The  "cash  letter"  received  from  the  First  National  Bank 
of  Pittsburg  contained  items  aggregating  $2,274.82,  and  the  drafts  drawn 
on  this  bank  were  $167.06,  $581.49,  $129.10,  $153.64. 

Uniontown.  The  bank  has  "reciprocal  accounts"  with  the  First  Na- 
tional Bank  of  Uniontown  and  the  First  National  Bank  of  Fairmont.  The 
figures  in  this  column  represent  the  checks  received  from  the  First  Na- 
tional of  Uniontown. 

297 


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American  Business  and  Accounting  Encyclopedia 


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20G 


Fairmont.  Items  received  from  the  First  National  Bank  of  Fairmont 
amount  to  $190.50. 

Certificates  of  Deposit.  Two  time  certificates  of  deposit  were  issued 
by  the  bank — one  for  $1,000  and  one  for  $500.  A  demand  certificate  for 
$250  was  also  issued.  These  items  were  of  course  entered  on  the  cash 
book  separately  at  the  time  of  their  issue.  Two  cashiers  checks  and  a 
check  for  $130  were  certified.  There  being  no  special  column  for  these 
items,  they  were  properly  designated  and  placed  in  this  columrf. 

Loans.  A  loan  for  $1,956  and  one  for  $3,550  having  been  paid,  were 
entered  in  this  column. 

Profits.  The  various  sources  of  the  bank's  profits  are  herein  desig- 
nated. Thirty-five  cents  and  70  cents  were  received  as  "exchange"  on 
drafts  drawn  on  Xew  York  and  Pittsburg  respectively.  Also  $115.72 
interest  on  loans  made. 

Total.  The  balance  brought  over  from  the  previous  day's  business 
is  $19,752.16.  Under  these  figures  are  gathered  the  total  of  each  column 
or  group  of  figures,  the  grand  total  being  $47,471.21. 

The  Credit  Side.  Checks.  All  checks  on  the  bank  itself  received 
from  various  channels  having  been  "sorted"  in  alphabetical  order  and  listed 
on  the  "machine,"  the  total  of  which  amounts  to  $13,069.56,  is  entered  in 
this  column.  If  the  bank  is  unfortunate  enough  not  to  own  an  adding 
machine,  items  must  of  course  be  listed  on  the  cash  book  in  detail  with 
a  pen. 

New  York.  Items  received  from  New  York  having  been  charged  to 
cash,  those  sent  to  them  for  credit  must  then  be  credited  to  cash.  These 
items  aggregated  ^297.7^. 

Pittsburg.  Most  of  the  "foreign"  checks  received  through  various 
channels  are  sent  to  the  bank's  "reserve  agent"  at  Pittsburg,  as  the  banks 
in  that  city  are  not  restricted  by  clearing  house  rules  governing  the  collec- 
tion of  checks,  and  therefore  accept  most  items  at  par.  The  total  of  the 
kems  sent  in  their  letter  of  December  4th  was  $4,387.85.  The  bank  also 
received  advice  that  a  "collection"  of  $58.97  sent  to  Pittsburg  some  time 
before  had  been  paid.  This  item  was  therefore  charged  to  Pittsburg  on 
the  general  ledger  and  credited  to  cash  on  the  cash  book. 

Uniontown.  The  figures  in  this  column  and  in  the  column  headed 
"Fairmont"  represent  the  totals  of  items  sent  to  these  banks  for  credit. 
As  Uniontown  and  Fairmont  are  neighboring  towns  and  the  bank  has  only 
reciprocal  accounts  with  the  First  National  Bank  at  each  place,  only  checks 
drawn  on  them,  or  perhaps  a  few  other  towns  in  the  immediate  vicinity, 
are  sent  direct  to  them. 

Certificates  of  Deposit.    The  items  in  this  column  represent  certifi- 

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cates  of  deposit  that  were  paid,  interest  that  was  paid  on  the  certificates, 
and  a  dividend  check  for  $120. 

Loans.  Two  loans  amounting  to  $7,715  were  made,  as  is  shown  h\ 
the  figures  in  this  column. 

Expenses.  The  expense  items  appearing  in  this  column  are  $3  60  and 
$7o.  Expenses  are  "itemized"  in  the  "expense  book,"  and  posted  from 
there  to  the  general  ledger. 

Total.  The  total  "footings"  of  each  column  are  carried  to  the  "total* 
column  and  added  in  order  to  get  the  total  "credits."  The  difference  be- 
tween the  debit  and  credit  sides  of  the  cash  book  shows  the  amount  of  ca^h 
balance  on  hand,  providing,  of  course,  all  entries  have  been  correctly  made 

It  will  be  seen  that  the  balance  as  shown  by  the  cash  book  corresponds' 
to  the  teller's  count  as  shown  by  the  teller's  cash  book. 

The  importance  of  the  cash  book  lies  in  the  fact  that  it  furnishes  a 
means  of  "proving"  or  "checking"  the  totals  of  various  groups  of  items 
Some  banks  do  not  keep  a  cash  book,  either  from  a  lack  of  knowledge  of 
the  most  improved  methods  of  book-keeping  or  their  unwillingness  to 
adopt  a  system  which  requires  two  entries  when  the  desired  result  may 
be  obtamed  by  making  only  one.  The  time  consumed  in  making  the 
double  entries,  however,  is  more  than  offset  by  the  time  and  labor  ^aved 
in  "striking  a  balance." 

Without  the  aid  of  a  cash  book,  if  at  the  end  of  the  day's  business  a 
discrepancy  appears  in  the  books,  it  is  necessary  in  order  to  locate  the 
error  to  check  every  item  of  each  account  separately  until  it  is  found. 
With  the  cash  book,  however,  totals  of  accounts  only  are  checked. 

For  instance,  suppose  at  the  end  of  the  dav's'  business  the  general 
book-keeper  is  unable  to  "prove"  his  ledger.  It  is  evident  that  an  error 
exists  in  some  account  on  one  of  the  various  books.  It  may  be  on  the 
cash  book,  the  discount  register,  the  draft  register,  the  individual  journal 
and  proof  ledger,  or  on  the  general  books  themselves.  The  point  is  to 
determine  in  what  book  or  account  the  error  occurs,  so  as  to  avoid  the 
waste  of  time  and  patience  in  "checking"  items  in  those  accounts  that  are 
correct. 

This  may  be  done  by  checking  the  totals  on  the  cash  book  with  the 
corresponding  debits  and  credits  of  the  general  ledger.  As  all  the  accounts 
on  the  general  ledger  are  spread  out  before  you  on  an  open  page,  the 
checking  may  be  very  speedily  accomplished. 

Say  the  error  existed  in  the  journal  and  proof  ledger,  a  deposit  ticket 
having  been  entered  incorrectly.  As  the  total  deposits  and  total  checks 
are  posted  to  the  general  ledger  from  this  Dook,  when  the  cash  book  is 
checked  with  the  general  ledger  the  two  tota/s  will  disagree,  thus  showing 

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at  once  in  what  section  the  discrepancy  exists.  The  error  itself  is  then 
located  by  checking  the  deposits  separately  on  the  "slip"  with  those  on 
the  journal  and  balance  ledger. 

The  Individual  Books.  All  the  clerical  work  of  a  bank  is  more  or 
less  wearisome,  but  the  monotonous  drudgery  of  the  individual  books  is  a 
severe  strain  upon  the  nerves  and  patience  of  the  individual  book-keeper. 
His  sphere  of  employment  is  narrow  and  his  duties  exacting,  affording 
little  opportunity  for  advancement.  Every  day  he  has  the  same  thing  to 
do  over  and  over  again.  There  is  no  variety  to  lend  interest  to  his  work — 
no  new  ideas  to  work  out,  or  new  problems  to  solve;  all  is  purely 
mechanical. 

At  the  same  time  there  is  a  great  deal  of  responsibility  resting  upon 
the  individual  book-keeper.  Although  he  is  not  expected  to  be  quite  in- 
fallible, a  mistake  on  his  part  is  almost  an  unpardonable  sin ;  for  when  such 
mistakes  come  to  the  knowledge  of  the  customer  they  tend  to  arouse  his 
suspicions,  and  frequently  result  in  the  loss  of  his  business. 

The  individual  book-keeper  must  have  a  good  memory.  It  is  neces 
sary  for  him  to  keep  in  his  head  the  approximate  balances  of  all  the 
accounts,  as  he  is  frequently  called  upon  to  answer  whether  or  not  a  check 
is  good  when  it  would  be  inexpedient  to  refer  to  the  ledger.  He  must 
also  keep  in  mind  the  exact  location  in  the  ledger  of  each  account,  so  that 
they  may  be  turned  to  instantly  without  having  to  first  refer  to  the  index. 

The  first  book  with  which  the  individual  book-keeper  has  to  do  is  the 
"journal  and  proof  ledger." 

The  "Journal  and  Proof  Ledger."  The  "proof  ledger"  is  similar  in 
all  its  main  features  to  what  is  known  as  the  "Boston  ledger."  The  prim- 
ary object  of  the  proof  ledger  is  to  provide  a  means  of  "checking"  the 
individual  ledger.  It  is  also  a  journal,  upon  which  are  entered  the  deposit 
slips  and  checks,  thereby  furnishing  the  individual  debit  and  credit  foot- 
ings for  the  general  ledger. 

The  deposit  tickets  and  checks  have  already  been  "sorted"  in  alpha- 
betical order,  listed  on  the  "machine,"  and  their  totals  entered  on  the  cash 
book.  They  are  now  taken  by  the  individual  book-keeper,  or  his  assistant 
if  he  has  one,  and  posted  to  the  proof  ledger. 

This  ledger  contains  both  long  and  short  leaves,  there  being  at  least 
12  short  leaves  to  every  one  long  leaf.  The  margin  of  each  long  leaf 
extending  beyond  the  edge  of  the  short  leaves  is  sufficiently  wide  to  admit 
of  the  writing  of  the  customers'  names,  and  when  the  short  leaves  are 
turned  back  to  the  left  and  lie  flat  on  the  long  leaf  the  names  are  left 
uncovered. 

The  names  are  written  in  vertical  order,  one  under  the  other,  to  the 

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extreme  left  of  the  page.  Across  the  double  page  are  six  spaces,  each  space 
contammg  a  debit  and  credit  column.  This  ruling  is  sufficient  to  accom- 
modate the  business  of  the  six  days  of  the  week  without  turning  the  leaf 
The  short  leaves  of  the  ledger  eliminate  the  necessity  of  rewritin-  the 
depositors'  names  when  carrying  the  balances  to  the  next  page  as  the 
names  on  the  long  leaf  are  always  in  view. 

At  the  close  of  business  on  the  last  day  of  the  week,  when  balances 
must  be  forwarded  to  the  next  page,  instead  of  first  writing  the  balances 
on  that  page  and  then  transferring  them  to  the  next  page  one  at  a  time 
turnmg  the  leaf  back  and  forth  at  every  transfer,  the  outer  edge  of  the 
next  leaf  is  simply  folded  back  to  the  left  so  that  the  first  column  at  the 
extreme  left  of  the  page  is  brought  contiguous  to  the  last  column  of  the 
precedmg  page. 

The  leaf  is  creased  in  this  position,  thus  bringing  the  debit  and  credit 
CO  umns  of  the  last  day  of  the  week  side  by  side.with  the  debit  and  credit 
CO  umns  of  the  first  day  of  the  week  on  the  next  page,  permitting  all  the 
balances  to  be  forwarded  at  one  turning  of  the  page.  When  all  the  balances 
have  been  forwarded,  by  turning  back  the  edge  of  the  leaf  to  its  original 
posifon,  the  balances  are  brought  into  proper  position  for  the  continuation 
of  the  entries  for  the  succeeding  week. 

Diagram  3  shows  a  page  of  the  "journal  and  proof  ledger  " 
The  entries  in  this  illustration  are  sufficient  to  show  how  the  accounts 
are  entered  and  kept.  In  the  first  column  the  names  are  entered  in 
alphabetical  order.  In  the  debit  column  of  the  space  for  Mondav's  business 
the  figures  m  italics  represent  the  total  checks  entered  in  red  ink  while 
the  larger  figures  in  the  credit  column  are  deposits.  The  smaller  figures 
m  the  upper  right-hand  corner  above  the  lines  upon  which  are  written  the 
accounts,  mdicate  the  balances  as  they  are  entered  in  lead  pencil 

The  proof  ledger  is  not  only  designed  to  furnish  a  "check"  on  the  indi- 
vidual ledger,  but  it  also  furnishes  the  total  individual  debits  and  credits 
for  the  general  ledger. 

The  parallel  lines  usually  alternate  red  and  blue,  as  it  aids  the  eye  in 
followmg  the  line  from  the  customer's  name  to  the  remotest  column  in 
which  entries  are  to  be  made. 

The  debits  and  credits  are  posted  in  different  colored  ink-the  checks 
in  red  and  the  deposits  in  purple-in  order  to  lessen  the  danger  of  posting 
debits  as  credits  and  credits  as  debits. 

When  the  checks  paid  against  any  account  in  a  single  day  are  too 
numerous  to  permit  of  their  being  entered  in  detail  in  the  debit  column 
they  may  be  listed  on  the  back  of  one  of  the  canceled  vouchers  and  their' 
total  only  entered. 

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lil! 


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The  ''active"  and  "inactive"  accounts  may  be  kept  separate  on  the 
proof  ledger,  the  active  accounts  being  put  in  the  front  of  the  ledger,  while 
a  few  leaves  are  reserved  in  the  back  for  inactives.  The  classification, 
however,  should  be  very  carefully  made,  taking  particular  pains  that  those 
that  are  the  least  active  are  not  put  with  the  inactive. 

Testing  to  the  proof  ledger  is  done  very  rapidly,  as  it  consists  merely 
in  entering  the  deposits  and  checks  in  their  proper  columns  opposite  the 
depositor's  name.  The  balances  of  all  the  accounts  are  not  forwarded 
every  day,  but  only  those  that  change.  At  the  end  of  each  week,  however, 
when  the  end  of  the  page  is  reached,  they  all  must  be  carried  over  to  the 
next  page  to  begin  the  business  of  the  next  week. 

It  is  not  necessary  to  "call  back"  the  proof  ledger  with  the  individual 
ledger  oftener  than  once  every  two  weeks  or  month,  as  an  error  in  either 
ledger  may  be  easily  and  quickly  located  by  comparing  the  accounts  of 
the  two  ledgers. 

When  all  the  checks  and  deposits  have  been  posted  to  the  proof  ledger 
and  the  total  footings  ascertained,  they  are  compared  with  the  total  checks 
and  total  deposits  on  the  cash  book,  and  if  the  corresponding  columns 
agree,  the  totals  are  then  posted  to  the  general  ledger.  The  debit  and 
credit  columns  of  the  proof  ledger  may  be  added  and  the  footings  for- 
warded as  the  deposit  slips  and  checks  are  posted  on  each  page,  in  order 
to  save  the  time  of  going  through  the  ledger  again  merely  to  get  the  total 
footings. 

In  the  back  of  the  book  the  inactive  accounts  are  kept  somewhat  dif- 
ferently. A  page  is  written  only  about  two-thirds  full  of  names,  leaving 
a  blank  space  between  the  last  name  and  the  bottom  of  the  page.  The 
total  of  all  the  balances  on  each  page  of  inactive  accounts  is  constantly 
carried  without  forwarding  the  balances  separately  and  footing  them  up 
every  time  there  is  a  change  in  an  inactive  account. 

If  a  check  is  charged  or  a  deposit  credited  to  an  account,  the  items 
are  entered  in  their  proper  columns  opposite  the  name,  and  the  balance 
forwarded  in  lead  pencil  as  usual.  But  from  the  total  of  the  page  at  the 
bottom,  the  items  are  immediately  deducted,  or  added,  as  the  case  may 
require.  Thus  is  avoided  the  necessity  of  footing  singly  all  the  inactive 
balances  when  taking  a  trial  balance. 

As  all  the  checks  and  deposit  tickets  have  now  been  entered  in  the 
proof  ledger  and  the  debit  and  credit  footings  obtained  for  the  general 
ledger,  they  are  next  posted  to  the  final  book  of  entry— the  individual 

ledger. 

The  Individual  Ledger.  As  the  loose  leaf  system  is  employed  in 
keeping  the  individual  accounts,  two  separate  binders  are  necessary— the 

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"current  binder"  and  the  "transfer  binder."  In  the  current  binder  are 
kept  only  the  open  accounts,  the  closed  accounts  and  the  filled  leaves  of 
the  open  accounts  being  transferred  to  the  transfer  binder. 

Every  book-keeper  is  of  course  familiar  with  the  loose  leaf  system. 
The  mechanism  is  very  simple.  Tlie  book  is  not  permanently  bound,  but 
the  leaves  are  simply  placed  loose  in  a  binder,  and  by  turning  a  little  key, 
or  knob,  the  leaves  become  "clamped,"  or  locked.  They  are  firmly  held 
in  place  and  cannot  be  extracted  unless  the  ledger  is  unlocked. 

The  index  leaves  are  distributed  throughout  the  ledger,  there  being 
attached  to  each  a  little  leather  tab  indicating  the  letter  of  the  alphabet, 
and  arranged  in  such  a  manner  as  to  leave  all  the  letters  visible  when 
the  book  is  closed. 

In  this  ledger  a  full  leaf  is  given  to  each  account,  whether  active  or 
inactive,  otherwise  the  advantageous  arrangement  of  the  accounts  and 
the  index  feature  would  be  spoiled. 

At  the  top  of  the  page  the  name  and  address  of  the  depositor  is  written. 
In  the  right-hand  corner  of  the  page  is  entered  the  number  of  the  account 
and  the  "sheet  number,"  the  latter  designating  the  number  of  sheets  the 
account  has  filled. 

The  pages  are  usually  double  ruled— that  is,  they  are  divided  in  the 
center  by  a  heavy  line  extending  perpendicularly  from  top  to  bottom. 
Each  half-page  contains  five  columns,  as  follows:  "date,"  "checks  in  de- 
tail," "deposits,"  and  "balance."  There  is  no  debit  balance  column,  as 
the  occasional  over-drafts  are  entered  in  red  ink  in  the  credit  balance 
column. 

Diagram  4  is  a  specimen  page  of  the  individual  ledger,  showing  how 
deposits  and  checks  are  entered  and  how  the  balances  are  constantly  car- 
ried. 

In  this  diagram  are  shown  the  following  facts:  That  J.  T.  Adams 
has  an  account  with  the  bank,  and  that  his  balance  of  $496.45  has  been 
forwarded  from  sheet  Xo.  3,  which  was  filled  and  transferred  to  the  transfer 
ledger;  that  he  was  the  798th  person  to  open  an  account  with  the  bank; 
and  that  the  number  of  the  sheet  is  "four."  On  December  4th  .Mr.  Adams 
made  a  deposit  of  $490,  which  was  added  to  his  former  balance  and  the 
new  balance  entered  immediately  at  the  time  of  posting.  On  December 
4th  three  checks,  aggregating  $165.90,  were  charged  against  his  account, 
the  checks  first  being  entered  separately  in  the  "checks  in  detail"  column,' 
and  the  total  carried  to  the  "total  checks"  column.  The  item  of  $130,' 
marked  "C.  C,"  is  a  charge  made  for  a  check  which  was  certified  for  that 
amount  upon  that  date.  If  the  checks  charged  on  December  4th  had  been 
in  excess  of  the  previous  balance,  an  "overdraft"  would  have  been  the 

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result,  thereby  creating  a  "debit  balance,"  which  would  have  been  entered 
in  red  ink  in  the  credit  column. 

The  individual  loose  leaf  ledger  is  perpetual— one  feature  alone  which 
makes  it  a  God-send  to  the  "slave"  of  the  counting  house.  The  laborious 
task  of  transferring  the  hundreds  of  names  and  balances  contained  in  one 
large  ledger  to  another  was  for  years  the  bane  of  the  book-keeper's  exist- 
ence. First,  there  was  the  proper  spacing  of  the  new  ledger— to  tell  just 
how  many  pages  should  be  allotted  to  each  account  and  how  much  space 
to  be  reserved  between  accounts  for  the  insertion  of  new  ones  which  might 
be  opened  from  time  to  time.  But  in  spite  of  the  most  painstaking  calcula- 
tions, the  book-keeper's  judgment  invariably  proved  wrong  in  case  of 
some  of  the  accounts,  they  becoming  more  active  than  he  had  anticipated, 
and  perhaps  more  new  accounts  had  been  opened  than  allowance  was  made 
for.  Consequently  accounts  ran  into  each  other,  making  it  necessary  to 
forward  some  to  other  parts  of  the  ledger  and  thus  throwing  them  out  of 
their  natural  order.  Mixing  the  accounts  in  this  manner  always  increased 
the  danger  of  posting  to  the  wrong  account. 

When  transferring  accounts  in  the  old  way,  two  trial  balances  had 
to  be  taken  oflf — one  of  the  old  ledger,  and  one  of  the  new  ledger  after 
the  accounts  had  all  been  transferred.  Of  course  these  trial  balances  never 
agreed,  and  then  came  the  never-ending  and  laborious  task  of  searching 
and  "checking"  through  the  ponderous  ledgers. 

In  the  loose  leaf  ledger  there  is  an  account  on  every  leaf — no  blank 
leaves  reserved  for  future  use,  consequently  the  book  is  much  smaller, 
more  compact  and  easier  to  handle.  This  feature,  also,  facilitates  posting, 
as  there  are  no  "dead  accounts"  or  extra  leaves  to  handle  over  and  over 
again.  The  accounts  never  change  their  positions,  their  arrangement 
always  remaining  relatively  the  same. 

By  transferring  the  "filled  leaves"  to  their  separate  accounts  in  the 
transfer  ledger,  the  record  covering  each  account  for  the  period  of  their 
entire  existence  in  the  bank  is  always. together,  and  not  scattered  through 
perhaps  half  a  dozen  ledgers. 

In  taking  off  trial  balances  there  is  less  danger  of  skipping  an  ac- 
count, as  there  are  no  crowded  pages,  and  for  every  page  turned  an  amount 
must  be  set  down.  The  leaves  of  the  ledger  may  be  "ruled  reverse,"  thus 
throwing  every  account  on  the  right-hand  page,  while  the  opposite  page 
appears  upside  down. 

The  individual  book-keeper  keeps  "on  the  side,"  as  it  were,  three 
little  memorandum  books.  One  he  uses  for  recording  new  accounts  in 
the  order  in  which  they  are  opened,  one  for  accounts  closed,  and  the  other 
for  overdrafts.    These  little  books  are  especially  useful  to  the  cashier  in 

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directors'  meetings.  At  each  meeting  he  is  enabled  to  report  all  the  new 
accounts  opened  since  last  meeting,  threby  keeping  alive  their  interest 
in  getting  new  business.  By  having  it  brought  to  his  attention,  also,  when- 
ever a  depositor  closes  his  account,  the  cashier  can  at  once  investigate 
and  ascertain  the  reason  for  the  withdrawal.  A  polite  and  courteous  letter 
will  often  bring  an  old  customer  back  again.  The  little  book  containing 
overdrafts  shows  at  a  glance  who  are  overdrawn,  when  they  are  notified, 
and  how  long  the  overdrafts  have  been  standing. 

Daily  Proofs.— When  a  journal,  or  "debit  and  credit  book,"  is  used 
in  connection  with  the  individual  ledger  instead  of  the  proof  ledger,  various 
schemes  are  employed  to  "prove"  the  posting;  but  they  are  all  more  or 
less  imperfect.    One  method  in  common  use  is  as  follows: 

Take  a  slip  of  paper  two  columns  wide  with  room  at  the  top  for  the 
date,  and  after  each  item  is  posted  to  the  ledger  account,  take  the  differ- 
ence between  the  "old  balance"  and  the  "new  balance"  and  place  the 
result  in  the  debit  or  credit  column,  according  to  whether  the  item  posted 
is  a  deposit  or  check.  When  the  entire  posting  is  done,  if  correct,  the 
footing  of  the  credit  column  of  the  slip  should  agree  with  the  footing  of 
the  credit  side  of  the  debit  and  credit  book,  and  the  debit  footing  of  the. 
slip  with  the  total  checks  on  the  debit  and  credit  book.  If  either  column 
of  the  slip  should  disagree  with  the  corresponding  column  of  the  debit 
and  credit  book,  the  error  is  located  by  checking  separately  the  items  in 
that  column  on  the  slip  with  the  items  on  the  debit  and  credit  book.  Thus 
it  is  readily  ascertained  in  what  account  an  error  occurred. 

Some  book-keepers  do  not  take  this  proof  off  as  they  post,  but  wait 
until  the  next  morning  after  the  work  becomes  "cold"  and  there  is  less 
danger  of  overlooking  an  error. 

To  facilitate  calling  back  the  ledger,  the  book-keeper  usually  places 
the  deposit  tickets  and  checks  in  the  ledger  at  the  several  accounts  to 
which  they  belong.  The  slips  and  checks  are  inserted  so  that  they  project 
from  the  book  and  serve  to  "mark"  the  accounts.  The  book-keeper  there- 
fore turns  very  rapidly  to  the  accounts  as  his  assistant  calls  the  names 
and  amounts,  and  having  the  item  in  his  hand,  at  the  same  time  compares 
the  entries  on  the  ledger  with  the  item  itself. 

This  method  of  "proving"  the  ledger  is  very  unsatisfactory  because  it 
does  not  eliminate  the  necessity  of  "calling  back"  the  ledger,  the  most 
irksome  task  connected  with  the  individual  books.  In  fact,  it  does  little 
more  than  prove  that  amounts  have  been  correctly  posted  as  to  the  figures 
It  does  not  prove  that  items  are  all  posted  to  the  proper  account,  or  that 
a  debit  has  not  been  posted  as  a  credit,  or  a  credit  as  a  debit,  or  that  an 
amount  has  "lot  been  posted  twice,  etc. 

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The  following  is  another  method  sometimes  used :  Take  a  long  slip 
of  paper  with  four  columns  instead  of  two — two  columns  on  the  debit 
side  and  two  on  the  credit  side.  When  an  item  is  posted  to  an  account — 
and  we  will  suppose  it  to  be  a  credit — the  "old  balance,"  that  is,  the  bal- 
ance standing  to  the  credit  of  the  account  before  the  deposit  is  added,  is 
entered  in  the  first  column  on  the  credit  side  of  the  slip,  while  the  ''new 
balance,"  that  is,  the  balance  created  after  the  deposit  is  added  to  the 
former  balance,  is  placed  in  the  second  column  on  the  credit  side  of  the 
slip.  When  the  posting  is  done  the  four  columns  on  the  slip  are  footed, 
the  difference  between  the  two  on  the  debit  side  corresponding  with  the 
total  checks  on  the  debit  and  credit  book,  while  the  difference  between 
the  two  columns  on  the  credit  side  "prove"  with  the  total  deposits. 

If  upon  comparing  these  columns  they  show  a  discrepancy,  the  error 
cannot  be  so  easily  located  as  in  the  first  proof.  If  the  error  is  in  posting 
the  credits,  for  instance,  it  is  necessary  to  begin  at  the  top  of  the  slip  and 
take  the  difference  between  the  two  balances  of  each  account,  compare 
them  to  the  corresponding  credits  on  the  debit  and  credit  book  until  you 
come  to  two  balances,  the  difference  between  which  does  not  agree  with 
the  corresponding  credit. 

While  this  proof  is  perhaps  a  little  more  "effective"  than  the  first,  its 
advantages  are  not  sufficient  to  compensate  for  the  great  additional  amount 
of  time  and  labor  required  to  operate  it.  It  will  detect  a  credit  posted  as 
a  debit  and  a  debit  posted  as  a  credit,  but  not  an  amount  posted  to  the 
wrong  account,  etc.    A  "call  back"  of  the  ledger  is  also  necessary. 

Filing  Deposit  Tickets  and  Checks. — After  the  deposit  slips  and 
checks  have  been  posted  to  the  individual  ledger,  the  final  book  of  entry, 
they  are  ready  for  filing.  Before  the  checks  are  filed,  however,  they  are 
canceled  by  stamping  them  "Paid"  across  the  face  with  a  rubber  stamp, 
or  perforating  them.  They  are  then  filed  in  cabinets  made  especially  for 
the  purpose. 

These  cabinets  contain  as  many  drawers  as  the  number  of  the  accounts 
appear  in  the  ledger.  The  depositors'  names  are  written  or  printed  at 
the  top  of  these  cardboard  partitions,  which  are  so  shaped  that  one  parti- 
tion does  not  obscure  the  name  on  the  next  one  behind  it. 

Before  filing,  deposit  tickets  are  always  stamped  across  their  face 
with  the  date  upon  which  they  were  received.  This  is  done  to  correct 
those  improperly  dated  and  to  supply  the  date  upon  those  left  undated. 

Deposit  tickets  are  also  filed  in  cabinets,  each  depositor  having  a 
separate  compartment.  Two  cabinets  are  necessary  when  tickets  are  filed 
in  this  way — a  "current  cabinet"  and  a  "transfer  cabinet."  In  the  current 
cabinet  the  deposit  tickets  are  filed  each   day  in  their  several  compart- 

306  - 


ments.  When  pass  books  are  left  to  be  balanced,  all  the  deposit  tickets 
belonging  to  such  accounts  are  removed  from  the  current  cabinet,  and 
after  being  checked  with  the  entries  on  the  pass  books,  are  filed  in  the 
transfer  cabinet. 

Thus  the  current  cabinet  does  not  contain  the  deposit  tickets  of  any 
customer  back  of  the  date  his  book  was  last  balanced. 

In  some  banks  deposit  tickets  are  filed  according  to  date,  each  day's 
ticket  being  filed  together.  The  tickets  are  perforated  at  the  top  with 
two  small  holes  and  placed  upon  a  spindle.  Each  day's  tickets  are  separ- 
ated from  each  other  by  thin  sheets  of  cardboard,  which  are  dated.  At 
the  end  of  each  month  they  are  tied  together  with  a  wire  thread  and  filed 
away  in  the  vault. 

Balancing  Pass  Books. — The  work  of  balancing  depositors'  pass 
books  belongs  to  the  individual  book-keeper,  or  his  assistant.  If  it  can 
justify.  Each  drawer  is  divided  into  compartments  by  heavy  cardboard 
partitions.  A  compartment  is  given  to  each  depositor,  the  accounts  being 
arranged  in  the  drawer  in  alphabetical  order,  or  in  the  same  order  as  thev 
be  avoided,  however,  the  employe  who  keeps  the  individual  ledger  of  a 
bank  should  not  be  entrusted  entirely  with  the  balancing  of  pass  books, 
although  the  limited  force  of  many  country  banks  makes  it  necessary. 

Checks  as  well  as  deposits  used  to  be  entered  on  the  pass  book,  but 
since  the  introduction  of  the  adding  machine,  this  method  has  become  obso- 
lete. Deposits  only  are  entered  on  the  pass  book,  while  the  checks  are 
listed  on  separate  envelopes  or  slips. 

When  a  depositor  leaves  his  pass  book  to  be  "written  up,"  as  he 
should  do  at  least  once  a  month  if  his  account  is  active,  it  is  taken  in 
charge  first  by  the  assistant  book-keeper,  who  gets  out  all  the  canceled 
vouchers  which  have  been  paid  since  the  book  was  last  balanced,  and  also 
all  his  deposit  tickets. 

After  comparing  the  deposit  slips  with  the  credits  on  his  pass  book 
and  entering  from  the  tickets  themselves  those  which  may  not  be  on  the 
book,  the  checks  are  listed  on  the  adding  machine,  or  with  a  pen  and  ink 
on  a  separate  slip,  if  the  bank  has  not  provided  themselves  with  a  machine. 

He  then  foots  the  deposits,  putting  the  total  in  light  lead  pencil  figures 
on  the  line  next  below  the  last  deposit.  Under  this  is  set  down  the  "total 
checks,"  which  are  subtracted  from  the  "total  deposits"  and  the  difference 
entered  on  the  next  line  below,  which  is  the  "balance.*' 

The  pass  book  is  then  turned  over  to  the  individual  book-keeper,  who 
compares  this  balance  with  that  on  his  ledger,  and  if  they  agree  he  erases 
the  lead  pencil  figures  and  enters  them  in  ink.  The  book  is  then  ruled  oft", 
showing  the  balance  with  which  the  depositor  begins  anew.    This  ruling 

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is  accomplished  with  a  single  impression  of  a  rubber  stamp,  as  the  fol- 
lowing will  illustrate: 

In  order  to  show  on  the  ledger  when  an  account  was  last  balanced, 
it  is  not  necessary  to  rule  the  account  off  and  bring  the  balance  down, 
as  the  balances  are  carried  in  the  balance  column  daily.  Merely  the  date 
is  stamped  with  a  rubber  stamp  dater  to  the  left  of  the  debit  column  and 
on  the  line  with  the  last  balance. 

When  pass  books  have  been  thus  balanced  and  verified,  the  checks 
with  the  slip  upon  which  they  are  listed  are  placed  in  the  book  and  the 
books  are  filed  away  in  convenient  cabinets  made  especially  for  the  pur- 
pose. The  assortment  and  filing  of  pass  books  after  they  have  been  bal- 
anced is  an  important  matter.  It  is  a  bad  practice  to  throw  them  pro- 
miscuously in  a  drawer,  so  that  the  hand  cannot  readily  be  laid  upon  any 
one  of  them.  Customers  become  annoyed  at  having  to  wait  while  search 
is  being  made  through  a  stack  of  books. 

Other  Systems. — There  are  various  other  systems  of  keeping  the  indi- 
vidual books  employed  by  different  banks.  It  will  not  be  attempted, 
however,  to  describe  the  several  systems  in  detail,  or  to  enter  into  a  dis- 
cussion of  their  relative  merits,  as  it  would  only  tend  to  confuse  those  who 
are  unfamiliar  with  bank  book-keeping. 

The  most  important  of  these  systems  now  in  use  are: 

The  Rand,  the  Eager,  the  Boston,  the  New  York,  the  Bound  Three- 
Column  Ledger. 

(207)     THE  rand. 

The  Rand  ledger  is  divided  into  sections  by  sheets  of  stiff  card- 
board. Each  section  may  contain  20  or  more  leaves.  The  card- 
board sheets  extend  beyond  the  edge  of  the  other  leaves,  leaving  a  margin 
wide  enough  to  hold  little  metal  slides.  In  these  metal  slides  are  inserted 
little  slips  of  paper  bearing  the  names  of  the  depositors. 

Beyond  the  outer  edge  of  the  slips  there  is  still  space  enough  left  in 
the  slide  to  contain  another  slip,  upon  which  are  written  the  balances  of 
the  depositors. 

Whenever  an  item  is  posted  to  a  depositor's  account,  thereby  chang- 
ing his  balance,  the  slip  containing  his  old  balance  is  removed  and  replaced 
by  another  upon  which  is  written  the  "new  balance." 

As  these  balances  are  all  in  sight  and  in  correct  alignment,  it  will  be 
seen  that  a  daily  trial  balance  of  the  entire  ledger  can  be  had  by  simply 
footing  these  balances. 

While  this  ledger  saves  the  labor  of  forwarding  unchanged  balances, 
yet  it  is  a  question  whether  this  advantage  is  not  more  than  counter- 

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balanced  by  the  time  and  labor  consumed  in  manipulating  this  mechanical 
device. 

(208)     the  eager. 

The  Eager  ledger  is  similar  in  all  its  important  features  to  the 
ordinary  Three-Column  ledger.  Each  account  is  given  a  full  page, 
or  leaf  if  the  ledger  is  loose  leaf,  and  the  name  of  the  customer  is  written 
at  the  top  of  the  page. 

It  is  ruled  with  columns  for  "Checks  in  Detail,"  "Total  Checks," 
"Deposits,"  and  "Balance."  The  book  is  divided  into  four  sections,  a 
stiff  partition  separating  each  section.  These  partitions  project  beyond 
the  edge  of  the  other  leaves  far  enough  to  support  a  pad  of  "proof  sheets" 
four  columns  wide.  In  the  columns  of  the  "proof  sheet"  are  recorded 
"deposits,"  "checks,"  "old  balances"  and  "new  balances"  belonging  in  each 
section.  There  is  an  index  leaf  for  each  section,  which  enables  the  book- 
keeper to  readily  turn  to  any  account  in  the  section. 

The  posting  is  done  in  this  manner:  Turn  to  the  account  to  which 
an  item  is  to  be  posted,  but  before  posting  it  set  down  the  last  balance  of 
the  account  in  the  column  "old  balances"  on  the  proof  sheet.  Then  after 
posting  the  item  enter  the  last  balance  in  the  column  "new  balances"  on 
the  proof  sheet.  The  deposit  tickets  and  checks  having  been  previously 
entered  in  their  respective  columns  of  the  proof  sheet,  when  the  posting 
is  done  the  proof  sheet  shows  the  total  deposits,  total  checks,  and  old  and 
new  balances  of  each  section. 

The  posting  is  proven  as  follows :  Add  the  total  deposits  in  each  sec- 
tion to  the  sectional  balance— that  is,  the  total  of  all  the  balances  in  the 
section,  and  subtract  the  total  checks.  This  amount  ought  to  equal  the 
amount  procured  by  adding  the  new  balances  to  the  sectional  balance  and 
subtracting  the  old  balance. 

(209)       THE    BOSTON. 

In  this  ledger  the  names  are  written  in  alphabetical  order,  one 
under  the  other,  from  the  top  to  the  bottom  of  the  page.  The 
accounts  are  carried  horizontally  across  the  page.  The  leaves  are  ruled 
with  six  spaces,  sufficient  to  accommodate  a  week's  business  without  turn- 
ing the  page.  Each  space  is  ruled  into  columns  for  "Checks  in  Detail," 
"Checks,"  "Deposits,"  and  "Balance." 

The  book  is  composed  of  long  and  short  leaves.  Between  each  long 
leaf  are  several  short  leaves,  usually  about  12.  The  object  of  these  short 
leaves  is  tp  enable  the  book-keeper  to  forward  the  balances  to  the  next 
page  without  re-writing  the  names.     When  they  are  turned  back  to  the 

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left  and  lie  flat  on  the  long  leaf,  the  names  written  on  the  margin  of  the 
long  leaf  are  always  visible. 

The  balances  may  also  be  transferred  from  one  page  to  the  next  with- 
out having  first  to  write  the  balances  on  the  first  page  and  then  turning 
the  leaf  back  and  forth  each  time  a  balance  is  carried  over  to  the  next 
page.  Balances  are  forwarded  by  folding  to  the  left  the  short  leaf  so  that 
the  "balance"  column  at  the  beginning  of  the  next  page  will  appear  next 
to  the  ''credit"  column  of  the  first  page.  When  all  the  balances  on  the 
page  are  forwarded,  the  "fold"  is  turned  back,  and  the  new  balances  then 
appear  on  the  next  page. 

The  chief  advantage  of  this  book  is  that  it  furnishes  a  daily  proof  of 
the  entire  ledger.  It  involves  an  immense  amount  of  labor,  however,  and 
is  rather  inconvenient  in  writing  up  pass  books,  and  attendant  with  more 
than  ordinary  danger  of  posting  to  the  wrong  account.  This  danger  is 
obviated  to  a  certain  extent  by  posting  checks  in  red  ink  and  deposits  in 
purple  ink. 

(210)       THE   new  YORK  LEDGER. 

The  New  York  bank  balance  ledger  differs  from  the  Boston  only 
in  the  matter  of  ruling.  The  order  of  the  ruling  is  simply  reversed. 
First  after  the  margin  for  names  comes  the  "balance"  column,  next  "De- 
posits," "Checks  in  Detail,"  and  "Total  Checks."  As  with  the  Boston 
system,  the  posting  is  done  direct  from  the  deposit  tickets  and  checks, 
without  the  aid  of  any  other  auxiliary  books. 

The  Bound  Three-Column  Ledger. — This  is  known  as  the  "old  style 
ledger."  Each  account  is  given  a  full  page,  but  for  inactive  accounts  some 
of  the  pages  are  divided  into  halves  and  quarters.  Each  page  is  double 
ruled — that  is,  divided  by  a  heavy  line  running  from  top  to  bottom  through 
the  center  of  the  page,  each  half-page  comprising  the  "date,"  "debit," 
"credit,"  and  "balance"  column. 

It  is  usually  a  ponderous  volume  made  to  accommodate  the  largest 
number  of  accounts  for  the  longest  possible  time.  The  accounts  are  entered 
in  alphabetical  order  so  far  as  possible,  each  letter  being  allotted  a  certain 
amount  of  space,  according  to  the  number  of  accounts  under  each  letter. 
From  the  amount  of  space  consumed  by  each  account  in  the  preceding 
ledger,  the  number  of  pages  to  be  allotted  to  each  account  in  the  new 
ledger  is  approximated. 

In  spite  of  the  most  careful  calculations,  however,  the  accounts  will 
run  into  each  other,  thereby  necessitating  the  forwarding  of  many  of  the 
accounts  to  some  other  part  of  the  ledger  out  of  their  natural  order. 

In  connection  with  this  ledger  it  is  necessary  to  keep  a  "journal  or 

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debit  and  credit  book,"  in  which  the  checks  and  deposit  tickets  are  entered. 
In  some  banks  the  name  of  the  payer,  the  number  and  the  amount  of  each 
check  is  entered,  but  such  detail  is  really  unnecessary.  The  initials  of  the 
payer  and  the  amount  of  the  checks  is  sufficient  for  all  purposes.  Only 
the  totals  of  the  deposit  tickets  are  entered. 

If  the  accounts  of  the  bank  are  numerous  and  very  active,  it  is  advis- 
able to  enter  the  checks  and  deposit  tickets  in  separate  books,  the  deposits 
in  the  "Credit  Book"  and  the  checks  in  the  "Debit  Book." 

(211)       CERTIFICATES   OF   DEPOSIT   REGISTERS. 

Most  banks  issue  both  demand  and  time  certificates  of  deposit.  De- 
mand certificates  are,  of  course,  paid  immediately  upon  presentation  of 
the  certificates,  if  properly  indorsed,  and  do  not  draw  interest.  Time 
certificates  are  payable  at  specified  times  and  bear  interest  at  whatever 
rate  may  be  agreed  upon. 

Time  certificates  of  deposit  usually  contain  the  stipulation  "No  interest 
after  six  months  unless  renew-ed."  This  provision  is  inserted  in  order  to 
induce  the  depositor  to  renew  the  certificate  promptly  when  due  and  not 
allow  it  to  remain  outstanding  any  great  length  of  time.  In  this  way  the 
certificates  are  kept  "fresh"  and  overdue  interest  does  not  accumulate. 

A  time  certificate  of  deposit  reads  as  per  Diagram  5. 

For  the  purpose  of  keeping  a  complete  record  of  all  certificates  issued 
and  paid  by  them,  banks  employ  a  systematic  method  of  registering  each 
certificate.  The  book  upon  which  this  record  is  kept  is  called  the  Time 
Certificate  of  Deposit  Register.  As  time  and  demand  certificates  must  be 
kept  in  separate  accounts  on  the  general  ledger,  it  is  necessary  to  keep 
two  registers,  although  both  are  alike  as  to  form  and  ruling. 

Each  page  of  the  Time  Certificate  of  Deposit  Register  has  both  a 
debit  and  credit  side.  On  the  credit  side  of  the  page  are  entered  the  cer- 
tificates as  they  are  issued,  with  a  complete  description  as  follows:  The 
date  issued,  the  name  of  the  person  to  whom  it  is  issued,  the  number,  and 
the  amount.  A  "total"  column  follows,  to  which  is  carried  the  total  of 
each  day. 

When  a  certificate  becomes  due  and  is  paid  or  renewed,  it  is  traced 
by  its  number  back  to  the  date  of  issue  and  a  small  check  mark  placed 
opposite  the  number.  There  is  also  a  column  provided  next  to  the  "total" 
eolumn  for  noting  the  date  the  certificate  was  paid.  On  the  debit  side  of 
the  register  is  then  entered  the  date  of  payment,  the  number,  the  amount, 
and  the  interest  which  was  paid  upon  it. 

The  total  certificates  issued  and  paid  on  each  day  are  posted  from 

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this  register  to  the  general  ledger  account.     The  register  totals  should 
agree  with  the  "certificate"  columns  on  the  cash  book. 

The  total  time  and  demand  deposits,  as  shown  by  the  difference 
between  the  debit  and  credit  sides  of  the  registers,  should  always  be  the 
same  as  the  balance  shown  by  the  general  ledger.  The  certificate  registers 
are  also  proved  by  taking  off  on  the  machine,  or  listing  with  a  pen,  all 
the  certificates  which  have  not  been  "checked."  The  totals  should  corre- 
spond to  the  ledge  balance. 

Diagram  6  shows  a  page  of  the  Certificate  of  D'eposit  Register. 

(212)     certified  check  register. 

The  certified  check  register  is  intended  to  keep  a  complete  record 
of  all  checks  that  are  certified  by  the  officers  of  the  bank.  A  check  is  cer- 
tified by  the  cashier,  or  any  other  officer  or  employe  duly  authorized, 
by  writing  or  stamping  the  bank's  acceptance  across  the  face  of  the 
chuck,  thus: 

Certified. 
First  National  Bank, 
Hopedale,  Ohio. 
Cashier. 

As  soon  as  a  check  is  certified  it  at  once  becomes  the  obligation  of 
the  bank,  and  the  person  issuing  the  check  no  longer  has  any  control  ovei 
it.  In  thus  assuming  the  obligation  of  its  customer,  the  bank  must  first 
satisfy  itself  that  his  account  is  good  for  the  amount  of  the  check  and  that 
there  will  always  be  sufficient  funds  in  bank  to  meet  it  no  matter  when 
presented.  Therefore,  upon  certifying  a  check,  a  corresponding  amount  ip^ 
immediately  deducted  from  the  depositor's  balance  and  set  apart  in  a 
special  fund  to  meet  the  check  whenever  it  is  presented  for  payment.  Thi.« 
fund  is  carried  on  the  general  ledger  as  "Certified  Checks." 

The  amount  of  a  certified  check  is  deducted  from  the  depositor's  bal 
ance  by  making  out  a  "charge  ticket"  and  charging  it  to  his  account  as 
if  it  were  one  of  his  own  checks.  For  the  charge  made  there  must  be  a 
corresponding  credit.  The  check  is  therefore  "registered"  on  the  certified 
check  register  and  from  there  credited  to  "Certified  Checks"  on  the  general 
ledger. 

Banks  are  frequently  called  upon  to  certify  checks  either  by  the  person 
issuing  the  check,  the  payee,  or  an  indorser;  and  as  considerable  time  ma)' 
elapse  between  the  time  the  check  is  issued  and  the  time  of  its  presenta- 
tion, there  may  be  a  number  of  them  outstanding  at  the  same  time.  If. 
is  for  this  reason  that  an  accurate  record  of  certifications  must  be  kept 

312 


212 


Aaierican  Business  and  Accounting  Encyclopedia 


Bank 


Certified  Check  Register 

Dr.                                                                                                                                                         c«. 

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Casliiers  Checic  Register 


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American  Business  and  Accounting  Encyclopedia      212-2Vo 


21'o  514      American  Business  and  Accounting  Encvclopedia 


Bank 


The  certified  check  register  serves  this  purpose.     It  shows  at  all  times 
just  what  checks  are  outstanding. 

The  ruling  of  the  certified  check  register  is  similar  to  that  of  the  cer 
tificates  of  deposit  register,  as  per  Diagram  7. 

On  the  credit  side  of  the  page  are  entered  the  checks  as  they  are  cer- 
tified, and  those  that  are  paid  are  entered  on  the  debit  side.  First,  is 
entered  the  date  of  certification,  then  the  name  of  the  payee,  the  number, 
the  amount,  and  the  total  for  each  day. 

When  a  check  is  paid  a  small  check  mark  is  placed  opposite  its  num- 
ber, and  the  date  of  its  payment  entered  in  the  ''paid"  column.  Then  on 
the  debit  side  the  date  of  payment  is  entered,  the  number,  the  amount, 
and  the  total  checks  paid  on  each  day.  The  check  is  then  canceled  and 
the  original  "debit  slip"  which  was  filed  with  the  canceled  vouchers  in 
the  check  cabinet  is  replaced  by  the  certified  check  itself. 

The  total  of  the  checks  certified  for  any  one  day,  as  shown  by  the 
credit  side  of  the  page,  should  correspond  with  the  total  of  the  "certified 
check"  column  on  the  debit  side  of  the  cash  book ;  the  total  checks  paid 
as  appear  on  the  debit  side  with  the  same  column  on  the  credit  side  of 
the  cash  book.  The  total  debits  and  credits  of  each  day  are  posted  from 
the  certified  check  register  to  the  "Certified  Check"  account  on  the  general 
ledger. 

The  difference  between  the  debit  and  credit  sides  of  the  register  should 
be  the  same  as  the  balance  carried  on  the  general  ledger.  A  trial  balance 
may  be  had  by  taking  off  on  the  machine  the  amounts  of  all  checks  not 
"checked"  or  designated  as  "paid,"  their  total  corresponding  to  the  gen- 
eral ledger  balance. 

(213)     cashier's  check  register. 

A  cashier's  check  is  simply  a  bank's  draft  on  itself.  It  is  usually  signed 
by  the  cashier,  and  in  form  differs  little  from  the  ordinary  draft,  as  is  shown 
by  Diagram  8. 

Cashier's  checks  are  given  for  various  purposes.  They  are  sometimes 
issued  to  public  officers  as  receipts  for  money  deposited  by  them  tem- 
porarily; and  to  contractors,  bidders,  or  other  persons  compelled  to  put 
up  cash  or  its  equivalent  as  a  guarantee  of  good  faith  in  the  fulfillment  of 
a  contract. 

Banks  also  issue  cashier's  checks  in  payment  of  their  own  bills.  As 
these  checks  require  the  indorsement  of  the  payee  the  same  as  any  other 
check  or  draft,  and  as  they  usually  state  briefly  on  their  face  for  what 
they  were  given,  they  furnish  the  most  systematic  and  convenient  method 
of  preserving  receipts. 

314 


The  cashier's  check  register  is  designed  to  keep  a  complete  record 
of  all  cashier's  checks  issued  and  paid.  When  a  check  is  issued  it  is  neces- 
sary to  make  the  following  entries  on  the  credit  side  of  the  page:  The 
date  of  issue,  the  name  of  the  person  to  whom  it  is  issued,  the  number, 
and  the  amount.  In  the  next  column  the  total  of  the  checks  for  each  day 
are  entered.  There  may  also  be  another  column  to  note  for  what  the 
checks  are  issued. 

When  a  check  is  paid  it  is  checked  opposite  its  number,  and  the  date 
of  payment  noted  in  the  proper  column.  It  is  then  entered  on  the  debit 
side  with  the  date,  number  and  amount.  A  "total"  column  is  also  pro- 
vided for  entering  the  total  of  the  checks  paid  each  day.  The  total  checks 
issued  and  the  total  checks  paid  each  day  are  posted  from  the  register  to 
the  general  ledger  "certified  check"  account. 

Diagram  9  shows  the  ruling  of  this  register. 

(214)     dividend  check  register. 

Dividends  are  usually  declared  and  payable  at  fixed  periods,  and  are 
distributed  prorata  to  the  stockholders  by  "Dividend  Checks"  drawn  pay- 
able to  their  order. 

A  dividend  check  differs  in  form  from  a  cashier's  check  only  in  that 
it  has  the  words  "Dividend  Check"  printed  across  its  face  instead  of  the 
words  "Cashier's  Check."     See  Diagram  10. 

When  a  bank  declares  a  dividend  it  at  once  charges  the  whole  amount 
to  profit  and  loss  account  and  throws  it  over  to  the  credit  of  the  dividend 
account  on  the  general  ledger.  It  then  issues  checks  to  the  individual 
stockholders  for  the  amount  due  them,  and  as  these  checks  are  presented 
and  paid  they  are  charged  to  "Dividends  Unpaid."  * 

It  is  for  the  purpose  of  keeping  a  complete  record  of  the  distribution 
of  dividends  that  the  dividend  register  is  kept. 

The  entries  above  show  that  on  July  1,  1902,  a  semi-annual  dividend 
was  declared  on  the  capital  stock  of  the  First  National  Bank,  which  was 
payable  on  the  same  day,  and  that  the  number  of  the  dividend  was  "No. 
5."  On  the  credit  side,  under  the  date  the  dividend  was  declared,  are 
listed  the  names  of  the  stockholders  with  the  number  of  shares  owned 
by  each  and  the  amount  of  each  check  opposite. 

Dividend  checks  were  then  issued  to  the  stockholders  corresponding 
to  the  number  and  amounts  on  the  register.  When  these  checks  are  pre- 
sented and  paid,  they  are  "checked"  opposite  their  number,  and  the  date 
of  their  payment  stamped,  or  written,  in  the  "paid"  column.  On  the  debit 
side  of  the  page  the  following  entries  are  made:  The  date  paid,  and  the 
number  and  the  amount  of  each  check.     The  total  checks  paid  on  any 

315 


■I 


Bank         American  Business  and  Accounting  Encyclopedia      214-215 

one  day  is  compared  to  the  total  on  the  credit  side  of  the  cash  book,  and 
if  they  agree  the  amount  is  posted  to  "Dividends  Unpaid"  on  the  general 
ledger. 

The  difference  between  the  debit  and  credit  sides  of  the  register  should 
always  correspond  with  the  credit  balance  of  this  account  on  the  general 
ledger. 

(215)     THE  discount  register. 

The  discount  register  in  up-to-date  banks  is  a  book  upon  which 
is  kept  a  complete  record  of  all  notes  discounted.  The  ruling  occu- 
pies a  full  double  page,  the  parallel  lines  extending  across  the  two  pages 
being  numbered  consecutively.  This  register,  as  are  other  bank  registers, 
is  practically  self-numbering — that  is,  on  each  double  page  in  the  "No." 
column  is  printed  the  number  of  each  line  from  00  to  49.  By  prefixing 
the  figures  on  the  top  line  of  each  page,  necessary  to  produce  the  con- 
secutive number  to  the  last  number  on  the  preceding  page,  the  printed 
numbers  complete  the  numbering  on  that  page. 

Notes  are  entered  in  consecutive  order  on  the  numbered  lines  under 
the  date  on  which  they  were  discounted.  Each  note  thus  receives  a  num- 
ber, by  which  it  thereafter  becomes  identified. 

It  is  of  the  greatest  importance  that  a  full  and  detailed  descriptive 
record  of  every  note  should  be  kept.  The  "notes  and  bills"  represent  the 
bulk  of  the  bank's  assets,  and  were  its  record  incomplete  concerning  them, 
serious  complications  would  result  from  their  loss.  Besides,  it  is  often 
necessary  to  trace  loans  through  various  books,  and  if  the  discount  register 
is  properly  kept  such  a  task  may  be  easily  and  speedily  accomplished. 

The  discount  register  should  contain  the  following  information  regard- 
ing each  note:  The  date  it  was  discounted,  the  name  of  the  payor,  the 
indorser,  for  whom  the  note  was  discounted,  the  bank  and  place  where  it 
is  payable,  the  date  of  the  note,  the  time  it  is  to  run,  when  it  is  due,  the 
number,  the  amount,  the  discount,  and  the  date  the  note  is  paid  or  renewed. 

The  discount  register  also  has  a  credit  space,  in  which  is  entered  a 
brief  description  of  all  notes  paid.  Under  each  day  are  entered  the  num- 
ber and  amount  of  each  note,  and  there  is  also  a  column  in  which  to  carry 
each  day's  totals.  The  book  affords  a  complete  record  of  the  notes  and 
bills,  and  the  debit  and  credit  feature  greatly  simplifies  "checking"  the 
account.  It  may  be  ascertained  at  a  glance  whether  the  interest  received 
has  been  correctly  entered  and  whether  a  note  has  been  paid  or  renewed. 

The  register  also  furnishes  the  totals  for  three  general  ledger  entries, 
namely,  the  total  debit  loans,  total  credit  loans,  and  discount  credited  to 
profit  and  loss.    These  totals  are  verified  by  comparing  them  with  the 

316 


216 


American  Business  and  Accounting  Encyclopedia 


Bank 


footings  of  the  debit  and  credit  columns  for  loans,  and  the  debit  column 
lor  "Discount,"  on  the  cash  book. 

Diagram  12  is  the  ruling  arrangement  and  form  of  the  discount  reg- 
ister, showing  how  the  various  entries  are  made. 

(216)     discount  and  collection  tickler. 

In  this  auxiliary  record,  after  the  notes  have  been  thus  recorded  in 
the  discount  register,  before  they  are  ready  for  filing,  they  are 
entered  in  another  book  called  the  "Tickler."  This  book  contains  a  record 
of  all  notes  and  collection  items  falling  due  on  each  business  day.  There 
fs  a  space  allotted  to  each  day  of  the  week,  except  Sundays  and  holidays. 
At  the  top  of  each  space  is  printed  the  names  of  the  days  of  the  week, 
with  blank  spaces  for  inserting  the  dates  to  correspond. 

It  is  not  necessary  to  enter  as  full  a  description  of  each  note  as  is 
contained  in  the  discount  register,  as  the  notes  are  all  numbered  and  the 
record  in  the  register  may  readily  be  referred  to  at  any  time.  Under  the 
date  of  the  maturity  of  a  note  the  following  entries  are  made:  Its  num- 
ber, the  maker,  or  payor,  his  postoffice  address,  where  payable,  and  the 
amount  of  the  note. 

It  is  apparent  why  such  a  record  of  all  notes  falling  due  each  day 
should  be  kept.  Banks  usually  notify  their  borrowers  at  least  a  week 
before  their  notes  become  due,  and  certain  disposition  may  have  to  be 
promptly  made  of  various  notes  upon  the  day  of  their  maturity.  It  may 
be  necessary  to  protest  some  in  order  to  hold  indorsers  while  others  may 
be  payable  out  of  town,  and  must  be  forwarded  for  collection  within  a 
reasonable  time  before  they  are  due.  Unless  the  notes  were  thus  classified 
on  the  tickler  many  would  run  overdue,  and  the  bank  would  suffer  much 
loss  through  negligence  to  properly  attend  to  them. 

Banks  doing  a  large  collection  business  use  a  separate  tickler  for 
collections,  but  a  single  book  for  both  collections  and  discounted  items 
usually  meets  the  requirements  of  the  average  country  bank.  The  separate 
class  of  items  are  distinguished  from  each  other  by  being  entered  in 
different  colored  inks,  the  notes  belonging  to  the  bank  itself  being  entered 
in  red  ink,  and  the  collections  in  black  ink. 

After  all  the  necessary  entries  from  the  notes  themselves  have  been 
made  on  the  cash  book,  discount  register  and  the  tickler,  they  are  then 
filed  away  in  such  a  manner  as  the  volume  of  business  may  determine  to 
be  the  safest  and  most  convenient.  They  are  usually  filed  in  large  leather 
note  cases,  which  contain  a  pocket  for  each  letter  of  the  alphabet.    They 

317 


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American   Business  and  Accounting  Encyclopedia  216 


Dr. 

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318 


217-218       American  Business  and  Accounting  Encvclopedia  Bank 

are  thus  classified  so  that  any  particular  one  may  be  easily  and  quickly 
referred  to. 

Diagram  13  shows  the  form  of  the  discount  tickler. 

(217)     the  collection  register. 

Notes  are  often  discounted  by  a  bank  which  are  payable  out  of  town. 
Customers  also  deposit  drafts  on  out  of  town  parties,  or  leave  for  collec- 
tion various  items,  which  must  later  be  sent  to  other  banks  to  be  pre- 
.'^ented  to  the  parties  upon  which  they  are  drawn. 

An  accurate  record  of  all  such  items  sent  out  must  of  course  be  kept. 
The  collection  register  is  intended  to  serve  this  purpose.  It  shows  at  all 
times  just  what  items  are  still  outstanding,  and  the  fate  of  those  reported 
upon.  Those  not  reported  upon  within  a  reasonable  time  are  immediately 
inquired  after,  thus  insuring  promptness  in  the  handling  of  all  collections. 
Notes  discounted  and  owned  by  the  bank  itself  which  are  payable  out  of 
town  are  entered  on  the  register  in  red  ink  on  the  day  they  are  forwarded 
for  collection.  Such  items  are  usually  forwarded  about  ten  days  before 
due. 

Items  are  entered  in  the  register  in  numerical  order,  each  collection 
thus  receiving  a  ''collection  number."  The  following  information  con- 
cerning each  item  sent  out  for  collection  is  contained  in  the  register:  The 
date  the  item  is  sent  out,  its  number,  the  maker,  the  owner,  to  whom  it  is 
sent  for  collection,  the  date  of  its  maturity,  the  amount  and  the  date 
returned  unpaid  or  the  date  paid. 

Diagram  14  shows  the  ruling  of  this  register. 

(218)       CASH  AND  remittance  LETTERS. 

It  has  been  seen  that  in  the  ordinary  course  of  business  many  checks 
and  other  items  come  to  a  bank  over  its  counter  or  through  the  mail 
wlhich  are  not  drawn  on  the  bank  itself  or  on  other  banks  in  the  same 
town,  but  on  banks  which  are  perhaps  scattered  throughout  the  country. 

Checks  on  other  banks  outside  of  town  are  usually  deposited  as  cash, 
the  depositor's  account  being  credited  with  them  at  once.  These  items 
must  therefore  be  sent  out  through  the  mail  to  eventually  reach  the  banks 
upon  which  they  are  drawn. 

All  such  checks,  however,  are  not  sent  direct  to  the  banks  upon  which 
they  are  drawn.  Such  a  system  of  collection  would  incur  too  much 
expense,  time  and  labor.  Usually  a  country  bank  will  perhaps  have  three 
or  four  "reciprocal  accounts,"  according  to  the  volume  of  its  business  with 
banks  in  nearby  towns,  and  accounts  with  at  least  two  "reserve  banks." 

Of  course  a  New  York  account  is  indispensable  to  any  bank,  as  it  is 

319 


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American  Business  and  Accounting  Encyclopedia 


218 


218-219       American  Business  and  Accounting  Encyclopedia 


Bank 


necessary  for  them  from  time  to  time  to  use  New  York  exchange  in  bost- 

ness  transactions.  Certain  collections  made  for  outside  banks  must  be 
remitted  for  in  New  York  exchange,  while  customers  frequently  require 
New  York  drafts  to  send  to  distant  parts  of  the  country.  Besides  its 
"reserve  account"  with  a  New  York  bank  country  banks  usually  keep 
reserve  accounts  with  at  least  one  large  city  in  its  own  state — usually 
the  city  nearest  to  which  it  is  located. 

Only  items  drawn  directly  on  New  York  and  a  few  other  eastern 
cities  are  sent  to  their  New  York  correspondent,  as  they  do  not  collect 
other  items  at  par,  but  make  a  small  charge  upon  them,  no  matter  how 
large  a  balance  the  bank  carries  with  them.  The  clearing  house  rules 
compel  them  to  do  this. 

A  country  bank  therefore  depends  upon  its  "reserve  agents"  in  other 
cities  to  collect  the  majority  of  its  checks.  In  sending  these  checks  out 
in  the  mail  it  is  necessary  that  a  complete  descriptive  record  of  every 
item  be  preserved,  as  there  is  a  possibility  of  their  being  lost  in  the  mails, 
or  that  the  entries  may  have  to  be  referred  to  at  some  future  time. 

Formerly  banks  copied  these  items  in  "Remittance  Registers,"  and 
then  a  second  copy  had  to  be  made  on  the  letter  accompanying  them  to 
the  banks  to  which  they  were  sent.  Other  banks  copied  them  in  detail 
in  the  general  ledger.  Now,  however,  banks  are  universally  adopting 
what  is  known  as  the  "Carbon  Manifold  System"  for  recording  the  various 
items  sent  to  banks  for  collection  and  for  credit. 

By  this  method  banks  acquire  two  copies  of  a  complete  record  of  its 
remittances  at  a  single  writing — one  copy  being  the  letter  to  be  sent  to 
the  bank  along  with  the  items  listed,  while  the  other  remains  in  the  bank 
as  its  own  record. 

The  "Remittance  Sheets"  upon  which  the  items  recorded  are  unbound, 
only  a  few  at  a  time  being  inserted  into  the  Remittance  Sheet  Holder, 
which  holds  them  firmly  together  while  they  are  being  filled  out.  When 
these  sheets  which  have  been  placed  in  the  holder  are  all  written  up  they 
arc  removed  and  replaced  by  a  lot  of  new  sheets,  while  the  old  ones  are 
transferred  to  the  transfer  binder. 

The  footings  of  the  remittance  or  cash  letters  to  the  several  banks 
should  agree  with  the  corresponding  columns  on  the  credit  side  of  the  cash 
book,  the  totals  then  being  posted  to  the  general  ledger  from  the  remittance 
letters  themselves.  Diagram  15  of  the  cash  letter  to  the  First  National 
Bank  of  Pittsburg  is  so  plain  as  to  make  any  further  explanation  un- 
necessary. 

Country  banks  receive  through  the  mail  checks  and  other  items  from 
banks  with  whom  they  do  not  have  any  "reciprocal"  relations,  and  instead 

320 


of  running  an  account  on  the  ledger  with  these  banks  and  crediting  such 
items  to  their  account,  they  remit  for  them  at  once  by  draft  on  one  of  their 
reserve  agents,  less  a  small  charge  to  cover  the  cost  of  remittance,  etc. 

In  order  to  preserve  a  record  of  all  such  items  received  and  remitted 
for  in  this  way,  the  bank  accompanies  the  draft  with  a  "Manifold  Remit- 
tance Letter."  This  letter  refers  to  the  date  of  the  letter  from  the  bank 
in  which  the  items  were  sent,  or  their  collection  number,  and  then  the  payor 
and  the  amount  of  each  check  is  listed.  The  letter  shows  the  total  of  the 
items,  the  exchange  deducted  and  the  balance  for  which  the  draft  is  issued. 

From  these  letters  the  amounts  and  the  exchange  are  entered  in  the 
"Draft  Registers,"  and  drafts  issued  to  correspond.  As  these  corresponding 
entries  are  made  on  the  cash  book  from  the  letters  of  the  banks  sending 
the  items  (the  items  being  entered  either  in  the  "N.  Y."  column  or  the 
"Pittsburg"  column,  according  to  whichever  bank  the  drafts  are  issued 
on)  one  serves  as  a  check  on  the  other,  the  same  entries  being  made  on 
both  books,  but  from  two  different  sources. 

Diagram  16  will  fully  illustrate  the  method  of  writing  up  the  remit- 
tance letters. 

(219)     the  liability  ledger. 

The  liability  ledger  is  intended  to  keep  a  line  on  the  credit  of  the 
borrowers.  It  is  a  little  book  of  considerable  importance,  and  yet  it  is 
quite  doubtful  if  the  book  is  really  known  in  many  country  banks.  The 
chief  advantage  of  the  book  lies  in  the  fact  that  it  brings  together  under 
one  head  the  total  indebtedness  to  the  bank  of  every  borrower. 

A  borrower  frequently  obtains  more  credit  than  his  responsibility 
warrants  simply  because  the  officers  of  the  bank  are  ignorant  of  the  true 
extent  to  which  he  is  already  indebted  to  the  institution.  Having  no 
condensed  record  of  his  liability,  except  as  to  the  scattered  notes  in  the 
note  case,  from  which  at  the  time  he  is  not  likely  to  ascertain  the  true 
status  of  affairs,  the  banker  continues  from  time  to  time  to  make  advances 
without  realizing  that  he  has  already  ventured  beyond  the  bounds  of 
safety. 

In  making  advances  to  a  customer,  besides  taking  into  consideration 
his  direct  indebtedness  to  the  bank,  there  is  another  consideration  which 
the  banker  should  not  overlook — and  that  is  his  liability  as  an  indorser. 
The  liability  ledger  is  not  only  designed  to  show  the  total  indebtedness 
of  a  borrower,  but  also  his  liability  to  the  bank  as  an  indorser  or  guarantor 
of  the  notes  of  other  borrowers.  There  is  quite  as  much  danger  of  a  bank 
extending  too  much  credit  to  their  customers  as  indorsers  as  well  as 
borrowers.    With  a  means  ready  at  hand  of  ascertaining  the  total  liability 

321 


I 


ii 


Bank  American  Business  and  Accounting  Encyclopedia 


219 


of  a  customer  both  as  principal  debtor  and  as  indorser,  this  danger  is 
avoided  to  a  great  extent. 

Much  other  valuable  information  concerning  the  borrowers  of  a  bank 
may  be  noted  in  the  liability  ledger.  On  the  page  occupied  by  his  account 
may  be  entered  his  estimated  wealth,  the  limit  placed  upon  his  credit  by 
the  directors,  his  business  and  character,  and  whether  or  not  each  note  has 
been  promptly  attended  to  and  how  often  renewed. 

The  liability  ledger  is  made  in  loose  leaf  style,  and  is  very  small,  the 
size  of  the  leaves  being  only  about  5  by  8  inches.  The  convenient  size  of 
the  book  enables  the  cashier  to  keep  it  in  his  own  desk  where  it  is  always 
accessible  for  immediate  reference. 

Its  mechanism  is  similar  to  the  larger  loose  leaf  ledgers,  the  leaves 
being  removable,  but  held  compactly  together  when  locked.  Each  account, 
of  course,  occupies  an  entire  leaf,  and  as  an  account  is  opened  with  not 
only  every  borrower  of  the  bank,  but  also  with  every  indorser,  a  large 
number  of  accounts  are  necessarily  handled  in  this  ledger. 

Posting  to  the  liability  ledger  is  not  usually  done  direct  from  the 
notes  themselves,  but  from  the  discount  register.  An  account  is  first 
opened  with  the  maker  of  the  note,  his  name  being  properly  indexed.  At 
the  top  of  the  page  is  entered  his  name  and  address,  his  account  number, 
and  the  number  of  the  sheet.  The  form  of  the  ruling  is  such  as  to  admit 
of  the  following  entries:  The  date  the  note  was  discounted,  the  number, 
by  or  for  whom  indorsed,  the  amount  as  principal  debtor  or  as  indorser, 
and  date  paid  or  renewed.  A  page  of  the  ledger  is  exhibited  on  Dia- 
gram 17. 

THE   GENERAL    BOOKS. 

The  duties  and  responsibilities  of  the  general  book-keeper  are  not 
so  exacting  and  are  less  irksome  than  those  devolving  upon  the  individual 
book-keeper.  His  books  do  not  deal  with  endless  detail  and  require  hours 
of  wearisome  search  for  evasive  differences.  They  bring  him  in  closer 
touch  with  the  important  affairs  of  the  bank,  for  their  pages  disclose  much 
confidential  information,  admitting  him  to  many  secrets  of  business  man- 
agement. The  general  book-keeper  is  thus  enabled  to  watch  the  progress 
of  the  bank  from  day  to  day,  and  to  study  the  conditions  and  development 

of  its  business. 

Upon  whomever  the  duty  of  keeping  the  general  books  devolves, 
whether  an  officer  or  clerk  of  the  bank,  he  should  have  a  thorough  tech- 
nical knowledge  of  book-keeping  and  accounting.  He  should  be  broad- 
minded,  and  ever  on  the  alert  for  new  and  improved  ideas  and  methods 
which  can  be  advantageously  adapted  to  the  needs  and  requirements  of  his 


219 


American  Business  and  Accounting  Encyclopedia 


Bank 


THE  FIRST  NATIONAL  BANK 


MOPCOALC.  OHIO. 


T»    ri,-5f  NotTo 


Dgc     4       t<)o7. 


ENCUOSCO      riNO     rOR     COLLCCTrON     AND    CRCOiT     ThE     TOlLOWiNC      iTEMS; 


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THE  FIRST  NATIONAL  BANK 

MO^CDALC.  OHIO, 

▼• Secof\<j    Nnl7or\fil F3of)k 

'  Pitts  bur-^l^ 


bgc.4 i°)o2. 


CNCLOMO  riNO  ONArr  «s  mcntiomco  sclow  in  ^avmcnt  or  tmc  rokLowiwo  coluctionS' 

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CASMicn 


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Diagram  16 


T-  1 

Liab 

ility  Ledger 

eouMT 

•«o            15fc 

"•"'    _0£^r^CJ.pr^et                                                                                                                                      ,^„, 

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No. 

As   CncJoi-ser 

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b^te  Riid 

Rt-r^ri'-ki 

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looo 

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74-65 

'  ••■ 

Diagram   17 


own  bank.  The  general  books  should  be  kept  in  such  a  manner  as  to 
enable  the  book-keeper  at  any  time  to  make  out  analytical  statements  in 
plain  and  concise  form  of  the  various  accounts  on  his  ledger. 

Keeping  the  general  books  in  a  country  book  does  not  as  a  rule 
occupy  the  entire  time  of  one  man.  He  may  also  do  most  of  the  "counter 
work,"  write  up  the  cash  and  remittance  letters,  etc. 


322 


333 


Bank         American  Business  and  Accounting  Encyclopedia 


219 


The  general  ledger  is  a  resume  of  each  day's  business.  As  the  title 
indicates,  it  does  not  deal  merely  with  a  particular  class  of  accounts,  but 
has  to  do  with  all  the  accounts  making  up  the  "Resources"  and  "Liabilities" 
of  the  bank.  All  other  books  are  really  a  part,  or  auxiliary,  to  the  general 
ledger,  furnishing  the  details  of  the  several  accounts,  while  only  the  totals 
are  carried  to  the  ledger. 

In  some  banks  the  general  books  consist  of  a  journal,  ledger,  and 
daily  statement  book.  The  more  modern  method,  however,  is  a  combina- 
tion of  these  three  books  into  one  large  volume,  the  general  ledger,  which 
is  kept  on  the  Boston  System.  The  titles  of  the  accounts  are  printed  at 
the  extreme  left  end  of  the  left-hand  page,  the  space  across  the  double 
page  being  divided  into  six  divisions,  each  division  representing  a  day  of 
the  week.  Each  of  these  divisions  is  ruled  with  three  columns — debit, 
credit,  and  balance.  All  the  items  of  "Resources"  occupy  the  upper  half 
of  the  page,  and  the  "Liabilities"  the  lower  half. 

Diagram  18  shows  the  general  ledger  with  the  totals  of  the  various 
accounts  posted  from  their  different  sources.  These  totals  can  easily  be 
traced  back  to  the  several  illustrations  used  in  this  series  of  articles. 

Loans  and  Discounts— The  entries  made  to  this  account  are  secured 
from  the  discount  register.  By  referring  back  to  the  cut  used  to  illustrate 
the  ruling  of  this  register,  you  will  find  that  the  debit  and  credit  items  on 
the  ledger  agree  with  the  corresponding  total  on  the  register. 

United  States  bonds  to  secure  circulation— National  banks  are  required 
to  secure  their  "circulation"  by  a  deposit  with  the  United  States  treasurer 
of  an  equal  amount  of  United  States  bonds.  The  capital  of  the  First 
National  Bank  being  $50,000,  a  like  amount  of  bonds  were  purchased  and 
charged  to  this  account.  This  account  remains  unchanged  unless  the  bank 
should  reduce  its  circulation  and  sell  a  corresponding  amount  of  its  bonds, 
the  same  being  credited  to  the  account. 

Premium  on  United  States  Bonds — In  purchasing  the  bonds  to  secure 
its  circulation  a  bank  must  go  into  the  open  market  and  pay  the  market 
price  for  them,  which  is  usually  above  par.  The  amount  which  it  is  thus 
compelled  to  pay  in  excess  of  the  par  value  is  charged  to  the  premium 
account.  This  account  is  carried  on  the  ledger  as  an  asset  because  if  the 
bank  should  sell  the  bonds  they  would  likewise  realize  a  premium  on  them. 
When  these  bonds  become  due,  however,  the  government  will  only  pay 
their  face  value,  so  that  as  the  date  of  their  maturity  approaches  the  pre- 
mium on  the  bonds  has  a  tendency  to  decrease.  Banks  usually  make  allow- 
ances for  this  depreciation  by  "charging  off"  from  time  to  time  a  certain 
per  cent  of  its  premium  account.    This  account  only  changes  then  when 

324 


219 


American  Business  and  Accounting  Encyclopedia 


Bank 


General  Ledger 

SATURDAY                                                                             hONDAy     DeCEMf^-ER  4  .  iSo2      TutSOAy 

i3<i'n^ce 

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Diagram  18 

this  is  done,  the  premium  account  being  credited,  and  the  profit  and  loss 
account  charged  with  the  amount. 

Bonds  and  Securities — ^A  bank  may  purchase  for  investment  other 
securities  than  United  States  bonds,  in  which  case  the  amount  paid  for 
them^  including  the  premium,  if  any,  is  charged  to  this  account.  Banks 
dealing  extensively  in  bonds  keep  a  "bond  register,"  a  book  in  which  is 

325 


Baxk  American  Business  and  Accounting  Encyclopedia  219 

recorded  every  detail  in  regard  to  the  bonds  purchased.    As  is  shown  by 
the  ledger  the  First  National  Bank  has  on  hand  bonds  and  securities 

amounting  to  $28,000. 

Furniture  and  Fixtures— This  account  represents  the  amount  expended 
by  the  bank  for  its  equipment.  It  includes  the  safes,  vaults,  and  all  other 
necessary  fixtures  and  furnishings.  This  account  changes  only  when  new 
fixtures  and  improvements  are  added,  and  when  a  certam  per  cent  is 
'•charged  off"  from  time  to  time  on  account  of  depreciation. 

Expenses— The  entry  to  this  account  comes  from  the  "expense  book," 
in  which  is  carried  a  detailed  account  of  all  expenditures  of  the  bank 

each  dav. 

Interest— The  ''interest"  column  on  the  debit  side  of  the  certificate 

of  deposit   register  contains   these   figures,   the  amount  being  the   total 
interest  paid  on  all  certificates  presented  upon  that  day. 

Cash  in  Transit— A  bank  must  frequently  send  items  for  collection 
which  it  is  unable  to  collect  through  its  "reserve  agent,"  to  other  banks 
with  which  they  do  not  have  reciprocal  accounts.  Instead  of  opening  an 
account  with  every  bank  to  which  they  send  such  items  a  single  account 
is  carried  on  the  ledger  to  which  they  are  charged.  This  is  the  "Cash  in 
Transit"  account ;  and  when  remittances  are  received  to  cover  these  collec- 
tions they  are  credited  back  to  the  account.  A  detailed  description  of 
checks  thus  sent  to  the  several  banks  is  furnished  by  the  carbon  copy  of 
•  the  letters  accompanying  them.  The  entries  in  the  ledger  are  posted  from 
the  carbon  letters,  providing,  of  course,  they  correspond  to  the  cash  book 

entries.  .       ,  ^     ,      r  xt 

First  National  Bank,  of  New  York.-The  First  National  Bank  of  New 
York  and  the  First  National  Bank  of  Pittsburg,  being  "reserve  agents,' 
a  balance  is  constantly  maintained  in  each  of  them.  The  credits  appear- 
in-  to  these  accounts  are  the  total  drafts  drawn  on  each  for  the  day,  such 
credits  being  posted  from  the  New  York  and  Pittsburg  draft  registers 
respectively,  and  also  the  "cash  letters"  received  from  them.  These  totals 
are  posted  from  the  letters  themselves,  but  agree  with  the  totals  of  the 
items  which  are  listed  in  detail  on  the  debit  side  of  the  cash  book.  The 
items  in  the  debit  column  of  these  accounts  are  the  totals  of  the  ''cash  let- 
ters" sent  to  them  for  credit.  These  totals  are  posted  from  the  carbon  let- 
ters accompanying  the  items.  The  letters,  of  course,'should  agree  with  the 
corresponding  columns  on  the  credit  side  of  the  cash  book  where  the  checks 
sent  to  each  bank  are  listed  in  detail. 

The  First  National  Bank,  Uniontown— The  debit  and  credit  entries  to 
this,  as  well  as  the  other  bank  accounts,  represent  the  bank's  cash  letters 
sent  to  them  and  those  received  from  them.  As  in  the  case  of  the  other 
banks  these  totals  are  posted  from  the  letters  themselves,  and  agree  with 

326 


219 


American  Business  and  Accounting  Encyclopedia 


Bank 


the  corresponding  entries  on  the  cash  book  where  they  are  listed  in  detail. 

Cash — This  is  the  actual  amount  of  cash,  including  gold,  silver,  and 
currency  held  as  "reserve"  in  the  bank's  vaults  The  figures  are  of  course 
taken  from  the  cash  book,  being  the  difference  between  the  debit  and  credit 
side  at  the  close  of  the  day's  business.  The  amount  should  agree  with  that 
carried  forward  on  the  cash  book  to  begin  the  next  day's  business. 

Redemption  Fund — National  banks  are  required  to  keep  on  deposit 
wfth  the  United  Stataes  treasurer  an  amount  equal  to  five  per  cent  of  its 
circulation.  As  the  circulation  of  the  First  National  Bank  outstanding  is 
$50,000,  this  sum  amounts  to  $2,500,  which  is  carried  as  a  debit  balance 
to  the  "Redemption  Fund."  From  time  to  time  notes  of  the  bank  unfit  for 
use  are  returned  to  the  treasury  for  redemption,  where  they  are  destroyed 
and  new  notes  shipped  to  the  bank  to  take  their  place.  When  the  bank 
receives  these  notes  they  credit  the  amount  to  the  "Redemption  Fund." 
but  as  the  balance  of  five  per  cent  must  be  maintained  with  the  treasurer, 
a  remittance  made  by  draft  on  New  York  is  immediately  forwarded  to 
cover  the  amount  of  new  notes  received.  This  remittance  is  debited  to 
the  "Redemption  Fund,"  thus  throwing  the  balance  back  again  to  the  re- 
quired amount. 

Liabilities.  Capital  Stock — This  account,  of  course,  seldom  changes, 
except  when  by  a  vote  of  the  stockholders  it  is  decided  to  increase  or  de- 
crease the  capital  stock. 

Surplus  Fund — Surplus  is  money  set  aside  from  time  to  time  out  of 
the  profits  of  the  bank  as  a  safeguard  in  case  of  losses.  Up  to  the  present 
time  the  accumulated  surplus  of  the  First  National  Bank  amounts  to  $25, 
000.  The  account  is  rather  dormant  and  does  not  usually  change  except 
at  certain  dividend  periods  when  the  net  earnings  of  the  bank  justify  an 
increase,  or  whenever  it  is  necessary  to  draw  upon  the  account  to  make 
good  any  losses  which  may  have  occurred. 

Undivided  Profits — This  account  shows  the  balance  of  the  profit  and 
loss  account  carried  over  from  the  previous  six  months  after  interest, 
taxes,  dividends,  and  all  other  expenses  were  paid. 

Profit  and  Loss — This  account  shows  the  profits  that  have  a  cumu- 
lated since  the  ending  of  the  last  six  months.  The  "Undivided  Profit" 
account  and  the  profit  and  loss  account  are  kept  separate  in  order  that  the 
books  will  show  at  a  glance  just  what  the  gross  profits  for  the  past  six 
months  are  without  having  to  deduct  the  amount  of  net  profits  carried  over 
from  the  previous  six  months.  It  also  facilitates  the  task  of  making  the 
semi-annual  report  of  earnings  to  the  Comptroller  of  the  Currency. 

Circulation — This  account  represents  the  notes  of  the  bank  secured 
by  United  States  bonds  outstanding, 

327 


Bank         American  Business  and  Accounting  Encyclopedia 


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219 


American  Business  and  Accounting  Encyclopedia 


Bank 


)  > 


Dividends  Unpaid— When  a  bank  declares  a  dividend  it  at  once 
charges  the  amount  to  the  profit  and  loss  account  and  credits  it  to 
"Dividends  Unpaid."  Dividend  checks  are  issued  to  the  shareholders  for 
the  amount  due  them,  the  same  being  registered  in  the  dividend  register. 
As  has  already  been  explained,  these  checks  are  charged  on  the  register 
as  they  are  presented  at  the  bank  for  payment.  The  dividend  register 
of  the  First  National  Bank  shows  that  there  is  still  outstanding  a  divi- 
dend check  for  $40. 

.Individual  Deposits— The  totals  placed  to  this  account  were  obtained 
from  the  debit  and  credit  columns  of  the  proof  ledger,  they  agreeing 
with  the  corresponding  debits  and  credits  on  the  cash  book. 

Demand  Certificates  of  Deposit— The  entries  made  to  this  account 
and  to  the  three  following  accounts  were  obtained  respectively  from  the 
time  certificates  of  deposit  register,  the  certified  check  register,  and  the 
cashier's  check  register.  These  entries  may  be  verified  and  more  clearly 
explained  by  referring  back  to  the  cuts  illustrating  these  registers. 

The  Expense  Account  Book— This  book  presents  an  itemized  state- 
ment of  the  expenses  incurred  during  each  month.  The  ruling  for  one 
month's  business  occupies  the  full  double  page,  and  is  arranged  so  as  to 
show  the  total  cash  paid  out  for  all  running  expenses  each  day,  and  the 
total  of  every  item  of  expense  incurred  each  month. 

The  heading  of  the  first  column  of  the  book  is  the  name  of  the  month, 
and  following  consecutively  across  the  double  page  are  16  other  columns 
with  printed  headings  representing  all  the  items  through  which  expen- 
ditures usually  occur. 

This  book  enables  the  officers  of  the  bank  to  more  intelligently  ana- 
lyze the  expense  account,  compare  the  expenditures  of  one  month  with 
the  other,  and  note  wherein  certain  reforms  might  not  be  practicable  for 
the  sake  of  economy. 

Diagram  19  explains  the  use  of  the  book. 

Profit  and  Loss  Book— The  profit  and  loss  book  is  designed  to  fur- 
nish an  itemized  account  of  the  earnings  of  the  bank.  It  not  only  shows 
what  items  have  contributed  to  the  profits  each  day,  but  also  the  total 
of  every  class  of  items  for  the  month. 

In  the  matter  of  ruling  the  idea  is  the  same  as  that  carried  out  in  the 
expense  book.  One  page,  however,  is  sufficient  to  accommodate  one 
month's  business,  and  each  page  has  a  debit  and  credit  side,  as  from  time 
to  time  it  may  be  necessary  to  make  certain  charges  to  the  profit  and  loss 

account. 

Thus  upon  a  single  page  is  exhibited  not  only  the  total  earnings  for 
the  month,  but  also  such  a  classification  of  the  account  as  to  show  what 

328 


• 

Expense  Account  Book 

I)n-ti 

. 

Ifixe6 

Pos'ni6e 

IniUronce 

f^er^r 

L.<>Kr 

iDec 

1 

1 

3 

y 

7 
& 
'^ 

31 

4  To 

3o 

?0 

7^ 

- 

1 

50 

<H 

3 

114 

Expense  Account  Book 

MONTH  ENDING.     Oecep^oeril         i 

'^OL 

/ 

AdvPr-"^^i<^ 

Foel 

eou6 

Dof^jitioiNt 

Tot7>\ 

1 

Soo 

2 

3o 

>5o 

6o 

0> 

10 

5 

(5" 

4 

7& 

6o 

s 

G 

7 

& 

*) 

«ci^ 

3( 

ii4 

Diagram  19 


Profit  and  Loss  Account  Book 

Month  CNOIN6       OfC  e^b*"-  4l,    I^O  1 
Or.                                                             Or             Cf.                                                                                                                                Cr. 

bote 

lt?r^ 

ArvounT 

T^t?.l 

b"^'  ^^ff:x 

Cxct^n^^e 

ecus 

TotTil 

no! 

Dec 

r 

2 
3 

4 

r 

6 

2. 

71 

1 

2 
1 

So 
05 

iTo 

40 

Ifio 

2 
^  2 

1 1  b 

5-y 

25 
77 

7 

51 

114 

Diagram  20 

proportion  of  the  profits  belong  to  each  and  every  class  of  items. 

The  figures  in  the  "discount  and  interest"  column  represent  the  total 
discount  posted  from  the  discount  register,  and  also  interest  paid  on  cer- 
tain notes  during  the  day.  Those  in  the  "exchange"  column  are  posted 
from  the  draft  registers,  those  under  "Interest  on  Reserve  Balances"  from 
the  credit  slips  forwarded  by  the  reserve  agents,  and  those  under  "Interest 

329 


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Bank  American  Business  and  Accounting  Encyclopedia  .  219 

on   Bonds"   from    credit   slips   made   from   coupons   clipped   from   bonds 

owned  by  the  bank. 

The  total  "expenses"  for  each  day  as  shown  by  the  total  column 
of  the  expense  book,  and  the  total  "profits**  for  each  day  as  shown  by  the 
profit  and  loss  book  are  posted  to  the  general  ledger. 

The  importance  of  these  two  little  books  can  only  be  properly  appre- 
ciated by  those  who  have  used  them.  The  cashier  finds  much  satisfaction 
in  their  perusal,  as  they  so  interestingly  classify  and  analyze  the  two 
most  important  accounts  with  which  the  banking  business  deals. 

Diagram  20  illustrates  the  profit  and  loss  book. 

The  Stock  Ledger— This  book  is  designed  to  show  who  are  the  own- 
ers of  the  stock  of  a  bank,  the  amount  of  stock  standing  in  the  name  of 
each  shareholder,  and  a  complete  history  of  all  transfers  of  stock  made 
from  one  shareholder  to  another. 

Banks  employ  various  methods  and  forms  for  recording  their  stock 
transactions,  book-keepers  generally  having  their  own  individual  ideas 
on  the  subject.  Some  banks  keep  both  a  stock  journal  and  a  stock  ledger, 
but  the  simpler  plan  is  to  keep  only  the  stock  ledger,  combining  in  it  the 
features  of  both  journal  and  ledger.  Through  the  use  of  this  book  the 
history  of  every  transfer  of  stock,  no  matter  how  often  made,  can  be 

readily  traced. 

In  this  ledger  an  account  is  opened  with  each  original  subscriber  of 
stock.  His  name  is  written  at  the  top  of  the  page,  or  half  page,  according 
to  the  space  allotted  to  each  account,  and  his  account  debited  with  the 
amount  of  stock  subscribed  for. 

Diagram  21  is  a  form  of  the  stock  ledger. 


Stock  Ledger 

O.  M.fbrowrj  Colut^bos.  O. 


I^Tf  of  l*»o*No  of  Ce'T 


"7 

Feb 
Teb 


f'"en  «s  <"  Tj  V\/Kon  lAl<^»|o'"9 


No.  of 
OU  CerT 


J".  P  l^oey^e 
To 
.      Self 


loo 

io  o 


2o 


F<?b, 

Feb. 
Feb. 


I 


5oco 


2.000 


Cr. 


ooo 
2.000 


I^. 


Ion 


\ce 


«3ooo 
2  ooo 

Z.OOO 


114 


The  illustration  above  reveals  that  on  January  1,  1903,  O.  H.  Brown 
purchased  30  shares  of  stock  of  B.  A.  Walker;  that  Brown  was  accordingly 
debited  with  S3.000.  the  par  value  of  the  stock :  that  the  number  of  the 
dd  certificates  from  which  the  shares  were  transferred  was  100:  and  that 


219 


American  Business  and  Accounting  Encvclopedia 


Bank 


the  number  of  the  new  certificate  issued  to  O.  H.  Brown  was  300.  Also 
that  on  February  1,  1902,  Brown  sold  ten  shares  of  his  stock  to  J.  P.  Moore; 
that  the  number  of  the  certificate  issued  to  Moore  was  32S ;  and  that 
Brown's  account  was  credited  with  $1,000,  the  par  value  of  the  ten  shares. 

In  transferring  a  part  of  the  shares  of  a  certificate  of  stock  it  is  neces- 
sary for  the  bank  not  only  to  issue  a  new  certificate  to  the  new  stock- 
holder for  the  number  of  shares  purchased  by  him,  but  also  a  new  cer- 
tificate to  the  original  stockholder  for  the  remaining  shares  which  he 
holds.  Brown's  account  was  therefore  credited  with  the  remaining  20 
shares  of  his  old  certificate,  and  then  charged  with  the  new  certificate 
which  was  issued  to  him,  his  account  then  showing  a  debit  balance  of 
$2,000. 

A  bank  must,  of  course,  have  a  "Book  of  Stock  Certificates."  This 
is  a  bound  book  containing  blank  certificates  of  stock  with  "stubs"  attached. 
The  stubs  and  certificates  are  numbered  alike  from  one  upward,  the  num- 
ber of  each  certificate  corresponding  to  the  number  on  the  stub  to  which 
it  is  attached. 

Upon  issuing  a  certificate  of  stock,  the  proper  memorandum  should 
first  be  made  on  the  stub  before  the  stock  certificate  is  detached;  and 
when  a  certificate  is  properly  filled  out  and  signed  by  the  president  and 
cashier,  the  person  to  whom  it  is  issued  signs  a  receipt  on  the  bottom 
of  the  stub.  When  a  certificate  is  assigned  to  another  person  and  is 
presented  to  the  bank  to  be  transferred,  it  is  canceled  and  attached  to 
the  original  stub  in  the  stock  certificate  book.  The  total  number  of 
shares  of  stock  shown  to  be  outstanding  by  the  stubs  with  unattached 
certificates  should  always  correspond  with  capital  account  on  the  gen- 
eral ledger. 

On  the  back  of  each  certificate  of  stock  there  is  a  form  of  assign- 
ment, which  the  shareholder  transferring  his  stock  dates  and  signs  in 
blank  in  the  presence  of  a  witness,  leaving  the  rest  of  the  printed  form 
for  the  officers  of    the  bank  to  fill  out. 

It  has  not  been  attempted  in  this  series  of  articles  to  present  a  sys- 
tem of  bank  accounting  most  commonly  employed  in  country  banks. 
In  fact,  some  of  the  features  of  the  system  described  may  be  strange 
to  some  bankers,  and  perhaps  fail  to  meet  their  approval,  for  all  have 
their  own  individual  tastes  and  ideas,  and  govern  the  workings  of  their 
bank  accordingly. 

It,  however,  having  been  the  good  fortune  of  the  writer  to  have 
had  experience  in  several  banks,  both  city  and  country,  it  was  his  pur- 
pose to  present  such  a  system  of  accounting  that  such  a  varied  exper- 
ience had  led  him  to  believe  was  most  perfectly  adapted  to  the  requir- 


330 


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ments  of  the  average  country  bank.  It  is  a  system  which  through- 
out has  stood  the  practical  test,  and  there  is  no  hesitancy  in  saying  that 
for  simplicity,  clear,  concise,  and  perfect  record,  and  for  the  saving  of 
time  and  labor,  this  system  is  as  good  as  could  be  devised  for  any  country 
bank. — (E.  G.  Alcorn.) 

(220)       THE  USE  OF  CARD  LEDGERS  IN   A  COUNTRY  SAVINGS  BANK. 

Am  teller  in  a  country  savings  bank.  We  have  not  yet  risen  to  depart- 
mental dignity  so  the  duties  of  teller  and  book-keeper  devolve  on  the  same 
person.  This  fact  makes  it  impracticable  to  attempt  any  system  of  balanc- 
ing the  depositor's  accounts  with  the  general  ledger  oftener  than  once  in 
six  months.    This  is  done  at  the  dividend  periods,  the  first  of  January  and 

July. 

January  1st,  1905,  five  large  ledgers  containing  depositors*  accounts 
were  replaced  by  the  card  system.  The  number  of  depositors  is  about 
4,700  and  the  deposits  are  $1,700,000.  It  is  the  marked  advantage  of  this 
card  system  as  against  the  ledger  books  that  I  wish  to  describe. 

The  ledger  cards  are  5x7i^  inches  and  may  be  ruled  in  any  desired 
way.  Ours  contain  columns  for  date,  amount  withdrawn,  dividend,  amount 
deposited  and  balance,  in  the  order  named.  We  consider  this  arrange- 
ment well  adapted  to  the  needs  of  a  savings  bank,  showing,  as  it  does,  the 
balance  after  each  deposit  or  withdrawal.  The  cards  stand  upright  in 
metallic  cases,  each  card  bearing  the  number  of  the  account,  as  in  the 
book  form,  and  supplied  with  suitable  guide  cards  so  that  any  particular 
card  may  be  reached  in  a  very  few  seconds  and  by  taking  one  step  from 
the  day  book.  The  five  ledger  books  occupied,  when  all  were  lying  open, 
a  desk  space  of  20  inches  in  width  and  more  than  11  feet  in  length.  The 
cases  containing  the  cards  are  each  19x5>:4  inches  and  we  have  six  in  use, 
occupying  a  desk  space  of  33x19  inches.  These  six  cases  will  serve  our 
needs  up  to  5,000  accounts.  It  is  possible  that  1,000  cards  might  be  pat 
in  each  case  but  we  prefer  to  have  them  loose  enough  for  convenience  in 
examining  or  removing. 

Being  the  only  man  "on  the  job"  and  having  it  all  my  own  way,  I 
have  evolved  a  system  of  handling  the  cards,  impossible  with  the  books, 
which  has  thus  far  proven,  so  far  as  we  know,  an  infallible  means  of  keep- 
ing the  entries  on  the  cards  identical  with  those  on  the  day  book  and 
general  ledger,  which  is  an  important  factor  in  arriving  at  a  balance  at 
the  end  of  each  term  of  six  months.  It  also  serves  as  a  material  aid 
toward  correctness  in  the  daily  work,  such  as  entries  on  the  day  book 
and  pass  books  and  in  detecting  errors,  if  such  there  be,  in  the  daily  cash 
balance.     The  method  depends  largely  on  the  exercise  of  care,  but  it  is 

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not  difficult,  and  if  faithfully  followed  cannot  help  but  lead  to  the  desired 

result. 

The  first  principle  is  that  each  pass  book  must  be  compared  with  the 
corresponding  ledger  card  every  time  it  comes  into  the  bank.     When  a 
deposit  is  made  the  amount  is  entered  on   the  day  book  and  the  pass 
book,  adding  to  the  last  balance  on  the  latter.     The  card  is  taken  from 
the  case  and  the  figures  compared  with  the  pass  book,  after  which  the 
pass  book  is  returned  to  the  customer.     If  there  is  time,  the  amount  is 
posted   on   the   ledger  card   immediately,   keeping   in   mind   the   addition 
that  was   made  on   the  pass  book  and  the  amount  of  money  handled. 
The  card  is  then  put  in  a  particular  place  on  the  desk  and  each  succeeding 
transaction  is  handled  in  the  same  manner,  the  cards  being  kept  in  the 
order  of  the  entries  on  the  day  book.     When  a  withdrawal  is  to  be  made 
the  amount  is  written  on  the  order  for  the  customer  to  sign,  entered  on 
the  pass  book  and  the  ledger  card  is  taken  from  the  case  and  compared 
with  the  pass  book,  as  in  the  case  of  a  deposit.     If  there  is  time  the 
entry   is  immediately  made  on   the  day   book  and  the  ledger  card,  the 
customer's  order  being  in  plain  sight  and  compared  with  the  two  entries. 
The  ledger  card  is  then  placed  in  another  pile  like  that  of  the  cards  con- 
taining the  deposits.    The  two  lots  of  cards  should  be  kept  entirely  to  them- 
selves and  in  the  order  of  the  entries  on  the  day  book.     If  there  is  not 
time  to  make  the  entries  on  the  cards  immediately,  turn  the  cards  on 
which  there  are  deposits  face  downward  in  their  stated  order.     Do  the 
same  with  those  from  which  withdrawals  are  made  except  that  the  cus- 
tomer's order  should  be  placed  next  to  the  card  with  which  it  corresponds. 
When  the  time  comes  to  post,  turn  the  deposit  cards  face  up  and  you  will 
find  that  the  top  card  is  the  next  one  to  be  posted,  and  so  on  through  the 
pile.    The  withdrawals  are  handled  in  the  same  way,  the  order  for  each 
being  with  its  corresponding  card. 

At  the  end  of  the  day's  work  there  are  two  lots  of  cards,  containing 
the  ledger  account  of  every  depositor  who  has  done  business  during  the 
day.  If  the  cash  does  not  balance  these  frequently  serve  as  reminders  of 
any  omission  or  irregularity  of  the  work. 

When  I  post  the  cards  I  do  not  write  the  date  of  the  transaction. 
After  the  day's  work  is  closed  (usually  the  next  morning),  I  take  each 
card  in  turn  and  put  on  the  date  with  a  rubber  stamp.  This  precludes 
the  possibility  of  getting  a  wrong  date,  to  say  nothing  of  the  time  saved 
over  writing  each  one.  It  is  in  this  process  and  that  which  follows  that  I 
claim  the  advantage  of  the  cards  over  the  books.  It  requires  concentration 
of  thought,  but  so  does  anything  else  in  order  to  be  correct.  In  dating 
each  card  look  to  see  that  there  is  an  entry  made  which  the  date  is  to 

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supply.    There  may  be  more  than  one  entry,  in  which  case  the  date  must 
be  stamped  for  each. 

Now,  take  the  cards,  both  deposits  and  withdrawals,  put  them  in  one 
pile  and  take  off  the  balances  before  this  day's  business  and  foot  them. 
Then  take  off  the  balances  after  this  day's  business.  From  the  day  book 
take  the  total  amount  of  the  deposits  for  the  day  and  add  to  the  sum  of 
the  old  balances.  From  the  result  subtract  the  total  withdrawals  as 
taken  from  the  day  book  and  the  remainder  should  be  the  amount  of  the 
new  balances.  This  method  proves  the  postings  from  the  day  book  to 
the  cards  and  also  the  extensions  on  the  cards.  In  other  words,  it  keeps 
the  cards  in  perpetual  balance  with  the  day  book.  As  the  day  book  and 
the  general  ledger  are  balanced  at  the  end  of  each  month,  this  is  equivalent 
to  a  monthly  balance  between  the  general  ledger  and  the  depositors* 
ledgers,  although  the  totals  of  the  latter  are  drawn  off  only  at  the  end 
of  the  half  year,  at  which  time  the  dividends  are  added. 

If  you  have  an  adding  machine  this  process  of  proof  takes  but  little 
time  and  it  may  be  shortened  in  this  way.  First  take  from  the  day  book 
the  total  deposits  and  withdrawals.  When  the  list  of  old  balances  is  com- 
plete foot  in  the  deposits.  When  all  the  new  balances  are  listed,  foot  in 
the  withdrawals.  If  the  two  footings  are  the  same  the  work  is  correct. 
This  is  simply  a  short  cut  for  adding  the  deposits  to  the  old  balances 
and  subtracting  the  withdrawals  to  obtain  the  new  balance.  Some  may 
prefer,  especially  if  using  a  machine,  to  defer  carrying  out  the  extensions 
on  the  cards  until  after  the  old  balances  have  been  drawn  off,  so  that 
the  amounts  to  be  copied  will  be  the  last  figures  on  the  card.  The  writer 
prefers,  however,  to  complete  the  posting  on  the  cards  as  soon  as  possible, 
believing  that  it  is  somewhat  of  a  safeguard  against  error  in  transactions 
with  the  customer. 

Without  some  kind  of  proof  for  each  day's  posting  and  extension 
there  is  hardly  a  chance  of  arriving  at  a  balance  at  the  end  of  six  months. 
Our  method  of  taking  off  the  half-yearly  balance  is  to  divide  the  deposi- 
tors' accounts  into  bunches  of  500  or  so,  carry  these  same  bunches  through 
from  time  to  time  and  prove  each  from  its  own  former  balance.  This 
procedure  will  detect  an  error  in  extension  but  sometimes  consumes  a 
great  deal  of  time  to  do  it.  It  will  not  detect  an  error  in  posting  from 
the  day  book  and  the  only  way  such  an  error  can  be  detected  is  by 
checking  the  postings  of  deposits  and  withdrawals  for  the  whole  term 
of  six  months.  This  is  a  job  to  which  no  one  looks  forward  with  joyous 
anticipations,  and  when  it  can  be  avoided  by  a  proof  such  as  we  describe, 
the  writer,  for  one,  is  willing  to  take  the  time  to  accomplish  it. 

To  avoid  posting  deposits  and  withdrawals  in  the  wrong  place  I  use 

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black  ink  for  the  former  and  violet  for  the  latter  on  both  the  day  book 
and  the  depositors'  ledgers.  Black  is  on  one  side  of  the  page  and  is  added 
to  the  former  balance.  Violet  is  on  the  other  side  and  is  subtracted  This 
arrangement  leads  the  mind  to  connect  each  color  with  its  own  proper 
position  and  arithmetical  process  and  a  violation  of  the  rule  is  almost  sure 
to  be  discovered  before  it  has  gone  far  enough  to  make  much  trouble. 

The  ease  and  rapidity  with  which  the  cards  may  be  handled  make 
possible  the  method  I  have  described.  I  believe  there  is  a  great  advantage 
in  having  before  you  every  account  which  has  been  touched  during  the 
day.  An  irregularity  in  the  cash  balance  may  often  be  suggested  by 
reference  to  them. 

At  the  end  of  each  six  months  the  closed  accounts  are  taken  out  and 
filed  away,  leaving  none  but  open  accounts  in  the  cases.  The  only  objec- 
tion to  the  cards  that  we  have  heard  is  that  one  may  be  mislaid  or  lost 
and — well — we  might  lose  a  ledger  book,  but  we  try  to  be  very  careful  and 
not  let  such  an  accident  happen. 

I  have  described  only  the  method  I  employ  in  handling  depositors' 
accounts.  I  apply  the  same  principles  to  other  parts  of  the  work,  believing 
that  a  good  system  and  a  small  expenditure  of  time  save  a  great  deal  of 
hunting  for  errors  in  order  to  arrive  at  a  balance. — fHad<il.) 


When  I  first  came  into  this  bank,  little  more  than  two  years  ago,  I 
found  that  the  card  system  had  been  installed  several  months  prior  thereto, 
but  that  mistakes  had  been  made  somewhere  back  of  that  date,  and  the 
cards  did  not  balance  at  all  with  the  ledger  of  the  bank. 

We  worked  for  quite  a  while  in  a  vain  effort  to  straighten  things  out 
— took  off  balance  after  balance,  and  finally  decided  that  we  would  have 
to  wait  until  the  different  pass  books  were  presented,  in  order  to  locate 
the  error. 

Eventually  we  adjusted  the  difference  (a  small  one)  by  an  entry 
from  our  profit  and  loss  account,  and  took  a  fresh  start. 

The  way  in  which  we  now  keep  the  accounts,  and  which  we  find  to 
work  admirably,  is  perhaps  worth  adopting  by  some  banks  in  the  position 
of  that  one  managed  by  "Hadal."  I  attach  a  copy  of  the  form  which  we 
use  as  a  "blotter,"  or  "journal"  for  entering  up  the  daily  deposits  and 
checks— and  the  key  to  the  "proof"  system  of  which  I  have  written,  lies 
in  the  keeping  of  51  different  slips  of  paper,  showing  the  date  and  the 
amount  of  debits  and  credits,  under  each  100  accounts,  commencing  with 
No.  1  and  ending  with  the  even  hundred  in  each  case. 

This  practically  brings  each  hundred  down  to  a  separate  basis  for 
proving  purposes,  and  is  very  easily  handled.    With  the  use  of  an  adding 

33.5 


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machine,  we  are  able  to  run  off  the  total  in  about  three  hours,  and  as  it 
only  requires  a  few  minutes'  work  each  day  to  keep  the  changes  always 
up  to  date,  we  are  able  to  make  the  balance  from  the  previous  "trial 
balance"  on  each  separate  hundred,  in  a  very  short  time. 

Thus,  if  there  be  an  error  in  extending  any  card,  or  if  any  card  chance 
to  be  misfiled,  or  mislaid,  we  discover  the  fact  at  once,  and  do  not  have  to 
go  through  the  entire  lot  of  cards. 

There  are  but  three  of  us  in  the  management  of  this  bank,  and  we  are 
enabled  to  get  through  even  the  semi-annual  interest  period,  without 
extra  help — although  it  crowds  too  much  work  into  the  one  week  pre- 
ceding and  succeeding  the  payment  day  (January  1  and  July  1)  to  make 
it  advisable  to  continue  the  practice  for  much  longer  time. 

Where  the  taking  off  of  a  trial  balance  used  to  be  a  dreaded  matter, 
it  now  resolves  itself  chiefly  into  the  giving  up  of  one  Saturday  afternoon 

or  into  a  few  hours'  extra  work  on  some  other  day — and  we  average 

probably  10  or  12  balances  each  year;  thus  keeping  the  bank's  deposit 
ledger  in  pretty  close  contact  with  the  general  ledger. 


Date. 

1/25/07 

1/28 

1/29 


Date. 

1/25/07 

1/26 

1/30 


CHECKING  STEPS. 

No.  1  to  No.  100. 

Debits. 

500.00 

350.00 

1,000.00 

No.  101  to  No.  200. 

Debits. 


Credits 
300.00 


75.00 
615.00 


2,700.00 


Credits. 

215.00 

16.45 

355.00 


These  slips  are  continued  on,  as  the  different  hundreds  of  cards  are 
reached  and  passed,  making  us  have  at  present,  with  5,070  odd  accounts, 
51  slips  in  daily  use.  Some  days  many  of  them  will  not  have  any  changes 
at  all.  The  slips  that  we  use  are  adapted  from  some  old  stationery  which 
we  had  in  stock — already  ruled,  and  will  allow  of  100  lines  to  each  slip — 
making  enough  space  to  allow  of  several  trial  balances  on  each  one.  We 
find  it  a  good  practice  to  retain  the  slips  for  one  balance  preceding  the  one 
immediately  before  the  present  use;  so  that  in  the  event  of  a  corres- 
ponding error  in  some  of  the  hundreds,  it  will  not  necessitate  writing 
these  slips  up  again  entirely.  ^ 

In  the  forms  above,  as  examples,  in  the  first  "hundred,"  there  would 
be  a  net  credit  change  of  $1,150,  so  that  the  total  of  the  first  hundred  cards 
at  the  time  of  the  last  preceding  trial  balance,  will  be  just  $1,150  less  than 
the  total  of  the  same  hundred  at  this  trial  balance. 

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RIVERSIDE   SAVINGS    BANK    AND  TRUST  COMPANY 

Riverside,  California 

DAILY      cash      statement 


To  Cash  Balance 

Deposits 

Deposits— Certificates  of 

First  National  Bank,  Riverside 

National  Bank  of  Commerce, 
St.  Louis 

Chase  National  Bank,  New  York 

Cont.  National  Bank,  Chicago 

Los  Aneeles  National  Bank 

Loans 

Interest, 


Deposits 

Deposits— Certificates  of 

First  National  Bank,  Riverside 

National  Bank  of  Commerce, 
St.  Louis 

Chase  National  Bank,  New  York 

Cont.  National  Bank,  Chicago 

Los  Angeles  National  Bank 

Loans 

Expenses 

Real  Estate 

Delinquent  Taxes,  Insurance, 
Repairs,  etc. 

Cash,  Currency 
Gold 
Silver 
Checks 


Total 


Total 


No 

No. 

CHECKS 
NAME 

No. 

DEPOSITS 

NAME 

In  the  second  "hundred"  there  would  be  a  debit  change  of  $68.55,  so 
that  the  new  trial  balance  would  show  up  $68.55  less  than  the  former  one. 

We  also  find  that  by  holding  out  all  of  the  cards  until  the  day's  work 
is  completed,  and  then  running  up  the  balances  which  show  before  a 
single  change  is  made,  and  comparing  with  the  same  cards  run  after 
the  changes  have  been  made  for  the  day's  items,  we  are  less  apt  to  make 
an  error  in  extension  or  in  listing.    The  net  change  for  the  day,  of  course, 

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be  it  debit  or  credit  balance,  will  mark  the  difference  between  the  "old" 

balances  and  the  "new"  balances  on  the  same  run  of  cards. 

— (T.  S.  Breckcnridge.) 

(221)       HOW  TO  KEEP  A  DEPOSITORS*  ACCOUNT  IN  A  SAVINGS  BANK. 

This  method  can  be  applied  by  such  of  these  banks  as  allow  interest 
quarterly   and  credit  it  half  yearly. 

The  eJcperience  of  large  institutions  in  the  proving  of  accounts  is 
probably  much  the  same.  First  came  the  proof  by  a  general  trial  balance 
of  all  accounts. 

Then  was  added  the  proof  by  themselves  of  sections  of  these  accounts ; 
and  again,  in  cases  provision  was  made  for  the  proof  of  the  accounts  by 
pages  of  these  sections. 

The  method  herein  described  carries  this  subdivision  of  proof  still 
farther  as  it  provides  a  proof  of,  or  check  each  individual  account.  This 
check  begins,  however,  only  at  the  point  where  the  daily  postings  are 
left  by  other  proof.  The  interest  postings  though  are  taken  care  of  by 
the  system. 

Providing  this  check  as  it  does,  incidental  to  and  in  combination  with 
the  necessary  work  of  figuring  the  interest  on  the  account  of  the  depositor, 
the  net  additional  work  involved  by  the  use  of  this  method  amounts  prac- 
tically to  nothing.  Indeed,  it  may  be  said  that  not  an  additional  clerk 
nor  an  additional  hour  would  be  required  by  its  adoption  in  an  institution 
which  does  without  any  safety  system. 

"Present  day  writers  on  book-keeping  when  speaking  of  the  trial 
balance  as  a  'proof,'  rarely  claim  more  for  it  than 

1.  If  the  entries  in  the  posting  mediums  have  been  correctly  trans- 
ferred to  the  ledger. 

2.  The  additions  and  subtractions  correctly  made,  and 

3.  The  balances  correctly  entered  on  trial  balance,  then  the  aggre- 
gate of  both  columns  will  be  equal.  On  the  other  hand,  if  the  amount  of 
both  columns  is  not  equal,  it  is  certain  evidence  that  an  error  or  errors 
have  been  made.  In  other  words,  the  trial  balance  may  prove  the  equil- 
ibrium of  the  ledger,  but  not  the  correctness  of  the  posting;  the  ledger 
may  balance,  and  yet  many  errors  exist  in  the  work;  nevertheless  equi- 
librium is  essential  to  correctness." 

Now  it  may  be  stated  that  in  a  savings  bank,  because,  of  the  monthly 
statement  and  of  the  daily  statement  demanded  in  these  days,  errors  in 
the  accounts  in  the  general  ledger,  the  balances  of  which  form  the  debit 
column  of  the  above-mentioned  "two-column  affair,"  are  almost  entirely 
eliminated,  or  rather,  it  may  be  said  are  entirely  absent.    In  such  a  bank 

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then  the  work  of  drawing  off  a  correct  trial  balance  resolves  itself  into 
a  proof  of  only  the  depositor's  ledgers,  or  the  credit  column  of  "the  two- 
column  affair." 

As  indicated  above,  the  mass  of  accounts  in  these  ledgers  is  divided 
either  by  ledgers  or  by  sections,  thus  dividing  accounts  into  a  number  of 
parts  each  of  which  is  proven  by  itself. 

Knowing  how  much  was  contained  in  a  given  section  at  the  last  trial 
balance,  account  is  kept  day  by  day  of  what  goes  into  it,  and  of  w^hat  is 
taken  out  of  it  during  a  trial  balance  period,  and  at  the  end  of  the  period  a 
preliminary  statement  is  made  of  the  amount  each  section  should  contain. 
The  total  of  all  the  sections  must  agree  with  the  amount  demanded  by 
the  general  ledger  as  the  amount  due  depositors. 

Of  the  three  requirements  mentioned  in  the  extracts  above,  the  cor- 
rectness of  the  work  of  two,  the  second  and  third,  is  aided  by  the  system 
herein  described. 

The  ledger  used  is  the  three  column  ledger,  ruled  for  drafts,  deposits, 
balance.     In  connection  therewith  are  used  sheets  ruled  as  shown  below. 

The  extensions  into  the  balance  column  of  the  account  on  the  ledger 
are  made  when  the  daily  deposits  and  drafts  are  posted. 

All  that  the  system  consists  of,  outside  of  the  interest  feature,  is  the 
periodical  proof  of  the  amount  in  the  balance  column  of  an  account;  this 
is  effected  by  adding  to  or  subtracting  from  the  amount  shown  on  the 
sheet  as  the  balance  of  the  account  at  the  beginning  of  the  quarter,  the  net 
increase  or  the  net  decrease  for  the  quarter  and  then  comparing  the  result 
with  the  amount  on  the  ledger. 

The  sheets  form,  in  a  measure,  a  duplicate  of  the  ledger.  They  are 
not,  however,  duplicate  ledgers  in  the  sense  that  it  is  required  that  the 
daily  postings  be  entered  either  in  bulk  or  otherwise  on  the  duplicate 
account  on  the  sheet.  Only  the  net  change  one  way  or  the  other  for  the 
quarter  is  used.  To  the  doubt  which  the  exceeding  simplicity  of  this 
device  may  raise  as  to  its  effectiveness,  the  reply  may  be  made  that  an 
experience  of  nearly  forty  years  wnth  a  method  over  which  the  present 
is  merely  a  perfected  form,  has  conclusively  proven  its  benefit. 

But  helpful  as  these  duplicate  sheets  have  proven  themselves,  and 
will  prove  themselves  to  be  where  used  in  connection  with  the  bound 
ledger,  it  is  as  an  indispensable  adjunct  of  the  card  ledger  that  they  are 
especially  valuable.  Showing  as  they  do  the  balance  of  each  account 
at  intervals  of,  at  the  most,  three  months,  proper  consideration  of  this  cir- 
cumstance and  the  safeguards  provided  is  likely  to  remove  all  hesitancy  as 
to  the  introduction  of  that  latest  and  most  radical  improvement  in  book- 
keeping. 

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The  description  which  follows  includes  all  the  work  connected  with 
the  sheets  and  while  it  may  also  apply  to  the  bound  ledger  it  relates 
especially  to  the  card  ledger. 

The  cards  are  numbered  and  are  divided  into  sections  of  approx- 
imately four  thousand  accounts  each.  They  are  contained  in  drawers 
holding  each  about  one  thousand  cards,  making  four  drawers  to  a  section. 

The  sheets  have  room  for  twenty-eight  accounts  on  a  page;  three 
spaces  at  the  bottom  are  left  blank  for  re-opened  accounts.  They  arc 
loosely  bound  into  books,  one  book  for  each  drawer. 

I. 

Preparation  of  the  Sheets.  1.  From  the  ledger  cards  are  copied 
each  day  on  the  sheets  the  number,  name,  and  balance  or  total  deposit  of 
each  new  account  opened  the  preceding  day.  Old  accounts  re-opened, 
before  they  are  filed,  are  entered  in  their  proper  places  on  the  sheets 
belonging  to  the  same  drawer  when  the  same  are  copied,  and  on  tempo- 
rary sheets  otherwise. 

Old  open  accounts  are  copied  from  the  ledger  cards  once  a  year,  about 
one-half  each  January  and  July. 

2.  When  the  copying  is  done  in  January  the  balance  shown  on  the 
ledger  as  due  on  the  account  after  the  January  interest  is  added  is  entered 
in  column  1.  When  the  work  is  done  in  July  the  July  balance  is  entered 
in  column  8. 

3.  The  amounts  entered  in  column  1  are  checked  there  and  corrected 
on  ledger  as  well  as  on  sheet,  by  two  men,  one  of  whom  calls  off  from  the 
old  sheet  the  sum  of  the  amounts  shown  in  columns  9  and  12  or,  in  the 
case  of  changed  accounts,  10  and  12. 

The  amounts  in  column  8  are  checked  from  the  amounts  on  the  old 
sheet  in  columns  2  and  5,  or  3  and  5. 

4.  Sheets  which  do  not  need  re-copying  have  either  the  one  or  the 
other  half-year  blank. 

When  the  January  side  is  blank  the  sum  of  the  amounts  shown  in 
columns  9  or  10  and  12  is  carried  to  column  1. 

When  the  July  side  is  blank  the  sum  of  the  amounts  in  columns  2  or 
3  and  5  is  carried  to  column  8. 

(No  book-keeper  need  be  informed  that  of  course  these  additions  are 
performed  as  the  sums  are  read,  namely  from  left  to  right.) 

5.  In  these  cases  the  amounts  in  columns  1  and  8  are  checked  there 
and  corrected  on  ledger  and  sheet  by  calling  the  January  or  July  balances 
from  the  ledger. 

6.  When,  in  the  course  of  the  checking  mentioned  in  3  and  5,  in  the 

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one  case  an  account  appears  on  the  old  sheet  and  is  missing  from  the  new 
and  in  the  other  case  the  card  for  an  open  account  on  the  sheet  is  missing 
from  its  place  in  the  ledger,  it  must  be  found  amongst  the  closed  cards 
and  should  be  marked  with  the  date  of  such  checking  and  the  initials  of 
the  finder. 

An  account  appearing  on  the  new  sheet  and  not  on  the  old  sheet 
should  be  found  on  the  re-opened  accounts  sheet  mentioned  in  1,  and  on 
that  sheet  marked  with  the  date  of  the  checking. 

7.  It  is  more  practical  in  transferring  the  accounts  from  the  sheets 
of  a  completed  period  to  the  new  sheets  of  the  current  period  to  perform 
the  work  as  described  in  2,  3  and  6.  In  transferring  accounts  from  a 
bound  ledger  to  the  cards,  however,  while  the  number  and  name  are 
copied  on  the  sheets  from  the  card,  the  figures  on  the  new  sheet  must  be 
obtained,  not  from  the  ledger  account,  but  from  the  old  sheet.  The  whole 
aim  and  object  of  the  sheets  is  defeated  and  their  value  destroyed  so  far 
as  these  accounts  are  concerned,  unless  this  is  observed.  The  ledgers  are 
referred  to  from  the  sheets  only  to  obtain  the  changes  and  to  compare 
and  correct  the  balances. 


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8.  Closed  account  cards  are  placed  at  the  end  of  the  day  in  the  back  of 
the  drawer  to  which  they  belong.  The  amount  closing  the  account  must 
be  checked  from  the  corresponding  pass  book;  or,  if  the  pass  book  is 
lacking  an  officer  of  the  bank  signs  the  statement  on  the  card  that  the 
account  was  closed  without  the  pass  book. 

All  closed  cards  are  kept  in  their  respective  drawers  until  the  suc- 
ceeding trial  balance  has  been  proven  or  until  it  has  been  gone  over  by 
the  bank  examiners  and  then  they  are  filed  in  permanent  storing  places. 

9.  The  amounts  brought  forward  as  described  into  columns  1  and  8 
will  remain  unchanged  in  the  case  of  perhaps  two-thirds  of  their  number, 
and  as  these  really  are  the  balances  which  will  go  to  make  up  the  next 
trial  balance,  it  may  be  suggested  that  they  at  once  be  entered  in  the 
trial  balance  columns  2  and  9.     It  will  be  found,  however,  to  be  more 


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practical  and  easier  to  re-write  a  great*  many  accounts  than  to  erase  and 
replace  a  less  number. 

II. 

(222)       FIGURING  INTEREST  AND  BALANCES. 

At  the  end  of  the  first  quarter  the  work  of  figuring  the  interest  for 
the  current  half  year,  and  of  taking  oflf  the  trial  balance   for  the  past  six' 
months  is  begun.    One  operation  is  made  of  this  work. 

The  style  of  account  used  being  that  mentioned  above,  the  balance 
column  of  the  account  will  show  the  amount  drawing  interest  for  the 
quarter.  Ordinarily  this  is  the  lowest  balance  shown.  However,  the 
precaution  must  be  taken  to  see  that  this  lowest  balance  is  not  followed: 

1st.     By  a  deposit  made  on  a  day  from  which  interest  is  allowed. 

2d.     By  a  deposit  made  on  the  same  day. 

3rd.     By  an  interest  bearing  transferred  amount,  also 

4th.  (Provided  it  is  the  custom  of  the  bank),  that  it  is  not  the  result 
of  a  withdrawal  on  one  of  the  last  three  days  of  the  quarter. 

In  all  of  which  cases  the  interest  bearing  amount  will  be  larger 
than  the  lowest  balance  shown. 

1.  The  interest  bearing  amount  having  been  determined  from  the 
ledger  is  entered  in  column  "4." 

2.  If  the  account  remained  unchanged  during  the  quarter,  the  bal- 
ance shown  on  the  ledger  on  the  morning  of  April  1st,  is  compared  with 
the  amount  in  column  "1." 

If  they  agree  it  is  entered  in  column  "2." 

If  they  do  not  agree,  whatever  error  is  thus  discovered  is  corrected 
and  the  correct  amount  is  entered  in  column  "2." 

3.  In  changed  accounts  the  net  addition  or  the  net  deduction  for 
the  quarter  is  ascertained  from  the  figures  in  the  "drafts"  and  in  the 
"deposits"  columns,  entered  under  the  amount  in  column  "1,"  or  added 
or  deducted  as  the  case  may  be,  and  the  result  at  once  entered  in 
column  "2." 

This  result  is  compared  with  the  balance  shown  on  the  ledger,  and 
anv  discrepancy  is  thus  discovered  and  corrected. 

4.  A  ledger  card  shown  by  the  sheet  to  be  missing,  must  be  found 
among  the  closed  accounts.  The  footing  should  be  proven,  and  the  card 
marked  with  the  date  with  the  initials  of  the  person  doing  the  work. 
The  space  on  the  sheet  is  likewise  marked. 

5.  It  should  be  mentioned  here  that  the  same  clerk  is  never  assigned 
in  a  given  quarter  to  do  the  work  on  a  drawer  which  he  worked  the  pre- 
ceding quarter. 

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6.  Two  men  check  the  balances,  calling  from  the  ledger  cards  to 
the  sheets. 

7.  Column  "2"  is  then  footed. 

If  it  is  desired  to  use  an  arithmometer  6  and  7  may  be  changed  to 
read  as  follows: 

Two  men  re-list,  foot,  and  check  the  balances  shown  by  the  depressed 
keys,  as  it  is  taken  from  the  ledger  card  by  the  operator. 

The  total  of  the  left  hand  page  is  at  once  entered  at  its  foot  on  the 
sheet,  and  the  total  of  each  of  two  open  pages  at  the  foot  of  the  right 
hand  page. 

These  totals  are  verified  by  another  clerk  footing  without  the  machine. 
Errors  made  in  the  listing  operation  and  the  resultant  incorrect  footings 
thus  will  be  discovered  and  corrected. 
I  The  right  hand  footings  are  then  summarized  for  each  book. 

8.  The  total  of  the  four  books  in  a  section  must  agree  with  the  total 
for  the  section  called  for  by  the  preliminary  statement. 

The  total  of  all  the  sections  is  the  amount  due  depositors. 

9.  It  may  be  remarked  here  that  the  list  of  balances  which  the  adding 
machine  prints  while  footing  the  columns  of  the  sheets,  forms  a  neat  and 
condensed  copy  of  the  figures  of  the  trial  balance  contained  in  columns 
2  and  9. 

The  figures  in  these  columns  must  be  considered  the  more  important, 
and  as  making  up  the  real  tr-al  balance  because  it  is  they  which  are  con- 
trolled by  the  preceding  trial  balance  figures  and  will  in  turn  control  the 
succeeding  trial  balance  figures. 

The  machine  aids  primarily  towards  accuracy  in  footing  and  the  copy 
made,  subsequently  can  be  used,  if  desired,  by  the  auditing  committee  or 
by  the  examiners  of  the  bank  department. 

10.  One   man   corrects   the   interest   bearing  amount. 

In  the  fore  part  of  June  the  interest  bearing  amount  for  the  second 
quarter  is  ascertained  for  each  account. 

11.  If  this  amount  is  the  same  for  both  quarters  the  figures  for  the 
first  quarter,  which  already  have  the  single  check  mark,  are  double 
checked. 

12.  If  the  interest  bearing  amount  for  the  second  quarter  diflfers 
from  that  for  the  first  quarter,  it  is  entered  under  the  latter. 

13.  If  the  account  is  changed  in  the  second  quarter  the  net  increase 
or  decrease  is  entered  in  column  "3,"  added  or  deducted,  as  the  case  mav 
be,  and  comparison  made  with  the  balance  shown  on  the  ledger. 

14.  As   withdrawals   subsequently   are   made   these   second   quarter 


f 


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American  Business  and  Accounting  Encyclopedia 


223 


balance  and  interest  figures  are  changed,  as  they  also  are  if  interest  bearing 

deposits  are  made. 

Ordinary  deposits  require  only  that  the  balance  be  changed,  col- 
umn "3." 

15.  One  man  corrects  the  work,  but,  to  save  time,  only  that  per- 
taining to  the  interest  bearing  amount  for  the  second  quarter, — not  the 
balance  amount. 

16.  The  sheets  are  then  gone  through  to  add  and  divide  such  interest 
bearing  amounts  which  differ  for  the  two  quarters,  for  the  purpose  of 
averaging  them. 

17.  This  work  is  then  proven  and  checked. 

18.  From  the  interest  table,  if  the  rate  is  such  that  one  is  required, 
the  interest  each  amount  is  entitled  to  is  carried  into  column  "5,"  the 
interest  column. 

19.  This  work  is  proven  and  checked. 

20.  On  the  last  three  days  of  the  half  year  the  interest  is  posted  in 
red  ink  to  the  individual  accounts. 

21.  These  postings  are  proved  and  checked. 

22.  The  interest  column  "5"  is  then  footed. 

The  second  half  year's  work  is  a  repetition  in  columns  8  to  12  of  that 
of  the  first  in  columns  1  to  5  as  described  above. 

III. 

From  the  preceding  it  will  be  seen  that  the  sheets  form  in  a  way  a 
continuous  trial  balance,  the  figures  on  the  sheets  proving  those  on  the 
ledger,  and  those  on  the  ledger  proving  those  on  the  sheets.  In  other 
words,  six  times  a  year  we  test  or  try  the  balance  of  each  account  on  the 
ledger  by  the  balance  of  the  same  account  on  the  trial  balance  sheet;  and 
two  of  these  tests  carried  to  proof  form  the  semi-annual  trial  balances. 

The  ordinary  trial  balance  when  it  fortunately  fails  to  come  out  right 
simply  points  out  that  there  is  an  error.  It  does  not  of  itself  discover 
the  error,  but  compels  the  going  over  of  the  work  again,  which  results 
many  times  in  the  discovery  not  of  one  error  only,  but  perhaps  of  a 
number  of  them.  When  the  totals  of  the  two  columns  do  agree  and  the 
trial  balance  is  called  correct,  it  is  a  collection  of  accounts  which  appar- 
ently has  been  proven.  Errors  which  may  occur  within  this  collection 
offsetting  each  other  are  not  discovered;  each  individual  account  does  not 
obtain  its  own  proof. 

It  should  be  recognized  that  there  are  two  classes  of  errors  to  be 
discovered  in  getting  out  the  ordinary  trial  balance.  The  greater  number 
of  these  errors  are  those  involved  in  the  work  of  making  up  the  trial 

344 


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balance  itself,  and  these  have  first  to  be  eliminated  before-  the  work  is 
begun  of  looking  for  the  more  remote  and  vital  errors,  affecting  the 
individual  accounts,  the  detection  and  correction  of  which  is  the  sole 
purpose  of  the  trial  balance. 

The  system  herein  described  discovers  errors  of  both  classes  in  the 
process  of  the  original  work,  and  leaves  but  few  to  be  looked  for  when  the 
total  footing  points  out  that  all  have  not  been  found.  Counterbalancing 
errors  are  next  to  impossible. 

It  is  also  evident  that  the  duplicate  sheets  are  efficacious  as  a  safeguard 
in  connection  with  the  loose  cards. 

Besides  the  records  furnished  by  the  index  and  the  signature  cards 
which  are  of  value  only  to  serve  on  occasion,  the  one  to  find  the  other 
to  identify,  from  the  time  an  account  is  opened  two  other  simultaneous 
records  are  started  which  run  parallel  and  continuous  during  the  life  of 
the  account. 

While  the  record  of  an  account  on  the  sheets  is  subordinate  to  and 
dependent  upon  that  on  the  card,  it  serves  as  a  guard  to  this  principal 
record  and  prevents  its  possible  entire  loss. 

A  study  of  the  routine  prescribed  in  I— 1,  6  and  8,  and  in  II.— 4  will 
show  that  an  account  once  opened  must  remain  continually  in  evidence 
until  closed.  The  comparison  of  the  account  on  the  sheet  with  that  on 
the  card  prevents  the  abstraction  and  substitution  of  cards,  while  the  fact 
of  an  account  appearing  on  the  sheets  and  missing  from  its  place  in  the 
ledger,  must  and  will  be  accounted  for  by  the  result  of  the  search  or 
investigation  which  such  a  discovery  would  call  for.  The  use  of  the 
sheets  insures  the  early  discovery  of  anything  out  of  the  proper  and 
orderly  run  of  the  work,  and  it  certainly  renders  the  use  of  the  card  ledger 
as  safe  as  that  of  the  ordinary  bound  ledger. 

IV. 

It  remains  to  be  shown  that  the  extra  time  and  work  required  by  the 
use  of  the  sheets  are  so  little  as  not  to  be  an  objection. 

A  comparison  of  the  work  required  when  sheets  are  used  and  when 
they  are  not  used  in  getting  out  the  interest  and  the  trial  balance,  exclu- 
sive of  the  ordinary  postings  and  extensions,  is  here  given.  When  sheets 
are  not  used  the  interest  figures  are  entered  on  the  ledger  card  in  a  side 
column. 


1. 

2. 
3. 
4. 
5. 


Add  the  half-yearly  interest  on  the  ledger  to  each  account..  1  man 

Correct  the  addition  in  "I"   j  man 

Call  off  balance  from  the  ledger  to  machine  operator..!!!!  2  men 

Correct   balance   shown  by  "3" o  rn^n 

figure  mterest,  for  first  quarter  j  man 

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Bank         American  Business  and  Accounting  Encvclopedia  223 

6.  Correct  interest  for  first  quarter    1  ni^n 

7.  Figure   interest  for  second  quarter    1  man 

8.  Correct   interest  for  second  quarter   1  "^^n 

9.  Add  and  divide    • 1  "^^" 

10.  Correct  average  shown  by  "9"    1  "^an 

11.  Set  down  interest  from  table    1  *"a" 

12.  Correct  interest  from  table   ^  "^*" 

13.  Post  interest  in  red  ink   1  *"*" 

14.  Call  off  from  pencil  figures  to  machine  operator 2  men 

15.  Correct  "14"  and  "13"  by  calling  from  machine  list  to  red 

ink  posting   2  men 

19  men 

The  following  is  a  summary  of  the  work  done  when  sheets  are  used 
as  described  in  I.  and  II. 

1.  All  the  half-yearly  interest  on  the  ledger  to  each  account..     1  man 

2.  Copy  name  and  balance  from  the  ledger  when  newly  copied 

once  a  year;  carry  forward  the  balance  the  other  half 

year    r '  y- '     ^  "^^^ 

3.  Correct  above  balance  as  well  on  ledger  as  on  sheet;  in  first 

case  by  calling  from  old  sheet   (adding  mentally);  in 

second  case  by  calling  from  ledger 2  men 

4.  In  one  operation  figure  interest  and  balance 1  man 

5.  Check,  foot,  and  relist  balance  shown  in  "4" 2  men 

6.  Verify  "5"  without  the  adding  machine  1  man 

7.  Correct  interest  shown   in  "4"    1  man 

8      In  one  operation   figure  interest   second  quarter  and   show 

balance    ^  >"*" 

9.     Correct  interest  shown  in  "8" 1  man 

10.  Add  and   divide    -^ ^  *"»" 

11.  Correct  average  shown  by  "10"    1  man 

12.  Enter  interest  from   table    ^  man 

13.  Correct   interest    from    table    1  man 

14.  Post  interest  in  red  ink   1  man. 

15.  Check  interest  posting    2  men 

16.  Foot  interest  on   sheets 1  man 

17.  Correct  interest  footings  of  "16" 1  man 

20  men 

The  copying  in  a  large  institution  each  six  months  of  one-half  the 
accounts  appears,  at  first  glance,  to  be  a  formidable  job.  But,  the  last 
name  only  being  copied,  actual  test  shows  that  250  may  be  taken  as  an 
average  number  of  accounts  which  can  be  copied  in  one  hour  when  name 
and  balance  are  newly  copied;  while  500  may  be  taken  as  an  average 
number  of  accounts  per  hour  on  which  the  balances  can  be  extended  on 

the  old  sheets. 

On  a  basis  of  40,000  open  accounts: 

20,000-r-250=80 — the  number  of  hours  required  to  complete  the  newly 

copied  sheets  each  half  year. 
20,000-^500=40 — the  number  of  hours  required  to  extend  the  balances 

on  the  old  sheets.     This  makes  a  total  of  120  hours. 

Two  men  checking  and  correcting  the  balances  should  do  it  in  say 
one-half  the  time  required  to  do  the  original  work. 

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120-r-2=60  hours  for  two  men,  equivalent  to  120  single  hours. 

120-f  120=240.  A  total  of  240  hours,  therefore,  is  all  that  is  required 
at  the  beginning  of  each  half  year  to  obtain  the  advantages  which  the  use 
of  the  sheets  afford.  The  greater  part  of  this  original  work  can  be 
entrusted  to  the  junior  or  less  experienced  clerks  while  the  responsible 
part  of  the  correcting  work  can  be  done  by  the  more  reliable  clerks,  the 
junior  clerks  assisting.  While  the  time  of  240  hours  is  thus  charged 
against  the  sheets  it  must  be  remembered  to  credit  them  with  the  time 
saved  in  the  elimination  of  the  work  of  correcting  on  each  individual 
ledger  account  the  addition  of  the  half-yearly  interest  to  the  preceding 
balance,  as  well  as  with  that  saved  in  the  elimination  of  a  second  correc- 
tion of  the  posting  extensions. 

When  no  sheets  are  used,  with  40,000  accounts,  in  order  to  find,  say, 
300  errors  possibly  made  in  that  work,  39,700  accounts  are  proven  which 
require  no  proof.  This  wasteful,  unprofitable  work  is  all  saved  with  the 
sheets  as  the  errors  made  are  found  by  comparing  the  ledger  figures  with 
the  sheet  figures  and  this  incidental  to  the  necessary  work  of  figuring 
interest  and  getting  out  the  trial  balance. 

That  errors  are  found  in  this  way  with  greater  certainty  than  by  a 
simple  going  over  of  the  work  a  second  time  everyday  experience  teaches. 
Who  that  has  had  long  experience  with  accounts  has  not  come  instinc- 
tively to  seek  to  lay  out  the  routine  of  any  new  line  of  work  with  which 
he  may  be  brought  into  contact  in  such  a  way  as  will  bring  about  the 
automatic  detection  of  the  errors  he  may  make  in  his  own  work?  Such 
an  one  has  learned  to  avoid  when  possible  going  over  the  same  operation 
twice  and  after  obtaining  his  result  checks  it  by  a  different  process. 

He  recognizes  in  the  method  here  described  simply  an  automatic 
check  on  a  large  scale  and  will  agree  as  to  the  superiority  of  a  method 
of  correction  which  calls  for  the  comparison  of  like  results  arrived  at  by 
two  different  roads  over  that  which  requires  that  the  seeker  for  errors 
shall  follow  the  same  road  taken  by  the  maker  of  them.  Everv  error 
detected  means  the  saving  of  so  much  time  later  on  and  the  number  of 
errors  automatically  found  during  the  progress  of  the  work  as  described 
helps  towards  justifying  the  claim  that  the  net  addition  of  time  and  labor 
required  by  the  use  of  the  sheets  is  so  inconsiderable  as  not  to  be  thought 
of  as  an  objection. 

It  is  possible  that  what  has  been  here  written  may  demonstrate  to 
the  satisfaction  of  some,  as  experience  with  them  has  demonstrated  to 
that  of  the  writer,  that  the  simple  expedient  of  the  duplicate  sheets  assures 
on  the  ledger.  And  if,  as  is  believed,  it  is  shown  that  the  sheets  also 
the  correctness  of  the  accounts  onward  from  the  posting  of  the  amounts 

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American  Business  and  Accounting  Encyclopedia 


223 


remove  some  objections  to  the  use  of  the  card  ledger,  a  service  may  have 
been  rendered  to  others,  who,  convinced  of  the  advantages  connected 
therewith  yet  were  reluctant  because  of  such  objections,  to  adopt  that 
improvement. 

(223)     the  accounts  of  an  investment  banker. 

It  is  the  intent  of  this  article  to  show  the  simple  and  efficient  method 
which  I  have  used  in  an  investment  banker's  office ;  and  in  using  this  term 
it  is  strictly  such  and  does  not  include  accounts  as  used  by  stock  brokers 
who  handle  margin  accounts  as  speculators. 

The  cash  book  and  ledger  are  the  important  books  with  the  stock  and 
bond  register  making  up  the  complete  set.  A  day  book  is  very  seldom 
used,  although  some  transactions  are  made  that  require  entries  to  be  made 
in  it. 


•Stock   ^nd  Bo/^d   Reg/stc:r 

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. 

To  give  a  complete  outline  of  our  many  transactions,  I  will  illustrate 
it  as  follows:  Mr.  Brown  gives  us  an  order  to  buy  100  shares  of  U.  S. 
Steel  Corp.  at  83,  which  order  we  execute  on  our  stock  exchange  at  his 
price  (being  quoted  at  that  when  the  order  is  received),  having  bought  it 


348 


223 


American  Business  and  Accounting  Encyclopedia         Bank 


from  another  member  of  the  stock  exchange.  It  is  reported  over  our 
private  telephone  from  the  exchange  to  our  office  and  entered  in  the  stock 
and  bond  register  as  per  Form  1 :  This  stock  is  usually  deliverable  the  next 
day,  for  which  a  check  (certified)  is  given  the  broker  from  whom  purchased 
and  he  almost  always  leaves  the  stock  at  the  transfer  office  "to  our  credit" 
(bonds  are  not  transferred  as  stock),  and  we  make  up  our  transfer  slips, 
giving  names  and  addresses  of  persons  to  whom  the  stock  is  to  be  issued! 
and  in  due  time  we  call  for  our  stock  and  make  record  in  the  stock  and 
bond  register  of  all  data.  Of  course,  in  case  of  a  sale  this  operation  is 
reversed,  but  all  the  details  are  the  same. 


C  A-S  H       D  O  O  K 


L  £  rr-  /-//•> no    /='ma£ 


f^  B   B^otYAf 


^•ecs/KSOor/mrnt  US:Sr££i.  fjt^      too 
♦Vc»  ortVMmttrSai^om  Mon  /PC  Bonoe  %Fooo 


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Our  check  for  $8,300  in  payment  for  above  stock  is  entered  in  our 
cash  book  as  a  debit  against  Mr.  Brown,  as  shown  in  Form  2  and  as  Mr. 
Brown  has  received  our  statement  for  this  amount  plus  %  per  cent 
commission,  or  $12.50,  he  gives  us  his  check  for  $8,312.50;  it  being  entered 
m  our  cash  book  in  two  columns;  the  $12.50  in  the  commission  column 
(the  total  of  this  column  being  credited  to  commission  account  once  a 
month),  and  the  $8,300  amount  to  the  credit  of  Mr.  Brown's  account. 

Our  ledger  (Form  3),  which  always  gives  full  information  regarding 
all  purchases  and  sales  of  stock,  is  a  source  of  quick  information  regarding 
any  transaction  made  for  any  of  our  customers,  in  case  they  should  ask 

349 


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Bank         American  Business  and  Accounting  Encyclopedia      223-224 

about  any  particular  stock  order  which  we  may  have  executed  for  them. 

We,  of  course,  purchase  and  sell  stocks  for  our  own  account  but  they 
are  handled  the  same  way,  only  that  we  debit  and  credit  (as  the  case 
may  be)  the  stock  account  for  each  stock  or  bond. 

It  sometimes  happens  that  we  have  an  order  from  a  customer  to  sell 


LlO-iri 


M.I2>  Throat 


Nov. 


L 


o«^ 


25 


2/5.6t»elOp.P|J- 


6Soo 
6300 


oo 


63oo 
Ibo 


00 
00 
00 


Nov. 


*> 


2S 


Moij.R.CC«CBi7  >6oo< 


loi 


a  certain  stock  or  bond  and  purchase  another,  and  it  is  almost  always  that 
there  is  a  balance  one  way  or  the  other,  and  as  there  are  two  charges  for 
commission  in  a  transaction  of  this  kind,  this  necessitates  a  cross  entry 
on  our  cash  book;  for  example,  should  Mr.  Brown  have  given  us  an  order 
to  sell  $8,000  (par)  worth  of  bonds  at  102,  the  sale  would  bring  $8,160, 
against  which  there  would  be  our  charge  of  '4  per  cent  commission,  or 
$20;  and  when  check  for  $8,160  would  be  received  from  the  broker  to 
whom  the  bonds  were  sold,  this  would  be  credited  on  the  cash  book  as 
$20  in  commission  column  and  $8,140  to  the  credit  of  Mr.  Brown  and  he 
would  then  owe  a  balance  of  $172.50,  which  he  would  be  credited  with 
as  $160  and  the  $12.50  being  credited  to  commission  (this  being  com- 
mission on  the  100  shares  of  U.  S.  Steel  bought).  This,  therefore,  shows 
that  the  two  credits  to  Mr.  Brown  of  $8,140  and  $160  would  equal  the 
debit  of  $8,300  for  his  purchase. 

In  case  of  the  balance  being  in  his  favor  on  a  different  transaction,  a 
cross  entry  would  be  made  for  commission  in  the  cash  book ;  that  is,  Mr. 
Brown  would  be  charged  with  $12.50  on  the  credit  side  of  cash  and  com- 
mission being  credited  on  the  debit  side  (this  being  a  balance  entry). 

(Edward  G.  Straiib.) 

(224)       BANK  PASS  BOOK. 

This  is  a  copy  of  account  in  which  is  recorded  by  the  bank,  for 
the  customers'  use,  the  amount  of  customers'  deposits  and  checks  withdrawn, 
also  exchange  on  collections,  discounts,  etc.    In  auditing  the  books  of  account 

350 


224-225      American  Business  and  Accounting  Encyclopedia 


Bank 


of  the  depositor,  the  bank  pass  book  is  considered  a  sufficient  voucher  tor  the 
amount  of  the  balance  at  bank  called  for  by  the  cash  book  after  having  been 
certified  by  the  bank  officials. 

Many  banks  now  use  the  pass  book  simply  as  a  receipt  for  the  deposits 
made,  giving  the  depositor  a  separate  sheet  on  which  is  a  statement  of  all 
his  transactions  in  full.  These  statement  sheets  are  written  up  daily, 
and  when  a  depositor  leaves  his  book  for  balancing,  it  only  requires  a 
comparison  of  the  total  deposits  entered  in  the  pass  book  with  those 
entered  on  the  statement  and  ledger,  and  if  they  agree  the  rest  is  simply 
a  deduction  of  the  total  charges  from  the  total  of  the  deposits,  including 
the  previous  balance,  which  leaves  the  balance  due  the  depositor.  Keep- 
ing these  account  current  sheets  written  up-to-date  enables  a  bank  with- 
out difficulty  to  have  every  pass  book  ready  for  delivery  to  the  depositor 
the  morning  following  the  day  it  was  left. 

(225)     comparative  uank  statements. 

The  following  plan  of  resolving  the  amounts  of  the  various  constituent 
items  of  bank  balance  sheets  into  percentages  is  graphic,  instructive,  and 
efficient.  These  statements  are  made  up  from  statistics  published  in  the 
Britsih  Journal  of  the  Institution  of  Bankers. 

This  method  admits  of  very  close  dissection  as  to  proportion  of 
capital  to  advances  to  customers,  whether  demand  loans  or  on  real  estate 
or  other  property. 

BANK     HALANCK     SHEETS. 

Liabilities. 

Percentages. 

Capital     9.73 

Reserve    fund    8.28 

Due  on  deposit,  current  and  other  accounts 81.99 

100.00 
Assets. 

Bills  of  exchange  and  promissory  notes 12.67 

Cash  in  hand,  at  bank  of  England,  and  at  agents 8.38 

Consols    and    other    imperial    Govt,    stocks,    Colonial    and    Indian 

Govt,   bonds,  etc 14.90 

Freehold    properties    58 

Bank  premises,  head  office  and  branches,  furniture,  etc 3.77 

Loans  on  security  and  advances  on  current  and  other  accounts...  59.70 

100.00 
No.  2. 

Capital    subscribed    54.6 

Dr.        Reserve    Fund    8.03      Or. 

Liabilities. 

Capital,  56.2:   Subscribed  capital,   54.6. 

Paid-up    capital    16.38 

351 


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Bank         American  Business  and  Accounting  Encyclopedia 

Reserve   fund    8.03 

Own  notes  in  circulation   56 

Deposits  and  credit  balances    72.89 

Rebate  of  discount  on  bills  09 

Acceptances  on  Account  of  customers 82 

Profit   and   loss    1.23 

100.00 
Assets. 

Cash  on  hand  and  with  London  and  other  bankers 8.99 

Bills  of  exchange  on  hand 12.00 

Investments     10.23 

Freehold  and  leasehold  properties   1.05 

Special  mortgages  and  loans  on  securities 10.57 

Advances  on  current  accounts   55.51 

Acceptances   as   per  contra 82 

Bank  premises 83 

100.00 

PROFIT    AND   LOSS    ACCOUNT. 

Dr.  (In  terms  of  the  above.)  Cr. 

Interim    dividend    96 

Interim    dividend 96 

Payment   of  income-tax    09 

Surplus  to  the  credit  of  profit  and  loss  for  1906 19 

2.20 

Surplus   from   1904    14 

Net  profit  for  1905 2.06 

2.20 

Dr.  No.  3.  Cr. 

Liabilities. 

Capital     15.66 

Reserve    fund    5.48 

Notes   in   circulation    13 

Unpaid    dividends    

Credit  balances,  deposits,  and  on  bills  re-discounted    77.20 

Rebate  on  bills  and  interest  on  deposits 47 

Profit  and  loss  account 106 

100.00 
Assets. 

Cash  on  hand  and  at  call   . .  . .' 11.69 

Bills    discounted,    including    re-discounts 9.18 

Consols  and  other  investments    5.66 

Advances   on   current  accounts    71.51 

Bank    property    1 .96 

100.00 
No.   4. 

Dr.        Nominal  Capital  34.3.    Subscribed  19.6.  Cr. 

Capital    paid-up     9.80 

Reserve    fund     4.90 

Deposits,  credit  balances,  drafts  and  other  liabilities 80.81 

Rebate  on  bills  and  interest  accrued  on  deposits ..^. .  .52 

Notes    in   circulation    .23 

352 


225 


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225-226      American  Business  and  Accounting  Encyclopedia  Bank 

Acceptances   on  account  of  customers 2  9-5 

iialance  of  profit  and  loss  account ."!.*!."..'!.*'.!".!!!!'.        79 

100.00 

Cash  in  hand,  at  Bank  of  England,  and  other  banks  and  at  call  8  08 

JSrtTi"*^  '"  consols   colonial  bonds  and  other  securities '.  12  00 

Freehold  properties  yiddmg  rents   17" 

Bills  discounted,  advances  on  current  accounts,  loans.' etc 73'7q 

Bank  premises,   fittings,   etc ,:» 

Stamps *•*' 

Liability  of  customers  for  acceptances  as  per  contra! ! ...........     2  95 

XT      -  100.00 

No.  5. 

Capital    subscribed    49  59 

Dr.        Reserve  fund    ...!...... 2  48 

51.98 
Liabilities. 

Capital   paid-up    -  -- 

Reserve    fund    •■••........[.[..].]] 2  48 

Deposits  and   current  accounts 79  10 

Acceptances  and  guarantees 8  83 

Liabilities  by  indorsement  on  foreign  bills  sold . . . . . . 04 

Other  liabilities,  being  interest  due  on  deposits,  unclaimed  divi- 
dends,   etc jjjQ 

Rebate  on  bills  not  due *'  Qg 

Profit  and  loss 82 

100.00 
Assets. 

Cash  in  hand    g  55 

At  Bank  of  England 6  65 

Money  at  call  and  at  short  notice !...!.!...!!!!....  15  34 

Investments 13  73 

Bills  discounted,  3  months  and  under 10  33 

Exceeding  3  months 1  44 

Loans   and   advances 34  00 

Liabilities   of   customers   on   acceptances    and   guarantees  as   per 

contra     H  S3 

Liabilities  of  customers  for  indorsements  as  per  contra ......  04 

Bank  premises,  chiefly  freehold 2.76 

Other  assets,  being  interest  due  on  investments .33 

100.00 
It  will  be  seen  that  the  proportion  of  the  capital,including  in   this 
reserve   fund — to   the   liabilities   to   the   public,   that   is,   to   the   deposits, 
varies  considerably. 

18  per  cent, 
per  cent. 
Ill  udictiicc  oucci  iNo.  o  II  IS  2L  per  cent. 
In  Balance  Sheet  No.  4  it  is  14  per  cent. 
In  Balance  Sheet  No.  5  it  is  10  per  cent. 

(226)     BILLS  receivable,  record  of. 

The  notes  when  received  are  entered  .on  the  left  hand  page,  all  neces- 
sary data  being  given,  at  the  end  of  the  day  the  amounts  are  footed  and 

353 


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Bank         American  Business  and  Accounting  Encyclopedia      22G-227 

carried  to  the  total  column  from  which  it  is  posted  to  the  general  ledger. 
As  payments  are  made  during  the  day  they  are  entered  in  the  columns 
headed  "payments  on  notes,"  the  date,  number  and  amount  being  given, 
at  the  end  of  the  day  these  are  footed  up  and  carried  to  the  total  column, 
which  amount  is  then  posted  to  the  general  ledger.  The  interest  amounts 
are  entered  in  the  same  way. 

At  the  end  of  the  day,  or  once  a  week,  or  month,  as  desired,  the 
amounts  under  payments  on  notes  are  checked  and  the  amount  carried 
to  the  indorsement  column  corresponding  to  the  note  on  which  payment 
was  made,  if  the  note  is  paid  in  full  or  when  the  indorsements  complete 
the  full  payment  the  amount  should  be  entered  in  the  total  column  and 


RecJ 


MaKei 


Et)J.Co) 

or  Sec 


N? 


Anvt: 


Total 


Dfitf 

ofl^ill 


Ei)dorsen\er)ti 


bate 


AnvJ: 


Total 


Remarks 


P<iyn\«<)ts  OT)  Notes 

0 


baft    No 


|i)tmitRiyi]^f9ts 


■Ak)-  Total   No. 


AnvJ- 


Total 


the  note  should  be  checked,  so  that  in  glancing  down  the  page  you  can 
readily  see  what  notes  are  still  unpaid.  • 

The  totals  should  be  carried  forward  and  the  difference  between  the 
footings  of  amount  of  the  notes  and  the  footings  of  payments  on  notes 
should  equal  the  amount  of  bills  shown  by  the  general  ledger,  when  the 
notes  on  one  page  have  all  been  paid  and  checked  the  footings  of  the  total 
indorsements  should  agree  with  the  totals  of  the  notes  on  same  page, 
making  a  complete  and  double  check  on  the  work.  If  desired  the  book 
can  be  ruled  up  each  night,  but  in  many  instances  there  are  certain  times 
during  the  year  where  notes  are  received  and  no  payments  made,  the 
payments  coming  at  a  later  date,  consequently  it  would  waste  a  great  deal 
of  the  book.  There  being  a  date  column  on  each  page  it  would  not  be 
necessary  to  rule  at  all.  If  this  is  done  the  numbers  could  be  printed  in 
and  each  line  used  without  any  waste  whatever. — (J.  E.  Dresken.) 

{227)     clearing  house  settlements. 

The  clearing  house  is  the  fruit  of  progressive  and  extended  banking ; 
in  the  reciprocal  workings  of  banks,  railway  companies  and  other  insti- 
tutions, no  improvement  has  been  of  a  greater  and  more  convenient  prac- 
tical utility  than  the  clearing  house.  Here  the  various  cross-demands  are 
adjusted  and  differences  only  dealt  with. 

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227-229        American  Business  and  Accounting  Encyclopedia 


Bank 


The  first  clearing-house  was  established  in  London  in  1775 ;  the 
second  institution  of  a  similar  character  was  established  in  New  York 
about  1853. 

Suppose  five  banks  meet  to  exchange  checks  and  settle  the  balance 
of  indebtedness  by  each  bank  to  all  the  others  or  to  each  bank  by  all  the 
others.  These  settlements  are  effected  by  a  very  simple  arithmetical 
operation. 

Let  the  figures  in  the  table  below  represent  thousands  and  the  settle- 
ments are  worked  out  as  follows: 


On   A 

On    B 

On    C 

A 

0 

4 
18 

1 
10 

S3 
ink 

.    21 
.     12 

Present  Cheques  and 
Payment. 
B                 C 
S                 5 
0               11 
5                0 
2              13 
9               7 

19              % 
0               0 

Demand 
D 

8 
12 
IS 

On     S 

0 

On     i 

11 

Totals 
demanded  by  each  b: 

Less  Contra 

Balances  in  favor... 

42 

31 
11 

£ 
7 
5 
11 
15 
0 


37 
1 


TolaK 

demaiiilcd 

•rom  ea<'h  bank. 

21 
32 
47 

31 
37 


Less  Contra 


0 
19 
S8 

0 

• 


Balance) 
adverse. 

0 
B 
U 

t 
§ 


Bank  A   receives    $12,000 

Bank  D  receives     11,000 

Bank    E   receives    1,000 

Bank    B    pays    $1 3,000 

Bank    C    pays    11,000 


$24,000 


$24,000 


and  all  claims  are  satisfied  and  all  responsibilities  canceled  by  these  five 
checks. 

If  in  this  instance,  each  bank  would  settle  with  each  of  the  other 
banks  separately,  20  distinct  entries  would  be  necessary  by  permutation, 
viz.:  5 — 1=4  and  5X4=20. — (Gustave  Jacobsson,  B.  A.) 

{22S)     expiration  of  insurance  on  collateral. 

These  are  also  sometimes  recorded  by  cards,  which,  in  this  case,  are 
arranged  in  order  of  date  (see  paragraph  246).  In  front  of  the  index  cards, 
representing  the  proper  days,  are  filed  the  record  cards,  representing  property, 
policies,  or  collateral.  As  these  cards  are  consulted  day  by  day,  there  is  no 
possibility  of  error. 

(229)     correspondents*  accounts. 

Accounts  with  correspondents  should  be  checked  off  and  proved 
monthly,  and  a  reconcilement  book  kept  in  which  should  be  noted  all  the 
items  of  difference.     It  is  advisable  that  the  reconciling  of  these  accounts 

355 


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American  Business  and  Accounting  Encyclopedia 


230 


should  be  done  by  some  other  clerk  than  the  book-keeper,  wherever  pos- 
sible. 

(230)     credit  department. 

That  the  modern,  up-to-date  bank,  doing  a  commercial  business,  should 
have  a  thoroughly  organized  and  completely  equipped  credit  department 
would  seem  to  any  systematic  business  man  to  be  a  most  essential  feature, 
as  a  safeguard  for  the  loaning  of  the  funds  entrusted  to  a  bank  by  its 
depositors,  and  yet,  with  comparatively  few  exceptions,  the  establishment 
of  the  credit  department  is  of  recent  years  and  has  been  the  result  of  costly 
experience. 

Formerly  what  information  of  a  credit  nature  a  bank  possessed  was 
generally  stowed  away  in  the  brain  of  its  executive  officer,  or  consisted 
of  agency  reports  filed  away  in  a  more  or  less  unsystematic  manner,  so 
that  loans  were  not  infrequently  made  upon  mere  hearsay,  or  upon  the 
judgment  of  some  disinterested  party  whose  advice  was  often  surmise. 
There  was  no  attempt  to  systematically  and  periodically  collect  and 
dissect  credit  information  and  to  so  file  it  that  it  would  be  immediately 
available  for  the  bank's  officers  and  loan  committee. 

With  the  enormous  growth  of  our  cities,  the  immense  expansion  of 
our  commerce,  and  the  constant  increase  in  the  number  of  our  merchants 
and  manufacturers,  brokers  and  contractors,  capitalists  and  professional 
men,  and  the  constant  addition  to  the  list  of  country  banks,  the  necessity 
of  a  thoroughly  equipped  credit  department  in  charge  of  a  capable  officer, 
well  posted  in  the  duties  of  a  credit  man,  has  been  most  emphatically  felt. 
Today,  therefore,  the  maintenance  of  this  department,  in  a  more  or  less 
efficient  degree,  is  becoming  the  rule  rather  than  the  exception. 

It  goes  without  saying  that  the  president  or  cashier  of  a  large  bank, 
with  his  multitudinous  duties  and  the  constant  demand  on  his  time,  cannot 
take  charge  of  the  credit  department.  It  is  usually  placed  under  the  man- 
agement of  a  junior  officer  or  credit  man  of  practical  business  experience, 
preferably  one  who  has  been  through  the  mill  in  his  own  bank,  and  who 
is,  therefore,  familiar  with  the  bank's  customers,  both  individual  and  bank 
depositors. 

He  should  be  a  man  of  ability,  of  unquestioned  integrity,  of  wide 
acquaintance  in  the  business  and  social  world,  of  good  judgment,  keen 
insight  into  character,  unprejudiced  by  personal  likes  or  dislikes,  and  who 
has  the  necessary  persistency  and  liking  for  investigation.  He,  of  course, 
should  have  a  thorough  knowledge  of  accounting  and  banking — in  fact, 
it  is  quite  necessary  for  him  to  have  been  at  some  time  an  accountant 
and  a  discount  clerk.    He  should,  above  all,  possess  the  faculty  to  absorb 

356 


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American  Business  and  Accounting  Encyclopedia         Bank 


information  of  a  credit  nature,  and  to  say  little.  What  he  learns  of  his 
customers'  conditions  and  affairs  comes  to  him  in  confidence  and  should 
be  strictly  so  treated  by  him. 

The  credit  man  should  carefully  read  the  financial  pages  of  the  morn- 
ing papers,  noting  business  conditions  in  general  and  the  daily  quotations 
of  stocks,  bonds  and  grain,  which  form  a  large  part  of  the  collateral  upon 
which  a  bank  loans  its  funds.  The  trade  and  legal  papers  should  be 
perused  and  items  of  judgments,  assignments,  petitions  in  bankruptcy, 
mortgages,  etc.,  noted,  particularly  when  any  of  the  parties  are  on  paper 
owned  by  the  bank. 

He  should  critically  examine  the  loans  maturing  in  the  near  future, 
that  a  renewal  of  a  loan  may  be  refused  and  the  customer  notified  in 
advance  in  case  of  any  evidence  of  weakness  or  unsatisfactory  conditions 
which  his  investigations  may  have  brought  to  light. 

A  detailed  memorandum  of  the  paper  maturing  each  day  should  be 
prepared,  showing  the  maker,  indorser  or  collateral,  the  amount  due  and 
whether  it  has  already  been  renewed.  A  copy  of  this  should  be  given  each 
officer  for  reference  and  the  original,  used  by  the  discount  clerk  or  teller, 
can  be  footed  at  the  end  of  the  day  and  passed  to  the  general  book-keeper 
as  a  credit  for  "Home  Bills  Discounted." 

Reports  of  the  commercial  agencies  should  be  procured  from  time  to 
time,  covering  the  financial  standing  of  firms  who  keep  accounts  with  the 
bank,  whether  borrowers  or  not,  and  these  should  be  filed,  together  with 
all  other  information  regarding  such  firms,  in  a  systematic  manner,  that 
they  may  be  at  the  service  of  the  bank's  officers  at  a  moment's  notice. 
The  credit  man  should  carefully  peruse  these  reports  and  thoroughly  post 
himself  as  to  his  customers'  ratings  and  general  business  reputation.  On 
out  of  town  paper  the  opinions  of  bankers  and  mercantile  houses  with 
whom  the  borrower  does  business  should  be  sought  and  filed  for  reference. 
The  average  monthly  balance  book  should  be  studied,  for  in  extending 
a  line  of  credit  to  a  bank's  customers,  not  only  the  responsibility  of  the 
borrower  but  the  average  balance  kept  should  enter  into  the  consideration 
of  the  extent  of  the  credit  granted. 

The  credit  man  should,  at  least  once  a  year,  obtain  a  detailed  state- 
ment from  each  of  the  bank's  borrowers  properly  signed  by  an  officer 
or  member  of  the  firm.  These  statements  should  be  carefully  analyzed 
and  compared  with  the  previous  statement  on  file,  and  any  unfavorable 
change  in  the  condition  at  once  investigated. 

To  ascertain  the  maximum  line  of  credit  a  bank  should  extend  to  a 
customer,  the  credit  man  should  consider  only  the  quick  assets,  elimi- 
nating from  the  statement  such  assets  as  patents,  good-will,  contracts, 

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advertising  and  a  large  percentage  of  machinery  and  fixtures.    In  addition 
to  the  cash  on  hand  and  in  bank,  he  should  estimate  what  proportion  of 
the  accounts  and  bills  receivable  are  good  and  what  the  machinery,  mer- 
chandise, furniture  and  fixtures  would  bring  at  a  forced  sale,  deducting 
from  these  assets  all  accounts  and  bills  payable  and  other  liabilities.  Many 
other  considerations,  of  course,  enter  into  the  decision  of  what  proportion 
of  the  net  assets  a  bank  may  safely  loan  to  the  applicant  for  credit  in 
determining  his  line.     For  instance,  his  standing  in  the  community  as  a 
business  man,  and  whether  he  has  ever  failed.     If  so,  under  what  circum- 
stances and  what  settlement  was  made  with  his  creditors.     His  private 
life  and  habits  should  also  have  some  bearing.     A  man's  character  and 
reputation  for  integrity  are  most  valuable  assets  when  seeking  credit. 
To  quote  Mr.  Cannon,  of  the  Fourth  National  Bank,  New  York: 
"The  component  parts  of  credit  are  character,  capacity  and  capital,  but 
the   greatest   of   these   is   character.       Character   counts   continually    For 
credit." 

And  as  Rev.  Wm.  Carter,  of  Kansas  City,  said  in  a  recent  address 

before  credit  men: 

"Conscience  makes  character,  character  makes  confidence,  confidence 
makes  credit,  credit  makes  business,  and  business  makes  the  world." 

The  discounts  of  a  commercial  bank,  as  you  all  know,  are  of  three 

kinds : 

(1)  Commercial  or  business  paper,  given  by  the  purchaser  of  mer- 
chandise to  the  jobber  or  manufacturer,  and  considered  the  most  desirable 
paper  for  banks,  on  account  of  the  double  liability  of  maker  and  indorser, 
the  short  time  to  run  (generally  sixty  or  ninety  days),  and  as  a  rule  the 
small  amount  of  the  notes. 

The  credit  department  should  ascertain  that  the  commercial  paper 
is  genuine,  i.  e.,  actually  given  in  payment  of  merchandise  bought  (not 
straw  or  manufactured) ;  that  it  is  negotiable;  that  the  makers  have  a  fair 
rating  and  should  not  depend  entirely  on  the  indorsement  of  the  bank's 

customer. 

(2)  Accommodation  paper,  notes  made  by  a  firm  or  corporation, 
sometimes  indorsed  but  frequently  no  other  liability  than  that  of  the 
maker.  This  form  of  paper  has  largely  increased  in  later  years,  due  to 
the  scarcity  of  bills  receivable,  manufacturers  and  jobbers  carrying  their 
customers  in  open  accounts  instead  of  taking  their  notes. 

Accommodation  paper  should  be  taken  from  those  only  who  have 
filed  a  detailed  statement  and  whose  responsibility  has  been  established 
by  a  careful  analysis  of  same.  Banks  should  insist  that,  at  least  once  a 
year  a  customer's  paper  should  be  paid   in  full  or  materially   reduced, 

358 


230 


American  Business  and  Accounting  Encvcloi'edia         Bank 


that  the  bank  may  "see  the  color  of  its  money."  A  steady  line  of  credit 
furnished  by  a  bank  is  nothing  more  than  furnishing  capital  to  the  firm, 
which  is  not  the  business  of  a  bank,  but  to  loan  money  to  buy  merchandise 
to  be  manufactured  into  goods  and  sold. 

(3)  Collateral  loans,  notes  signed  by  an  individual  or  firm  and 
secured  by  the  assignment  of  stock,  bonds,  mortgages,  or  such  grain  as 
wheat,  corn  and  beans,  or  other  unperishable  produce,  which  have  an 
active  market  value  and  are  represented  by  elevator  or  warehouse  receipts 
and  secured  by  insurance  policies. 

Collateral  loans  should  be  carefully  watched  to  see  that  margins  do 
not  run  out.  In  a  continually  declining  stock  market  such  as  we  have 
had  for  the  past  year,  this  is  a  peculiarly  trying  time  to  the  credit  man, 
who  must  be  prepared  to  call  on  his  customer  for  additional  margin  or 
more  collateral  before  his  margin  is  exhausted.  If  the  borrower  fails  to 
lespond,  he  should  sell  his  collateral  at  the  point  it  expires,  as  frequently 
the  borrower  has  no  responsibility  beyond  the  amount  of  collateral  hypo- 
thecated with  the  bank. 

He  should  see  that  the  merchandise  in  warehouses  or  elevators  is 
kept  fully  insured  and  that  the  bank's  interest  appears  in  the  policy.  He 
must  also  keep  posted  on  the  daily  fluctuations  of  this  kind  of  collateral. 

This  is  a  valuable  record,  showing  at  a  glance  the  items  of  interest 
regarding  a  borrower  which  a  credit  man  should  know:  the  average 
balance  maintained  and  the  maximum  loan  for  the  previous  year,  the  net 
worth  as  shown  by  his  statement  and  the  commercial  agency  ratings. 
It  also  shows  the  partners,  or  officers  and  directors,  and  any  information 
of  a  credit  nature,  the  line  of  credit  granted,  and  the  arrangement  entered 
into  between  the  bank  and  its  customer.  These  data  should  be  carefully 
compiled  once  a  year  and  the  results  compared  with  the  previous  year. 
The  comparison  is  often  startling,  not  only  for  the  bank  but  to  the  cus- 
tomer himself.  Any  unfavorable  developments  should  at  once  be  taken 
up  with  the  latter,  who  will  generally  be  grateful  for  calling  attention  to 
the  fact  and  for  any  advice  which  a  bank  officer  may  have  to  suggest. 

Many  different  systems  are  in  use,  but  a  convenient  one  is  to  place 
all  information  relating  to  the  customer's  credit  standing,  such  as  his 
statements.  The  commercial  agency  reports,  the  opinions  of  other  banks 
or  mercantile  houses,  the  history  of  the  account,  etc.,  in  a  manilla  folder. 
The  name  of  the  customer  should  be  typewritten  across  the  top  of  the 
folder  and  the  latter  filed  alphabetically  in  drawers  in  a  neat  and  compact 
file  case,  conveniently  located  for  the  immediate  use  of  the  credit  man. 
In  this  way  he  can  place  instantly  before  the  president  or  loan  committee 


4 


359 


Bank 


American  Business  and  Accounting  Encyclopedia      231-232 


all  information  collected  regarding  the  credit  standing  and  account  of  the 
customer  under  consideration. 

This  is  but  a  brief  outline  of  the  duties  of  the  credit  man  and  the 
methods  employed  in  a  department  which  has  proven  itself  to  be  of  the 
most  valuable  character  to  a  successful  bank. — (H,  H.  Sanger.) 

(231)     credit  reports. 

The  value  of  an  accurate  record  of  the  worth  and  credit  of  actual 
and  possible  customers  properly  indexed,  must  be  of  considerable  value 
to  the  banker.  A  great  many  banks  now  use  a  system  of  cards  for  this 
purpose.  In  case  of  removals,  failures,  deaths  or  retirements,  the  cards  repre- 
senting the  concerns  affected  are  removed,  thus  freeing  the  record  from  useless 
matter. 

{2Z2)     customers'  signatures. 

Some  of  the  advantages  of  keeping  records  of  customers'  signatures 
on  cards  instead  of  in  bound  books  are  hereunder  quoted : 


r^% 


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360 


232 


American  Business  and  Accounting  Encyclopedia         Bank 


"The  system  has  many  features  of  advantage  germane  to  the  banker. 
Principal  among  these  is  the  ease  with  which  useless  and  out-of-date 
signatures  may  be  instantly  removed.  The  list  is  always  up-to-date,  and 
it  is  as  easy  to  find  the  signature  of  a  depositor  who  opened  an  account 
thirty  years  ago  as  it  is  to  find  the  signature  of  a  day's  standing. 

"Information  pertaining  to  any  customer  represented  by  a  card  may 
be  much  more  complete  than  the  similar  record  in  a  book,  and  special 
information  for  the  teller  or  cashier  only  can  be  kept  on  the  card  that 
could  not  be  put  in  a  book  that  must  be  handed  to  customers  indiscrimi- 
nately to  receive  their  signatures. 

"The  card  system  is  permanent,  and  no  matter  how  long  the  bank 
continues  in  business,  it  never  has  to  be  rewritten  or  renewed.  With 
books,  the  signature  of  a  customer  who  is  an  invalid  or  a  non-resideni 
must  be  obtained  on  a  slip  of  paper  and  pasted  in  the  book,  which  soon 
becomes  unwieldy  and  clumsy.  With  the  card  system,  it  is  very  simple 
to  secure  signatures  through  the  mail  by  forwarding  the  cards. 

"If  the  teller  should  be  suspicious  that  certain  signatures  are  apt  to 
be  forged,  or  should  feel  that  his  unfamiliarity  with  certain  signatures 
might  render  a  close  comparison  necessary,  the  cards  bearing  these 
signatures  can  be  removed  from  the  file  and  kept  in  a  convenient  place 
for  instant  and  unobserved  comparison. 

"Banks  have  often  been  inconvenienced  by  the  necessity  of  intro- 
ducing a  certain  signature  in  evidence,  as  the  entire  book  would  have  to 
be  produced  or  mutilated.  With  the  card  system,  only  the  card  involved 
is  removed  from  the  file. 

"The  card  system  is  very  simple  in  operation.  Cards  of  different 
colors  are  ordinarily  used  to  distinguish  between  the  commercial  and 
savings  depositors,  holders  of  certificates  and  subscribers  to  the  safety 
deposit  vaults.  These  cards  are  usually  printed  with  a  different  form 
for  each  purpose. 

"For  the  commercial  department  the  card  is  very  simple.  Besides  the 
space  allowed  for  the  signature,  it  provides  sufficient  room  for  other  data 
which  may  be  filled  in  by  the  customer  or  by  the  teller.  When  firms  or 
corporations  open  an  account,  the  authority  of  the  directors  or  of  the 
individuals  comprising  the  firm  for  the  acceptance  of  certain  signatures  of 
individuals  authorized  to  sign  checks  and  other  financial  obligations  is 
shown  with  the  signatures  to  be  recognized,  and  the  official  titles,  if  any. 
Further  particulars,  such  as  the  addresses  of  the  depositors,  dates  of 
opening  accounts,  names  of  persons  introducing  the  depositors  to  the  bank 
officials,  the  number  of  accounts,  etc.,  are  usually  added. 


361 


I 


Bank         American  Business  and  Accounting  Encyclopedia      233-234 

"In  the  savings  department  the  printed  form  usually  provides  for 
more  detailed  items  of  identification. 

"With  the  exception  of  the  cards  for  the  savings  department,  the 
index  is  usually  alphabetical.  In  the  savings  department  the  cards  are 
arranged  numerically,  and  guide  cards  at  intervals  of  twenty-five  or  fifty 
are  aids  in  the  rapid  finding  of  any  card  desired. 

"The  cards  are  withdrav^n  from  the  file  when  the  account  is  closed 
and  either  filed  away  with  the  pass  book  or  in  an  auxiliary  index,  where 
they  can  be  referred  to  with  as  little  inconvenience  as  in  the  regular  index. 
The  closed  pass  books  of  each  day  show  what  cards  should  be  removed." 

(233)       DRAFTS,  CERTIFICATES  OF  DEPOSIT  AND  DUE  BILLS. 

A  complete  record  by  number  should  be  kept  of  all  drafts,  certificates 
of  deposit  and  due  bills,  when  issued,  and  if  these  vouchers  be  signed  by 
two  officers,  each  keeping  a  separate  record  of  the  number  and  amount,  it 
will  be  found  a  great  safeguard.  Watch  these  accounts  closely,  as  many 
defalcations  and  irregularities  have  been  covered  for  a  time  through  these 
channels. 

(234)       FINANCIAL   STATEMENTS,   CONSTRUCTION   OF. 

The  percentage  of  real  resources  to  real  liabilities  gives  a  fairly  accu- 
rate line  on  a  bank's  liability  to  liquidate  its  deposits.  If  this  percentage  is 
high  and  the  officers  and  directors  of  the  institution  considered  are  known 
to  be  careful  in  the  matter  of  loans,  to  require  good  and  ample  security, 
and  are  men  whose  integrity  is  above  question,  deposits  can  be  made  with 
a  feeling  of  security. 

This  percentage  varies  with  ordinary  banks  from  110  per  cent  to  135 
per  cent  and  it  means  that  for  every  $100  of  deposits  there  are  from  $110 
to  $135  of  good  resources  with  which  to  pay  the  $100  if  demand  be  made. 

The  figures  for  six  banks  whose  March  statements  were  examined, 

are  as  follows,  the  name  of  the  town  in  which  the  bank  is  located  being 

given  instead  of  the  name  of  the  corporation. 

Real 

Resources  Deposits 

Bank                                              (Thousands)  (Thousands)       Per  Cent 

Grand    Rapids    $3,184  2,393  133 

Chicago       3.004  2.431  123 

Cleveland     33.187  28.134  117 

Philadelphia     36.123  31,470  114 

New    York    99.097  «7,713  112 

DeTroit     6,489  5.859  110 

The  reports  of  ten  other   institutions   with   total   resources   varying 

from  less  than  half  a  million  to  thirty-two  millions  were  .examined  and 

the  percentages  for  these  were  as  follows: 

302 


234-335      American  Business  and  Accounting  Encyclopedia         Bank 

Bank  A,  126;  B,  121 ;  C,  119;  D.  118;  E,  116;  F,  115;  G,  115;  H,  114; 
I,  112;  J,  110. 

In  securing  the  above  percentages  the  resource  statement  of  each 
institution  was  closely  scrutinized  and  all  such  items  as  "over  drafts. 
premiums  on  bonds,  furniture,  and  fixtures,  taxes  paid"  were  stricken  out 
entirely  and  in  those  cases  where  the  item  of  real  estate  was  an  appreciable 
factor  of  the  whole  it  was  materially  scaled  down.  Furthermore,  the 
resources  of  all  national  banks  were  diminished  by  the  amount  of  their 
circulation.  This  was  for  the  purpose  of  getting  them  on  the  same  basis 
as  state  banks.  The  amount  of  federal  deposits  in  the  case  of  United 
States  depositories  was  also  deducted  from  both  resources  and  deposits 
as  these  deposits  are  directly  secured  by  national  bonds  and  therefore 
are  not  subject  to  the  same  risks  as  the  ordinary  deposits. 

The  individual  deposits  were  compared  with  so  much  of  the  total 
resources  as  the  reports  indicated  were  available  for  paying  depositors. 

Assuming  the  management  risk  to  be  the  same  for  any  number  of 
banks,  the  percentage  that  the  real  resources  are  of  the  deposits  (which 
are  the  only  real  liabilities,— capital  stock,  surplus,  undivided  profits,  etc., 
being  only  book-keeping  liabilities),  indicates  which  one  of  the  several 
institutions  is  the  strongest.  In  the  case  of  many  banks  the  double  liability 
to  which  the  stockholders  are  subject  furnishes  additional  strength. 

(R.   H   .Elszi^orth.) 

(235)       INTEREST  ON   SAVINGS   DEPOSITS. 

Quite  a  number  of  depositors  complain  about  their  inabilitv  to  under- 
stand or  check  up  their  interest  credits  and  stating  that  to  all 
appearances  savings  banks  figure  depositors'  interest  to  their  own 
advantage.  This  question  will  no  doubt  interest  a  great  many  of  our 
readers,  and  as  the  figuring  of  interest  on  depositors'  pass  books  is  no 
easy  task  for  the  bank  teller  who  is  first  learning  how ;  it  is  not  difficult 
to  understand  why  the  process  seems  incomprehensible  to  the  ordinary 
person  who  takes  his  book  to  be  balanced  at  the  bank  once  every  six 
months. 

The  point  as  to  whether  savings  banks  figure  interest  to  their  own 
advantage  is  open  to  question.  So  far  as  the  actual  work  is  concerned, 
this  is  done  by  the  use  of  interest  tables  which  are  mathematically  accu- 
rate, and  which,  given  the  balance  to  draw  interest  and  the  time,  shows 
the  amount  of  interest  to  be  credited  at  the  prevailing  rate  at  first  glance. 
How  this  is  done  may  be  seen  in  the  table  printed  below,  taken  from  the 
Robinsonian  Interest  Tables,  which  will  be  found  handy  in  everv  well- 

363 


ill 


Bank         American  Business  and  Accounting  Encyclopedia  235 

regulated  savings  bank  in  the  country.     If  not  these  tables,  others  like 

them. 

We  will  suppose  that  the  depositor's  pass  book  shows  he  is  entitled 
to  interest  on  $200  at  four  per  cent  for  a  period  of  three  months.  The 
paying  teller  opens  his  interest  tables  at  four  per  cent,  turns  to  the  table 
headed  "Two  Months — Days,"  traces  down  the  column  headed  $2,000  to 
the  bottom  of  the  column  opposite  thirty  days,  and  finds  the  interest  to 
be  credited  is  $2.  That  is,  he  drops  off  as  many  ciphers  from  the  amount 
given  at  the  space  opposite  the  number  of  days  as  he  took  from  the  amount 
at  the  top  of  the  column,  one  cipher  having  been  dropped  in  the  present 
instance.  He  then  points  off  two  places  for  cents.  We  will  give  only 
enough  of  this  table  to  illustrate 

2  MONTHS— DAYS. 

Days  ..$1000     $2000      $3000     $4000     $f>iOOO 

1  ..  0678      1356      2033      2711      3389 

2  0689      1378      2067      2756      3444 

....       ....       ....       ..••. 

3Q  ,'.' lOOyO      2000      3000      4000      5000 

In  using  these  tables,  if  the  amount  drawing  interest  is  such  a  sum 
as  $429  at  four  per  cent  for  three  months,  or  90  days,  the  teller  will  find 
the  interest  on  $400,  on  $20  and  on  $9  from  the  columns  headed  $4,000, 
$2,000  and  $9,000  respectively,  and  add  them  together.  That  is,  the  interest 
on  $400  is  $4,  on  $20  is  $.20  and  on  $9  is  $.09,  making  the  total  interest, 

$4.29. 

The  question  as  to  whether  savings  banks  figure  interest  to  their  own 
advantage,  therefore,  rests  with  the  question  as  to  whether  the  360  day 
year  is  used  as  a  basis,  30  days  to  the  month,  or  the  365  day  basis.  Under 
the  former  basis,  the  loss  to  the  depositor  is  1/72  of  one  per  cent,  an 
inappreciable  amount  on  small  balances,  and  the  ease  in  figuring  interest 
gained  by  using  this  basis  is  such  that  it  is  widely  used  abroad  and  in 
this  country,  and  the  American  Bankers'  Association  is  endeavoring  to 
have  the  state  legislatures  in  every  state  in  the  union,  which  does  not  now 
recognize  this  as  the  legal  basis,  to  pass  the  necessary  laws.  The  360 
day  year  is  in  common  use  everywhere,  and  will  no  doubt  be  eventually 
adopted  as  the  legal  basis  for  figuring  interest  all  over  the  world. 

Checking  up  the  pass  book,  and  determining  what  balance  draws 
interest  is  the  chief  difficulty.  This  task  is  greatly  simplified  for  each 
depositor,  if  he  will  turn  to  the  rules  and  regulations  printed  in  his  book 
and  find  out  from  what  dates  interest  is  figured  by  his  l^ank.  Knowing 
and  understanding  this  point,  the  rest  is  easy.  The  writer's  pass  book 
states  that  interest  will  be  credited  on  balances  deposited  from  January  1 

364 


235 


American  Business  and  Accounting  Encyclopedia         Bank 


to  January  10,  from  April  1  to  April  3,  from  July  1  to  July  10,  and  from 
October  1  to  October  3,  interest  being  credited  on  amounts  deposited 
between  these  specified  dates  and  remaining  on  deposit  for  six  months  to 
July  1st  or  to  January  1st,  as  the  case  may  be.  In  order  to  make  this  clear, 
We  give  below  the  following  page  from  an  imaginary  pass  book. 


North  Side  Savings  Bank. 

New  York,  N.  Y. 
In  account  with  John  Doe. 


Book  No.  9899 


March 

March 

March 

April 

April 

May 

June 

July  1, 


12  

15  

17  

10  

19  

1  , 

12  

Interest 


Withdrawn 


$25 
50 


Deposited 
$150.00 


25 
25 


credited 


75.00 


75.00 
.75 


Balance 

$125 
75 
150 
125 
100 
175 
175.75 


Now,  in  figuring  the  interest  on  this  account,  with  its  many  deposits 
and  withdrawals,  and  its  nice  balance  of  $75  on  the  last  date  of  activity 
before  July  1,  on  which  date  the  semi-annual  interest  payments  are  made, 
the  first  impression  would  be  that  the  interest  is  to  be  paid  on  a 
large  amount.  As  a  matter  of  fact,  under  the  rules,  interest  will  be 
paid  first,  on  amounts  deposited  between  January  1  and  10;  no  such 
deposits  were  made.  The  next  period  from  which  interest  'starts  on 
deposits  is  from  April  1  to  3,  and  as  can  be  readily  seen,  the  balance  draw- 
ing interest  from  that  date  to  July  1st  is  the  balance  of  $75  on  March  17th. 
This  balance  draws  interest  at  four  per  cent  from  April  1st  to  July  1st,  or 
three  months,  which,  according  to  the  tables  printed  above,  will  be  $.75. 

Two  further  explanations  are  in  order :  the  first  is  that  the  amounts 
deposited  from  April  10th  down  will  begin  to  draw  interest  from  July  1st, 
the  basis  being  the  balance  of  $175  on  deposit  June  20th,  plus  the  July 
mterest.  If  on  January  1st,  this  balance  has  been  drawn  down  to  $25, 
interest  will  be  figured  on  undisturbed  balances  only  during  the  six  months 
on  which  dividends  are  paid. 

The  second  explanation  is  as  to  an  easy  way  to  figure  the  interest 
without  the  use  of  tables.  Still  using  the  360  day  basis,  the  depositor  will 
multiply  $75  by  .04,  the  interest  rate,  which  gives  him  $3.  This  is  the 
amount  of  interest  for  one  year;  as  the  period  was  three  months,  or  one- 
quarter  year,  divide  the  $3  by  4,  which  gives  $.75,  or  the  amount  of  interest 
to  his  credit  on  his  balance.  This  principle  is  readily  applicable  to  any 
rate,  and  depositors  should  remember  that  interest  is  paid  in  savings  banks 
for  semi-annual  or  quarterly  periods  almost  universally,  so  that  with 
this  explanation,  the  work  of  figuring  interest  on  one's  pass  book  should 

366 


Bank         American  Business  and  Accounting  Encyclopedia  235 

be  greatly  simplified,  and  rendered  a  task  within  the  reach  of  everybody's 
uii'ci  standing. — (Albert  L.  IVyman.) 

interest  on  savings  deposits. 

The  articles  on  figuring  interest  in  a  savings  bank  are  always  inter- 
esting and  instructive.  As  the  methods  used  in  the  larger  savings  banks  in 
this  section  of  the  country  (Portland,  Maine),  are  somewhat  different, 
perhaps  they  may  also  be  of  interest. 

Our  savings  banks  are  purely  mutual  and  do  nothing  but  a  savings 
bank  business.  We  are,  therefore,  better  able  to  specialize  in  our  system 
than  those  banks  and  trust  companies  where  savings  accounts  are  merely 
a  department.  Our  methods  are  the  result  of  years  of  study  to  adapt 
them  to  our  needs. 

The  requirements  are— accuracy,  speed  and  comfort.  Our  conditions 
as  regards  interest  periods,  rate,  etc.,  may  be  summarized:  Rate  (for  the 
last  year  and  a  half)  four  per  cent.  Interest  allowed  from  the  first  of  each 
month  and  credited  May   1  and  November   1   of  each  year. 

It  will  perhaps  correct  an  impression  that  all  savings  banks  figure 
interest  to  their  own  advantage  and  not  to  the  depositors,  to  state  that  we 
try  to  be  absolutely  fair.  On  a  given  amount  the  interest  for  one  year  is 
divided  by  twelve,  for  one  month's  interest,  and  when  the  fractional  part 
of  a  cent  is  half  or  more  the  next  cent  is  allowed.  The  other  monthly 
periods  are  figured  with  equal  exactness.  Reference  to  the  accompanymg 
table  (Form  1)  will  demonstrate  this. 

The  tables  are  made  by  ourselves  as  we  have  found  that  no  printed 
table  can  be  used  without  undue  strain  on  the  eyes.  The  interest  for 
each  month  is  shown  for  every  dollar  up  to  $300  and  for  the  even  hundreds 
above  that  to  $2,000.  The  large  figures  indicate  the  months.  Higgms' 
drawing  inks  have  been  found  more  satisfactory  than  the  common  inks. 
Carmine  is  used  for  the  dollars  and  India  for  the  interest.  All  figures 
being  as  plain  and  uniform  as  possible. 

The  tables  are  mounted  on  book-binder's  board  covered  with  cloth, 
and  are  given  several  coats  of  a  colorless  lacquer  which  keeps  them  clean 

and  bright.  j        j 

In  use  they  are  supported  on  end  in  front  of  a  pile  of  ledger  cards  and 
the  interest  on  any  desired  amount  can  be  instantly  and  accurately  noted 
without  causing  fatigue  to  the  eye  or  brain ;  the  figures  on  the  ledgers  and 
tables  being  so  nearly  alike  and  practically  the  same  distance  from  the 
eyes.  It  will  be  seen  that  no  figuring  is  necessary  except  when  the  amount 
exceeds  $300.  Then  it  is  only  necessary  to  glance  at  the  proper  hundreds 
at  the  top  of  the  required  column  and  then  at  the  odd  dollars  below,  com- 

366 


235 


American  Business  and  Accounting  Encyclopedia        Bank 


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bining  the  interest  for  the  two,  mentally,  as  the  eye  travels  back  to  the 
ledger  card. 

The  tables  are  equally  convenient  for  book  ledgers. 
When  the  rate  of  interest  is  odd,  as  3/^  per  cent,  it  is  necessary  for 
the  tables  to  cover  the  six  months'  and  three  months'  periods  also.     We 

367 


Bank         American  Business  and  Accounting  Encyclopedia 


235 


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then  find  it  convenient  to  use  two  tables;  one  for  six  months,  giving  the 
interest  for  each  dollar  up  to  $1,000,  and  the  other  for  five,  four,  three, 
two  and  one  months  as  described.  The  six  months'  interest  on  an  amount 
between  $1,000  and  $2,000  (legal  limit  for  ordinary  accounts)  is  found 
by  adding  to  the  interest  of  an  amunt  $1,000  less  than  the  one  desired, 
the  interest  on  $1,000.  This,  of  course,  is  done  mentally  and  soon  be- 
comes mechanical. 

As  to  the  size,  the  table  illustrated  measures  twelve  inches  in  width 
by  seventeen  in  height. 

Take  a  more  extended  account  (Form  2),  and  one  that  is  more  truly 


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illustrative  in  our  office.  (We  open  accounts  for  as  small  a  sum  as  one 
dollar.)  The  items  to  be  figured  are  not  only  odd  amounts  but  are  so 
deposited  as  to  draw  interest  from  the  first  day  of  each  month.  This 
makes  six  interest  items.  The  sum  of  $40  deposited  May  1  is  entitled 
to  six  month's  interest  which  we  put  down  as  80c  in  pencil  in  the  col- 
umn left  for  that  purpose  on  the  ledger  card.  The  next  item,  May  14, 
$10,  draws  interest  from  June  1st  (or  five  months.)  A  glance  opposite 
10  in  the  five  months  column  gives  17c.  The  next,  $20  at  four  months  is 
27c,  $8  at  three  months  (1  per  cent)  8c,  $16  at  two  months,  lie,  $33  at 
one  month  lie.  Total  $1.54.  This  example  contains  as  many  interest 
items  as  it  is  possible  to  have  and  is  a  fair  illustration  of  the  accounts 
which  take  the  most  time  to  figure.  An  account  might  be  more  com- 
plicated by  additional  deposits  and  frequent  withdrawals  but  would  not 
take  appreciably  longer.  A  glance  at  the  balance  column  will  readily 
indicate  the  amount  entitled  to  interest  during  the  period  in  question. 
Of  course  the  easiest  accounts  to  figure  are  the  six  months'  accounts 
which  make  only  one  item — two  per  cent  of  the  balance. 

So  the  labor  varies  from  six  items  and  a  footing  to  a*  single  item, 
but  all  are  found  and  noted  as  rapidly  as  the  eye  and  hand  can  work. 

368  ^ 


235 


American  Business  and  Accounting  Encyclopedia  Bank 


There  is  no  time  or  effort  lost  in  making  computations  on  a   separate 
paper  and  having  to  copy  the  result  on  the  ledger  card. 

To  guard  against  errors  the  figures  are  verified  and  checked  later 
in  the  month  by  another  clerk.  His  procedure  is  the  same  as  in  the 
original  figuring  except  that  he  does  not  have  to  put  down  the  figures. 
He  simply  checks  the  total.  So  that  the  "review"  takes  just  so  much 
less  time. 

Although  we  have  over  26,000  accounts  with  only  four  clerks  working 
odd  moments  at  it,  we  regard  figuring  our  interest  as  rather  pleasant  work 
and  do  not  find  it  a  "grind."  We  have  a  whole  month  to  do  it  in  and 
find  sufficient  time-  during  regular  business  hours.  With  the  review 
it  makes  over  52,000  accounts  to  figure,  it  will  be  readily  acknowledged, 
I  think,  that  a  few  seconds'  time  or  a  few  figures  saved  on  each  account 
makes  a  marked  difference  when  there  are  any  considerable  number  of 
accounts  to  figure.  Every  figure  made  gives  a  chance  for  an  error.  So 
'  the  fewer  figures  used  or  the  more  a  process  is  simplified  the  less  chance 
there  is  for  errors.— (^//.  A.  Roberts.) 


Interest  on  Savings  Deposits.  The  simplest  and  most  satisfactory 
method  I  have  found  is  to  figure  the  interest  at  the  rate  of  3  per  cent 
per  annum  and  then  change  the  results  to  whatever  rate  may  be  in  use. 
The  reason  for  choosing  3  per  cent  is  that  this  rate  is  equal  to  l4  per  cent 
per  month  and  can  be  figured  mentally  much  quicKcr  than  with  the 
use  of  a  table.  By  providing  the  account  checks  with  two  interest  col- 
umns (see  form),  the  calculation  can  be  made  at  the  time  of  posting 
each  item,  which  takes  but  a  moment  of  additional  time  and  has  the  great 
advantage  that  at  the  end  of  the  period  the  work  is  practically  done, 
except  for  finding  the  balance  of  interest  and  putting  it  down  in  red  ink! 

The  trust  companies  in  St.  Louis  some  time  ago  increased  the  rate 
from  3  to  3i^  per  cent.  To  change  the  3  per  cent  rate  to  3i^  per  cent 
it  is  only  necessary  to  add  }i  to  the  sum  found.  If  the  rate  is  4  per 
cent,  add  ys.  The  form  and  explanation  herewith  inclosed  will  make 
the  matter  plain. 

I  may  add  that  it  is  customary  here  to  allow  interest  on  deposits 
made  up  to  and  including  the  5th  from  the  1st  of  the  month  and  on 
deposits  after  that  date  from  the  first  of  the  following  month.  The 
interest  on  withdrawals  is  forfeited  from  the  date  of  the  oldest  deposits 
covering  the  amounts.  It  will  be  seen  that  the  form  of  ledger  used, 
whether  card,  loose  leaf  or  bound  book,  makes  no  difference. 

((7.  H.  Moll) 

369 


tl 


Bank         American  Business  and  Accounting  Encyclopedia      236-2:37 

(236)       HANDLING    OF    MONEY. 

No  officer  or  employe  handling  the  money  should  be  permitted  to 
make  entries  in  the  ledgers,  general  cash  book,  or  sheets,  or  discount 
or  collection  registers,  and  those  keeping  these  books  should  not  be 
allowed  to  handle  the  cash. 

Outside  Business  Engagements.  Bank  directors  should  exercise 
every  caution  in  permitting  employes  to  be  connected  with  mercantile 
firms  or  corporations,  either  as  partners  or  officers ;  the  division  of  interest, 
with  the  natural  accommodations  required  in  trade,  present  temptations 
too  serious  to  be  ignored.  Bank  officials  are  generally  in  request  for 
trusted  officers  in  their  communities,  such  relations  being  calculated  to 
inure  to  the  advantage  of  their  banks,  but  the  wisdom  of  permitting 
such  combinations  to  exist  should  receive  the  serious  consideration  of 
bank  directors.  Should  circumstances  appear  to  warrant  them,  however, 
it  is  recommended  that  periodical  audits  be  made  with  the  particular 
view  of  preventing  the  application  of  the  funds  of  one  office  to  conceal 
any  possible  defalcation  in  another. 

(237)     PASS  BOOKS,  method  of  handling. 

It  has  puzzled  a  great  many  bank  officers  and  employes  as  to  the 
quickest  and  safest  way  of  handling  pass  books  where  there  are  some 
thousands  of  books  to  be  taken  into  consideration. 

The  writer  is  connected  with  a  company  having  about  fifteen  thou- 
sand accounts  but  this  article  will  apply  to  any  bank,  no  matter  how 
large    or  small  the  number  of  accounts  may  be. 

The    old    way   of    handling   books    was   by   filing   them    alphabetically. 

S'-o"  


C==3 


t:^^ 


370 


237 


American  Business  and  Accounting  Encyclopedia         Bank 


A  customer  would  call  for  his  book  and  although  the  alphabet  was  sub- 
divided there  would  be  something  like  a  hundred  or  more  books  to  be 
looked  over  before  the  right  one  was  found.  This  took  time.  It  took 
more  time  when  it  was  skipped  going  through  the  first  time  and  the 
clerk  had  to  go  through  again. 

To  overcome  this  waste  of  time  it  was  decided  to  file  books  numer- 
icaUy.  A  cabinet  was  ordered  (Illustration  1)  specially  made,  contain- 
ing two  compartments.  Each  compartment  having  eight  drawers,  all 
of  which  have  labels  showing  what  numbers  are  contained  in  them. 
The  drawers  are  twenty  inches  deep  and  are  divided  for  two  rows  of 
books,  numbering  from  left  to  right.  Each  division  of  a  drawer  con- 
tains an  adjustable  (sliding)  holder  so  the  the  books  stand  up  in  place 
whether  the  division  is  full  or  only  half  full. 

To  facilitate  the  handing  out  of  books  we  have  a  slip  containing 
their  account  number  (Illustration  2)  which  we  give  to  the  customers 
when  they  leave  their  books.  It  is  now  simply  a  matter  of  turning  to 
the  cabinet,  getting  the  book  bearing  the  corresponding  number  to  the 
one  on  the  slip  and  handing  it  to  the  customer.  If  the  customer  does 
not  come  in  person,  it  is  a  simple  matter  to  ask  the  party  calling  for  the 
book  what  name  it  should  bear.  This  safeguards  us  against  giving  a 
book  to  one  not  entitled  to  it. 


•mi  A 


vouK    ACCOUNT    NUMBER    vylTH 

THIS    COMPANV     18 


OBTAtNKD   AT    TMC 

BOOKKCCPCR'8    WINDOW 

•OOK  av  U»tNO  TMC  ACCOUNT  NUMBCn 

no* 


tE^run  &  Bepoftt  Co.  of  ^nonbaga 

Present  this  shp  at 

BOOKKEEPER'S  WINDOW 
when  calling  for 

PASS  BOOKS 

Na.._ _ 

No. „ 


ne.a 


371 


Bank 


American  Business  and  Accounting  Encyclopedia      237-339 


'I 


We  also  issue  with  each  new  account  a  card  (Illustration  3)  which 
immediately  starts  the  customer  in  the  right  path.  Experience  has 
taught  us  that  a  great  many  customers  soon  familiarize  themselves  with 
their  account  number  and  simply  step  to  the  book-keeper's  window  and  call 
out  their  number. 

The  difference  between  the  old  and  the  new  system  is  that  we  can 
hand  out  from  five  to  ten  books  under  the  new  while  we  were  handing 
out  only  one  under  the  old. 

(M.  V.  White.)  . 

(238)      POSTING   WORK   DAILY. 

The  work  of  a  bank,  however  few  the  items,  should  be  closed  up  and 
posted  daily.  Some  country  banks  have  a  practice  of  posting  their  ledger 
items  once  or  twice  a  week,  and  entering  up  the  discounted  paper  once  a 
week.  It  is  impossible,  with  such  methods,  to  keep  an  adequately  close 
track  of  the  business. 

(239)       RECONCILIATION  OF  STATEMENTS. 

There  are  several  methods  of  reconciling  accounts  current  with  cor- 
respondents. Inasmuch  as  the  most  important  correspondent  with  the 
majority  of  banks  is  the  New  York  correspondent,  we  will  discuss  the 
reconcilement  of  monthly  balances  with  the  New  York  bank. 

On  the  credit  side  of  the  New  York  draft  register  appears  the  amount 
of  every  draft  drawn  on  the  New  York  bank,  with  a  number  corres- 
ponding to  a  similar  number  on  the  stub  of  the  draft  book.  If  the  draft 
be  incorrectly  drawn,  and  canceled,  its  amount  should  appear  in  sequence, 
and  be  footed  in  the  daily  total  credit  to  New  York.  On  this  side  of  the 
register  also  appears  the  amount  of  any  charge  for  collection  made  by 
New  York,  or  the  amount  of  any  of  the  country  banks'  checks  sent  from 
New  York  for  credit  and  advice,  and  of  currency  sent  from  New  York 
by  express. 

On  the  debit  side  of  the  New  York  draft  register  appears  a  record 
of  all  items  sent  to  New  York  for  credit,  transfers  of  credit  from  other  cor- 
respondent banks,  currency  by  express  to  New  York,  and  the  amount 
of  interest  paid  by  the  New  York  correspondent  on  the  daily  balances  of 
the  country  bank.  On  this  side  also  appears  the  amount  of  what  is  term- 
ed "Returned  Drafts,"  i.  e.,  drafts  issued  to  customers,  but  returned  to 
the  bank  and  cashed,  or  drafts  incorrectly  drawn  and  canceled.  The 
letter  "R"  is  marked  in  the  check  column  after  the  amount  of  each  re- 
turned draft,  the  draft  stamped  "Paid,"  with  the  date  of  payment,  and 
filed  away  until  the  end  of  the  month,  when  the  debit  and  credit  totals 

372 


239 


American  Business  and  Accounting  Encyclopedia         Bank 


of  each  day  are  footed,  and  the  monthly  balance  of  the  draft  register 
brought  down. 

If  all  the  drafts  were  paid  within  a  few  days  of  their  issue,  the 
reconcilement  of  balances  would  be  an  easy  matter,  but  often  drafts  are 
outstanding  for  months,  and  these,  with  the  remittances  in  transit,  make 
many  thousands  of  dollars  difference  between  the  balance  of  the  draft 
register  and  that  shown  on  the  New  York  statement. 

The  checking  of  the  amounts  in  the  draft  register  should  be  care- 
fully done,  the  cashier  calling  the  number  of  each  draft  from  the  state- 
ment, and  the  assistant  calling  back  the  amount  of  the  draft  corresponding 
to  the  number  called,  and  marking  in  red  ink,  in  the  check  column  of 
the  register,  the  number  of  the  month  for  which  the  statement  is  sent. 
After  every  item  of  debit  and  credit  on  the  statement  is  correctly  check- 
ed, the  return  drafts  paid  during  the  month  are  also  checked  on  the 
register  in  the  same  manner,  including  the  letter  "R"  after  the  month 
number. 

On  a  sheet  of  paper,  arranged  as  below,  is  entered  the  number  of  each 
credit  page  of  the  register  having  any  amounts  unchecked  by  red  ink. 
and  opposite  the  page  number,  the  amount  of  the  unpaid  drafts  on  such 
page,  up  to  the  end  of  the  month,  and  the  amount  footed  in  total.  This 
sheet  should  be  preserved  until  the  following  month,  as  it  facilitates 
locating  the  pages  having  unpaid  drafts. 


56 
140 
182 
222 
^23 
229 
230 
231 


232 


$  2.60 
250.00 
500.00 

30.00 
700.00 

16.00 
175.00 

66.50 

14.44 

89.65 
329.67 
275.50 

22.00 

83.34 
650.00 
488.24 

99.90 
491.88 

23.90 
329.57 

27.13 

600.00 

2,339.75 

3,761.86 


Drafts    unpaid    June    1 $11,366.93 

If  the  work  thus  far  has  been  correctly  done,  the  reconcilement  of 
balances  is  comparatively  easy,  as  will  be  seen  from  the  following  exhibit : 


373 


Bank        American  Business  and  Accounting  Encyclopedia  239 

RECONCILEMENT  FOR  MAY. 

DEBITS. 

Total   debit   of  register $118,732.25 

N.  Y.  St.  Dr.  Bal.  May  1st 41,765.04 

Items  sent  in  April,  credited  in  May 2,218.30 

$162,715.59 
V        *!       38,745,13 

$123,970.46 
*2     103,305.15 

N.  Y.  Bal.  June  1 $  20,665.31 

Items  sent  in  May,  not  credited 8,835.22 

Our  Dr.  Bal.  May  1st 29,909.91 

\*  $38,745.13 
CREDITS. 

Total   credits    $118,732.25 

Drafts  unpaid  May  1    14,073.41 

$132,805.66 
♦3       29,.'500.51 

,     *2  $103,305.15 

Drafts  unpaid  June  1 11,368.93 

Our  Dr.  Bal.  June  1st 18.133.58 

♦3       29,50/).51 

After  the  correctness  of  the  New  York  figures  has  been  proved,  the 
statement  with  the  two  forms  above  shown  and  all  drafts  paid  during  the 
month  should  be  filed  in  a  convenient  place  for  reference,  if  necessary,  the 

following  month. 

Another  method  of  reconciling  the  Xew  York  account  is  as  follows: 

We  will  suppose  the  account  current  received  from  New  York  states  the 
balance  due  the  country  bank  as  $7,456.19.  The  balance,  as  shown  by  the 
books  of  the  country  bank  is  $8,208.60.  The  reconcilement  reported  by 
the  country  bank  to  its  Xew  York  correspondent  as  follows: 

"Gentlemen — We  have  received  your  statement  of  account  as  of  the 
close  of  business,  Oct.  31,  1899,  showing  that  there  is  a  balance  due  us 
according  to  your  books  of  $7,456.19. 

We  respectfully  submit  the  following  reconcilement: 

You  state  balance  due  us $7,456.19 

A.     We  charge,  you  do  not  credit: 

Our  letter  Oct.  30 419.67 

Our   letter   Oct.   31 »..      864.17 

Allowing  for  these  items  our  balance  would  be $8,740.03 

374 


239  AmericAxX  Business  and  Accounting  Encyclopedia         Bank 

B.  We  credit,  you  do  not  charge: 

Checks  drawn  by  us  on  you,  and  not  yet  charged 

to    us     267  $45.61 

268  46.72 

274  111.14 
276  24.71  228.18 

Allowing  for  these  items,  our  balance  would  he $8,511.85 

C.  You  charge,  we  do  not  credit: 

Your  letter  to  us,  Oct.  30 $468.17 

Your  letter  to  us,  Oct.  31 214.63  682.80 

Allowing   for   these    items    (credited   by  us   since    Oct. 

31st),  our  balance  would  be    $9,194.65 

D.  You  credit,  we  do  not  charge: 

Oct.   15th.  collection  on   Madison,   Wis.   (when  did  we 

send?)     $67.42 

Oct.   29th,  collection   on    Chicago 918.63  986.05 

Allowing  for  these  items,  our  balance  would  be $8,208.60 

Which  agrees  with  our  books. 

Please  advise  particulars  concerning  item  $67.42  credited  to  us  bv 
you,  Oct.  15th." 

Below  we  give  another  method  based  on  the  same  principles,  the 
same  figures  being  used.  By  using  the  ordinary  blank  book  as  a  recon- 
cilement book,  the  calculations  can  be  transferred  from  month  to  month. 

RECONCILEMENT   BOOK. 

Left-hand   Page. 

We  state  bal.  due  us. $8,208.60 

We  credit,  they  do  not  charge  our  checks  on  them — 

No.    267    45  gj 

No.    268    4g*7o 

No-  274 :.:::::::  umI 

No.    276     24.71 

They  credit,  we  do  not  charge — 

Oct.   15,   Coll.    Madison,   Wis 67  42 

Oct.   29,   Coll.   Chicago 918  6.3 

"^Ot^' $9,422.83 

Right-hand  Page. 

They  state  balance  due  us $7,456  19 

We  charge,  they  do  not  credit — 

Our  letter,  Oct.  30   ^jg  g^ 

Our  letter,  Oct  31    V. ....... ...........  864  17 

They  charge,  we  do  not  credit — 

Their  letter,  Oct.  30 468  17 

Their  letter,  Oct.   31 2U.63 

Total     $9,422.93 

Still  another  method  is  below  illustrated.     It  is  intended  to  use  either 
a  reconciliation  book  or  to  make  a  memorandum  of  same  on  the  journal. 

375 


» 


ii 


Bank 


American  Business  and  Accounting  Encyclopedia        239-242 


' 


Dr. 

New  York  correspondent  account.  Country  Bank — 

To   Bal.  per  ledger    $8,208.60 

Oct.   15,  Coll.   Madison,  Wis 67.42 

To  Oct.  29,  Coll.  Chicago 918.63 

By  letter,  Oct.  30    $    468.17 

By  letter,   Oct.  31    214.63 

By  Bal.  due  country  bank 8,511.85 

$9,194.65     $9,194.65 

Country  Bank  account  New  York  Correspondent — 

Cr. 

By   Bal,  per  ledger $7,456.19 

By   letter   Oct.   30    419.67 

By  letter,  Oct.  31 864.17 

Dr. 

To  checks  (not  in)   No.  267  $     45.61 

No.  268    46.72 

No.  274   111.14 

No.  276 24.71 

To  Bal.  due  Country  Bank 8,511.85 

$8,740.03     $8,740.03 


243 


American  Business  and  Accounting  Encyclopedia 


Bank 


(240)     rediscounts. 

Many  country  banks  fail  to  keep  a  rediscount  account.  This  is  an 
unsatisfactory  and  unsafe  practice,  as  the  books  of  such  a  bank  do  not 
show  the  true  condition,  and,  under  such  circumstances,  there  is  an  oppor- 
tunity for  manipulation  of  paper  which  should  not  exist. 

(241)  SECURITIES,    access    TO. 

Quite  a  large  number  of  banks  carry  heavy  investments  in  stocks, 
bonds,  mortgages,  etc.,  also  large  amounts  as  collateral  for  loans.  These 
should  be  kept  securely,  and  a  proper  record  made  in  a  register  prepared 
for  that  purpose,  which  should  be  kept  by  a  clerk,  and  the  entries  made 
from  vouchers  accompanying  the  securities.  The  voucher  for  the  with- 
drawal of  securities  should  be  in  the  form  of  a  receipt.  The  officer  with- 
drawing the  securities  should  be  permitted  to  do  so  only  in  the  presence 
of  a  second  party  designated  by  the  board. 

(242)  SPECIAL    EXAMINATIONS.. 

Of  the  various  methods  employed  by  banks  to  circumvent  fraud- 
ulent   actions,    none    have    given     better     results     than     special     exam- 

376 


inations.  Sometimes  these  are  carried  on  by  a  part  of  the  force 
of  the  bank,  but,  all  things  considered,  it  will  generally  be  found 
wiser  to  employ  an  outside  party  as  being  more  apt  to  be  free  from  the 
element  of  partiality  or  influence.  Frauds  can  hardly  continue  long  where 
a  careful  special  examination  is  made  annually  or  semi-annually,  or  by 
departments  monthly.  It  is  also  a  satisfaction  to  stockholders  to  have 
complete  reports  from  the  examinations  of  an  outside  and  independent 
auditor. 

(243)       STOCK    TRANSFERS. 

One  of  the  most  important  sections  of  the  records  of  a  bank  is  the 
keeping  a  careful  record  of  all  the  transfers  of  the  bank's  stock.  While 
the  care  of  the  stock  books  and  the  issuing  and  transferring  of  stock  is 
generally  one  of  the  duties  of  the  cashier,  yet  it  sometimes  happens  that 
the  general  ledger  book-keeper  or  some  clerk  is  delegated  to  make  the 
proper  records.  Whether  this  is  so  or  not,  a  familiarity  with  the  methods 
adopted  will  be  advantageous,  as  no  doubt  every  bank  clerk  has  an  ambi- 
tion to  be  a  bank  cashier  some  day. 

A  full   description  was   given   of  the   methods   of  issuing  stock  and 
the  proper  records  to  be  kept.    As  the  stock  certificates  frequently  change 
hands   from  various  causes — sale,  death,  changing  of  name   (in  case  of 
women),  etc. — it  becomes  necessary  to  keep  a  careful  and  concise  record 
of  these  changes.     The  proper  book  in  which  to  keep  these  records  is 
called  a  "Stock  Transfer  Book,"  a  diagram  of  which,  showing  the  method 
of  keeping  it  we  here  give.     The  left-hand  columns  show  the  history  of 
the  issuing  of  the  stock,  and  the  right-hand  columns  the  transfers.     The 
items  are  posted  into  the  transfer  book  from  the  stubs  of  the  certificate 
book.     The  diagram  shows  the  original  stock,  issued  January  2,  1895,  to 
be  200  shares.     The  transfer  shows  that  Geo.  I.   Brown  transferred  25 
shares  of  his  stock  to  E.  J.  Brooks,  retaining  25  for  himself,  and  that 
Samuel  Jones  transferred  20  shares  to  S.  B.  Brewer,  keeping  30  shares 
for  himself,   and   that   Robt.    Smith   disposed  of  all   his   stock   to  James 
Peebles.    Also  that  later  on  S.  B.  Brewer  disposed  of  10  shares  of  stock  to 
Joseph   Samson  and  retained   10  for  himself.     To  learn   the  amount  of 
stock  on  hand,  foot  the  columns  of  transfers  and  deduct  their  combined  sum 
from  the  total  of  all  the  issues,  the  difference  will  give  the  stock  on  hand, 
and  this  should  agree  with  the  capital  stock  account  on  the  general  ledger. 
To  obtain  a  list  of  the  existing  stockholders,  it  is  only  necessary  to  take 
from  the  transfer  book  those  names  against  which  there  appear  no  trans- 
fers.   This  can  be  proved  by  the  outstanding  certificates,  as  shown  by  the 
certificate  book. 

377 


Bank         American  Business  and  Accounting  Encyclopedia 


243 


Whenever  it  becomes  necessary  to  transfer  a  portion  of  a  stock- 
holder's stock,  the  old  certificate  should  always  be  taken  up  and  canceled 
and  two  new  certificates  issued,  one  representing  the  stock  transferred 
and  the  other  the  balance  of  the  stock  still  retained  by  the  stockholder. 

We  mention  this  particularly,  as  we  have  seen  transiers  made  by 
simply  noting  the  same  upon  the  back  of  the  old  certificate,  issuing  simply 
a  new  certificate  for  the  stock  transferred.  Such  a  proceeding  is  exceed- 
ingly irregular,  and  is  liable  to  give  trouble. 

There  are  many  conditions  regarding  the  transfers  of  stock  that  it 
may  be  well  to  consider. 

No  transfers  are  considered  legal  except  they  be  made  upon  the  books 
of  the  bank,  and  such  transfers  should  not  be  made  except  upon  presen- 
tation of  the  old  certificate.  In  case  the  old  certificate  is  lost,  a  duplicate 
may  be  issued,  but  the  certificate-holder  should  furnish  a  bond  of  indem- 
nity to  the  bank  for  double  the  amount  of  the  certificate  lost. 

If  a  certificate  is  presented  for  cancellation  and  transfer,  the  party 
presenting  should  be  well  known  to  the  bank  officer;  otherwise,  should 
always  be  identified.  The  mere  fact  of  being  the  holder  of  a  certificate 
should  not  be  sufficient  evidence  to  entitle  to  transfer. 

Where  transfers  are  made  through  a  power  of  attorney,  great  care 
should  be  exercised  against  the  possibility  of  forgery. 

If  transfers  are  made  by  a  trustee  or  executor,  they  should  be  obliged 
to  present  their  authority  for  acting  in  that  capacity.  Certificates  made 
to  trustees  or  executors  should  always  state  for  whom  or  whose  estate 
the  party  acts,  and  no  signature  of  a  trustee  or  executor  should  be  con- 
sidered valid  unless  stating  for  whom. 

A  transfer  made  by  a  married  woman  of  stock  issued  to  her  before 
her  marriage  should  always  be  signed  by  her  in  her  married  name,  with 
the  addition  of  her  maiden  name,  as  appearing  in  the  body  of  the  certi- 
ficate, thus:    "Mrs.  Jane  Smith  Jones,  formerly  Miss  Jane  Smith." 

Executors  or  administrators  of  estates  sometimes  hold  in  their  hands 
shares  of  stock  of  the  deceased  person,  and  feeling  that  the  bank  is  safe, 
and  having  no  difficulty  in  collecting  the  dividends,  they  carelessly  neglect 
to  have  the  stock  properly  transferred  to  themselves  as  executors  or 
administrators.  The  most  troublesome  complicationes  have  sometimes 
arisen  by  this  course,  in  consequence  of  the  death  of  the  administrator, 
for  instance,  or  any  serious  change  in  the  organization  of  the  bank,  and  the 
bank  officers  should  use  every  means  to  have  the  proper  transfer  made  as 
early  as  possible. 

In  case  a  transfer  is  requested  by  the  officer  of  another^corporation, 
not  personally  known  to  the  bank,  and  especially  if  it  comes  through 

378 


?43-24()       American  Business  and  Accounting  Encyclopedia  Bank 

another  party  holding  a  power  of  attorney,  the  safest  plan  is  to  obtain 
from  the  corporation  a  copy  of  the  vote  or  resolution  of  the  board  of 
directors  of  such  corporation,  showing  the  authority  of  the  officer  to 
make  the  transfer,  with  the  seal  of  the  corporation  attached. 

In  cases  of  transfers,  the  old  certificates  should  always  be  marked  or 
stamped  across  the  face,  "Canceled  and  Transferred,"  giving  the  date  and 
the  number  or  numbers  to  which  transferred. 

(244)       VACATIONS. 

The  officers  and  employes  of  a  bank  should  be  required  to  take  a 
vacation  every  year.  The  employment  of  a  substitute  to  fill  the  vacancy 
will  be  found  advantageous  and  may  be  the  means  of  discovering  irregular- 
ities, if  any  should  exist. 

(245)     liability  register. 

One  of  the  most  efficient  and  convenient  methods  of  main- 
taining a  complete  record  of  the  individual  liability  to  the  bank  of  each 
customer  is  by  use  of  the  card  index.  To  intelligently  handle  the  ques- 
tion of  loans,  the  loan  committee  or  the  officer  who  happens  to  be  respon- 
sible for  loans,  should  have  complete  information  as  to  the  existing  lia- 
bility of  each  applicant.  Not  only  should  this  information  be  complete 
as  to  his  liability  as  "principal"  but  as  an  indorser  as  well. 

To  maintain  a  record  that  will  instantly  give  this  information  in  books 
is  out  of  the  question,  since  the  record  is  subject  to  frequent  changes. 


] 

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The  record  should  be  on  the  unit  plan,  i.  e.,  an  individual  record  for  each 
customer,  and  the  card  index  furnishes  an  easy  means  of  accomplishing 
this.  We  illustrate  a  form  which  shows  the  customers'  liability  both  as 
principal  and  indorser.    The  cards  should  be  filed  alphabetically. 

(246)     insurance  expirations. 

It  is  safe  to  say  that  every  bank  which  loans  money  on  real  estate, 

379 


Bank         American  Business  and  Accounting  Encyclopedia      245-246 

or  accepts  real  estate  mortgages  as  collateral  security  for  loans, 
has  an  insurable  interest  in  the  property  covered  by  the  mortgage.  Us- 
ually the  fire  insurance  is  either  assigned  or  made  payable  directly  to  the 
bank.  While  it  may  be  assumed  that  the  interest  of  the  agent  will  insure 
his  bringing  the  matter  to  the  notice  of  the  insured  at  the  proper  time, 
it  is  a  wise  provision  on  the  part  of  the  bank  to  maintain  its  own  record  of 
fire  insurance  expirations. 


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The  illustration  shows  a  convenient  form  of  card  for  this  record. 
This  form  gives  the  No.  and  amount  of  loan,  name  of  borrower,  names 
of  insurance  companies,  amounts  of  policies  and  dates  of  expiration.  Be- 
low is  a  record  of  the  location  of  the  property  with  its  assessed  valuation. 

It  will  be  noted  that  the  card  bears  a  tab,  or  projection,  on  which  is 
printed  January.  This  represents  the  month  of  expiration  and  in  making 
records  of  expirations  in  that  month  only  cards  bearing  the  January  tabs 
will  be  used.  This  permits  of  the  filing  of  the  cards  in  alphabetical  order, 
and  at  the  same  time  brings  all  expirations  to  notice  on  the  first  of  the 
month. 

(247)     monthly  balances. 

For  the  same  reason  as  a  manufacturing  or  commercial  house 
finds  a  list  of  customers  showing  the  business  transacted  with  each,  of 
great  value,  a  bank  finds  use  for  its  customers'  list.  But  unlike  a  com- 
mercial house,  the  bank  does  not  find  it  necessary  in  estimating  the  worth 
of  the  customer  to  the  institution,  to  have  a  record  of  his  entire  purchases. 
With  the  bank,  the  purpose  is  served  by  a  record  that  shows  the  average 
business  of  the  customer. 

A  record  of  monthly  balances  tells  the  story  of  the  customer's  tran- 
sactions in  a  graphic  manner.    Not  the  amount  of  money  deposited  and 


380 


247-248      American  Business  and  Accounting  Encyclopedia         Bank 

withdrawn,  but  the  amount  left  on  deposit,  determines  the  value  of  his 
account.  Here  again  the  card  index  can  be  used  to  good  advantage.  True, 
such  records  were  formerly  kept  in  bound  books  but  that  meant  more  or 
less  frequent  transfers  and  a  search  through  much  obsolete  matter  to  find 
records  of  value.  With  the  card  index  a  card  is  used  for  each  customer, 
and  the  cards  are  filed  alphabetically. 


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(248)     prospective  customers. 

In  these  advanced  and  progressive  days  when  it  is  no  longer  consid- 
ered either  a  crime  or  a  violation  of  professional  ethics  for  the  banker  to 
advertise,  much  attention  is  given  to  the  question  of  increasing  the  busi- 
ness through  newspaper  advertising  and  direct  solicitation.  The  bank 
which  does  not  advertise  is  now  the  exception  and  with  the  realization 
of  the  necessity  of  taking  advantage  of  every  means  to  increase  business, 
has  come  a  marked  improvement  in  methods.  As  the  advertising  man 
would  say,  the  banks  are  beginning  to  give  reasons  why  a  man  should 
patronize   them. 

Banks  that  advertise  make  a  special  bid  for  small  accounts,  and  it 
is  this  class  of  accounts  which  are  most  likely  to  be  secured  through  adver- 
tising in  its  various  forms.  And  the  bank  that  closely  follows  every 
opportunity  to  secure  these  small  accounts,  is  the  one  that  make  a  success 
of  its  advertising  campaign. 

At  least  one  bank  has  found  it  profitable  to  solicit  in  a  systematic 
manner,  the  accounts  of  men  and  women  in  the  various  trades  and  pro- 
fessions. This  bank  uses  a  card  like  the  illustration  for  each  prospective 
customer,  using  the  cards  in  the  same  manner  that  any  commercial  house 
operates  a  follow-up  system.    The  feature  of  special  interest  in  this  sys- 

381 


Bank-Be  American  Business  and  Accounting  Encyclopedia      248-251 

tem  is  the  use  of  cards  of  different  colors  for  each  line  of  business.    Among 
the  lines  solicited  are  attorneys,  doctors,  teachers,  mechanics,  architects, 


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dentists,  clerks,  small  retailers,  and  women,  each  distinguished  by  the 
color  of  the  card.  By  systematically  going  after  the  accounts  of  people 
in  each  line  this  bank  has  largely  increased  its  number  of  small  accounts, 
and  a  certain  per  cent  of  these  are  destined  to  grow  into  accounts  of  much 
greater  magnitude. 

(249)     BEAR. 

(Stock  Exchange.)  An  attempt  to  depreciate  the  market  price  of  a 
stock  or  commodity  of  fluctuating  value  by  flooding  it  with  large  quantities. 

(250)     BEARER. 

When  a  check  is  made  payable  to  bearer  it  entitles  the  holder  to  pay- 
ment on  presentation  without  identification  or  indorsement 

(251)     BENEVOLENT   SOCIETIES. 

Societies  established  for  the  aid  of  the  needy  or  suffering  and  whose 
maintenance  is  usually  provided  for  by  donations,  subscriptions  and  leg- 
acies. 

The  accounting  for  such  societies  should  consist  in  keeping  a  record 
of  cash  received  from  donations,  subscriptions,  legacies,  interest  on  invest- 
ments, etc.  A  form  of  statement  to  be  furnished  to  the  patrons  and  mem- 
bers of  the  society  should  be  on  the  following  lines: 


251-255      AxMERicAN  Business  and  Accouxtixg  Encvclopedia 

INCOME  AXD  EXPENDITURE  ACCOUNT. 


Be-Bi 


Dr. 

To  Housekeeping. 

Clothing  and  General  Expenses. 
Salaries  and  Wages. 
Rates,  Taxes  and  Insurance. 
Gas  Lighting  and  Coals. 
Medical  Officer  and   Chaplain. 
Printing,   Stationery  .nnd  Advertising. 
Cash  expended  in   Charity 
Balance,  being  in   excess  of  income 
over  Expenditure  to  date. 


Cr. 

By  Balance  from  last  year's  account. 
Subscriptions  and  Donations. 
"  Interest  on  Investments, 


CAPITAL  ACCOUNT. 


Dr. 


To  balance  carried  forward  to  next 
year's  account. 


Cr. 


By  Balance  from  last  year's  account. 
"    Legacies. 


BALANCE  SHEET 


LIABILITIES. 

To  Capital  Account. 
"    Revenue   Account. 


ASSETS. 

Investment   on    Capital   Account. 
Consols. 
Freehold  Buildings. 
Cash  at  Bankers: 
On  Capital  Account. 
"    Revenue  Account. 

(252)     BETTERMENTS  AND  ADDITIONS. 

A  technical  term  used  to  define  the  actual  value  of  repairs  made 
over  and  above  that  which  is  necessary  to  keep  a  fixed  asset 
at  its  present  value;  also  used  to  define  the  cost  of  such  additions  as 
increase  the  value  of  an  asset.  When  such  betterments  are  made  in 
connection  with  buildings,  machinery  and  plant,  their  value  in  the  balance 
sheet  as  an  asset  is  frequently  fictitious  and  represents  expenditures  for 
which  no  return  can  ever  be  expected. 

(253)     BILL. 

A  record  of  goods  purchased;  service  rendered  or  work  done, 
showing  price  and  total  cost  for  the  information  of  the  purchaser  or  client 
A  sales  ticket.    An  invoice.     (See  Account.) 

(254)     BILL  BOOK. 

A  record  book  in  which  are  entered  full  particulars  of  notes  receivable 
and  notes  payable.     See  bills  receivable  book  and  bills  payable  book. 

(255)     BILL  CLERK. 

The  clerk  who  makes  out  the  bills  or  invoices. 

A  bill  clerk  is  quite  an  important  official  in  large  mercantile  houses, 
is  well  paid  and  must  be  very  expert  at  extensions,  being  able  to  make 


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them  mentally  as  the  goods  are  called  to  him.  This  efficiency  can  only 
be  obtained  by  long  experience  and  close  application. 

In  many  wholesale  establishments  these  bills  are  made  out  at  the 
dictation  of  a  clerk  who  assembles  the  goods  for  each  customer  and  dic- 
tates to  the  bill  clerk  the  quantities  and  prices  of  goods  sold.  The  bill 
clerk  extends  the  amounts  in  duplicate.  The  latter  is  sent  to  the  office 
and  posting  to  the  customer's  account  is  made  therefrom. 

It  is  appropriate  at  this  point  to  explain  and  illustrate  the  following 
excellent  method  of  proving  the  postings  from  these  duplicate  invoices. 

As  each  posting  is  made  the  book-keeper  places  a  "marker"  opposite 
the  account.  * 

When  all  postings  have  been  made,  the  book-keeper  turns  to  the  first 
affected  account  in  the  ledger  as  shown  by  the  marker  and  extends  in  the 
balance  column  the  balance  of  the  account. 

All  of  3-esterday's  bi^lances  are  then  listed  and  added  on  an  adding 
machine  and  also  today's  balances,  a  machine  with  a  wide  carriage  being 
used.  Should  yesterday's  balance  show  a  credit  instead  of  a  debit  balance, 
the  amount  is  listed  and  added  with  today's  balances.  A  credit  on  today's 
balance  is  added  to  yesterday's  balances. 

The  sales  for  the  day  are  then  listed  and  added  on  the  machine 
in  the  "debit  postings"  column,  then  the  credit  postings  in  another  column. 
The  credit  postings  include  credit  memorandums  and  cash  items.  The 
difference  between  the  total  of  yesterday's  balance  and  the  total  of  today's 
balances  should  be  in  direct  balance  with  the  difference  between  the  total 
of  the  credit  and  debit  postings.    If  not,  there  is  an  error  in  the  work. 

(256)     BILL  OF  CREDIT. 

(In  Mercantile  Law.)  A  letter  sent  by  an  agent  or  other  person 
to  a  merchant  desiring  him  to  give  credit  to  the  bearer  for  goods  or  money. 

(257)  BILLS  DISCOUNTED. 

An  account  carried  to  show  the  amounts  of  bills  receivable  deposited 
with  the  bank  for  discount.  A  column  is  usually  provided  in  the  Bills 
Receivable  Register  to  record  transactions  of  this  nature. 

(258)  BILL  OF  EXCHANGE. 

A  written  order  from  one  person  to  another,  directing  the  person  to 
whom  it  is  addressed  to  pay  to  a  third  person  a  certain  siyn  of  money 
therein  named. 

An  open  (unsealed)  letter  addressed  by  one  person  to  another  direct- 

• 

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ing  him,  in  effect,  to  pay,  absolutely  and  at  all  events,  a  certain  sum  of 
money  therein  named,  to  a  third  person,  or  to  any  other  to  whom  that 
third  person  may  order  it  to  be  paid,  or  it  may  be  payable  to  bearer  or  to 
the  drawer  himself. 

A  bill  of  exchange  may  be  negotiable  or  non-negotiable.  If  negotiable 
it  may  be  transferred  either  before  or  after  acceptance. 

The  person  making  the  bill,  called  the  drawer,  is  said  to  draw  upon 
the  person  to  whom  it  is  directed,  and  undertakes  impliedly  to  pay  the 
amount  with  certain  costs  if  he  refuses  to  comply  with  the  command. 
The  drawee  is  not  liable  on  the  bill  till  after  acceptance,  and  then  becomes 
liable  as  principal  to  the  extent  of  the  terms  of  the  acceptance ;  while  the 
drawer  is  liable  to  the  payee  and  indorsees  conditionally  upon  the  failure 
of  the  acceptor  to  pay.  The  liabilities  as  between  indorsers  and  indorsees 
are  subject  to  the  same  rules  as  those  of  indorsers  and  indorsees  on  prom- 
issory notes. 

A  foreign  bill  of  exchange  is  one  of  which  the  drawer  and  drawee 
are  residents  of  countries  foreign  to  each  other.  In  this  respect  the  states 
of  the  United  States  are  foreign  to  each  other. 

An  inland  bill  of  exchange  is  one  of  which  the  drawer  and  drawee 
are  residents  of  the  same  state  or  country. 

The  distinction  between  foreign  and  inland  bills  of  exchange  becomes 
important  with  reference  to  the  question  whether  protest  and  notice  are 
to  be  given  in  case  of  non-acceptance. 

The  bill  must  be  written.  It  should  be  properly  dated  both  as  to 
place  and  time  of  making,  but  this  is  not  essential  to  the  validity  of  the 
bill ;  if  not  dated  it  will  be  considered  as  dated  at  the  time  it  was  made. 
Bills  are  sometimes  ante  or  post-dated  for  convenience. 

The  subscription  of  the  sum  for  which  the  bill  is  payable  will  aid  an 
omission  in  the  bill,  but  it  is  not  indispensable. 

The  time  of  payment  should  be  expressed,  but  if  no  time  is  mentioned 
it  is  considered  as  payable  on  demand. 

The  place  of  payment  may  be  prescribed  by  the  drawer,  or  by  the 
acceptor  on  his  acceptance,  but  is  not  generally  done,  in  which  case  the 
bill  is  considered  as  payable  and  to  be  presented  at  the  usual  place  of 
business  of  the  drawee,  at  his  residence  where  it  was  made,  or  to  him 
personally  anywhere. 

Such  an  order  or  request  to  pay  must  be  made  as  demands  a  right, 
and  not  as  asking  a  favor,  and  it  must  be  absolute  and  not  contingent, 
but  mere  civility  in  the  terms  does  not  alter  the  legal  effect  of  the  instru- 
ment.   It  must  contain  wordj  requiring  payment. 

To  make  a  bill  negotiable  it  must  be  payable  to  the  order  of  the 

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payee  oi  to  bearer,  or  must  contain  words  of  negotiability.  But  nego- 
tiability is  not  essential  to  the  validity  of  a  bill. 

The  sum  for  which  the  bill  is  drawn  should  be  written  in  full  in  the 
body  of  the  instrument,  as  the  words  in  the  body  govern  in  case  of  doubt. 
And  the  amount  must  be  fixed  and  certain  and  not  contingent,  and  it  must 
be  payable  in  money  and  not  in  merchandise ;  and  is  not  negotiable  if  pay- 
able in  "bank  hills"  or  in  "currency,"  or  other  substitutes  for  legal  money 

of  similar  denominations.  It  is  not  necessary,  however,  that  the  money- 
should  be  current  in  the  p!:xe  of  payment,  or  where  the  bill  is  drown,  it 
may  be  ir  the  money  c-f  any  country  whatever. 

"Value  Received"  is  of  no  use  in  a  negotiable  bill. 

The  bill  should  be  subscribed  by  the  drawer,  though  it  is  sufficient  if 
his  name  appears  in  the  body  of  the  instrument ;  and  should  be  addressed 
to  the  drawee  by  the  christian  name  and  surname,  or  by  the  full  style 
of  the  firm. 

The  parties  to  a  bill  are  the  drawer,  the  drawee,  the  acceptor  and  the 
payee.  Other  persons  connected  with  a  bill  in  case  of  a  transfer  are  the 
indorser,  indorsee  and  holder.  All  the  various  parties  need  not  be  different 
persons.  It  sometimes  happens  that  one  or  more  of  the  apparent  parties 
to  a  bill  are  fictitious  persons.  The  rights  of  a  bona  fide  holder  are  not 
thereby  prejudiced,  even  when  the  payee  and  indorser  are  fictitious  or 
even  where  the  drawer  and  payee  are  both  fictitious. 

(259)     BILL  OF  LADING. 

"The  written  evidence  of  a  contract  for  the  carriage  of  and  delivery  of 
goods  sent  by  sea." 

"A  written  acknowledgment  of  the  receipt  of  certain  goods  and  an 
agreement  for  a  consideration  to  transport  and  to  deliver  the  same  at  a 
specified  place  to  a  person  therein  named  or  his  order." 

"A  memorandum  or  acknowledgment  in  writing,  signed  by  the  master 
or  captain  of  a  ship  or  other  vessel,  that  he  has  received,  in  good  order, 
on  board  of  his  ship  or  vessel,  therein  named,  at  the  place  therein  men- 
tioned, certain  goods  therein  specified,  which  he  promises  to  deliver  in 
like  good  condition  (the  dangers  of  the  sea  excepted)  at  the  place  therein 
appointed  for  the  delivery  of  the  same,  to  the  consignee  therein  named, 
or  to  his  assigns,  he  or  they  paying  freight  for  the  same,"  or  a  similar 
acknowledgment  made  by  a  carrier  by  land. 

A  through  bill  of  lading  made  by  a  carrier  by  land  is  one  where  the 
carrier  contracts  to  transport  over  its  own  line  for  a  certain  distance  certain 
merchandise  or  stock,  there  to  deliver  the  same  to  its  connecting  lines  to 
be  transported  to  the  place  of  destination  at  a  fixed  rate  for  the  whole 
distance. 

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A  bill  of  lading  should  contain  the  name  of  the  shipper  or  consignor, 
the  name  of  the  consignee,  the  names  of  the  vessel  and  her  master,  the 
places  of  shipment  and  destination,  the  price  of  the  freight,  and,  in  the 
margin,  the  marks  and  numbers  of  the  things  shipped. 

Though  it  is  not  necessary  that  the  shipper  should  sign  the  bill  of 
lading,  yet  if  the  terms  of  the  bill  restrict  the  carrier's  common  law  liability, 
his  assent  thereto  must  be  shown.  This  assent  need  not  be  express ;  it  is 
sufficiently  indicated  by  an  acceptance  of  the  bill  of  lading  containing  the 
restrictions. 

A  bill  of  lading  is  usually  made  in  three  or  more  original  parts,  one  of 
which  is  sent  to  the  consignee  with  the  goods,  one  or  more  invoices  are 
sent  to  him  by  other  conveyances,  one  is  retained  by  the  merchant  or 
shipper,  and  one  should  be  retained  by  the  master.  Where  one  is  marked 
"original"  and  the  others  "duplicate,"  "triplicate,"  etc.,  they  are  all  in 
effect  originals. 

Where  a  bill  of  lading  is  given,  and  accepted  without  objection,  it  is 
the  real  contract  by  which  the  mutual  obligations  of  the  parties  are  to  be 
governed  and  not  any  prior  agreement. 

Exceptions  in  a  bill  of  lading  are  to  be  construed  most  strongly 
against  the  carrier. 

(260)     BILLING  IMPROVEMENTS. 

A  positive  double  check!  Every  time  you  introduce  one  into  your 
business  methods,  you  stop  leaks.  Leaks  in  shipping  departments  are 
particularly  expensive— they  occasion  loss  of  goods,  unnecessary  corre- 
spondence, and  sometimes  friction  between  the  house  and  customer. 

Shortages  especially  are  bad — rather  than  offend  the  customer,  con- 
cessions are  often  made  to  cover  shortages  claimed,  unless,  of  course,  the 
customer  gets  the  "shortage  habit." 

You  hear  of  all  the  "shortages,"  occasionally  of  the  "overs." 

There's  the  rub. 

If  when  packing  goods  the  shipping  clerk  checks  the  quantity  figures 
as  put  down  by  the  order  clerk,  it  is  one  form  of  a  check,  but  not  a  posi- 
tive one. 

Before  describing  the  positive  check,  which  is  one  only  of  the  several 
good  features  thereinafter  shown,  it  may  be  well  to  explain  how  "Cut- 
Corner"  work  is  made  possible. 

Most  "Cut-Corner"  work  is  affected  by  manifolding  several  different 
kind  of  records  (of  even  or  varying  sizes  of  sheets)  at  one  operation. 

The  flat  writing  surface  of  the  billing  machine  permits  the  execution 
of  two  sets  of  sheets  of  even  or  varying  sizes,  each  set  held  independently — 
manifolding  clear  cut,  no  smudging,  registration  absolute. 

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These  facts  have  enabled  the  devising  accountant  to  produce  surpris- 
ing results,  to  perfect  new  ideas  and  to  accomplish  the  revolution  in  meth- 
ods, which  began  with  the  introduction  of  the  flat  bed  billing  machine. 

The  reader  can  comprehend  how  a  large  sheet  17x14  can  be  placed  on 
the  writing  surface  of  the  billing  machine  and  firmly  held  either  on  the 
right  or  left  side  of  same. 

With  a  "Sliding  Bill  Holder"  device  running  parallel  with  the  left  side 
of  the  writing  surface,  an  invoice  (or  a  dozen,  if  necessary),  can  be  held 
in  proper  registration  with  the  large  sheet,  upon  which  is  manifolded  a 
continuous  record  of  all  the  invoices  charged— mind  you,  when  the  bill 
is  made,  the  charge  is  manifolded  on  the  large  sheet— the  sales  sheet. 

This  is  a  safer  plan  than  making  an  invoice  and  then  taking  a  chance 
of  the  office  boy  occasionally  losing  one  before  it  is  copied  in  book,  by 
means  of  a  letter  press— but  no  need  of  dwelling  upon  an  unsafe  way. 

The  forms  of  the  Winsted  Silk  Co.,  illustrated  herein,  are  numbered 
for  identification  purposes,  as  follows : 

1.  Invoice. 

2.  BHnd. 

3.  Shippers'  ticket. 

4.  Express  label. 

5.  Express  receipt. 

All  of  these  sheets  are  gummed  on  the  left  edge,  to  facilitate  handling, 
as  they  are  all  held  on  the  sliding  bill  holder  at  once  in  connection  with 

6.  The  sales  sheet, 

which  is  independently  held  on  the  machine.    They  are  described  as  fol- 
lows, viz.: 

Invoice — ^The  invoice  is  the  top  sheet. 

Blind— This  is  a  narrow  strip  of  paper  under  the  invoice  at  the  left 
edge  of  forms,  just  wide  enough  to  prevent  "quantities"  from  manifolding 
on  to  the  shipper's  ticket. 

Shipper's  Ticket— As  long  as  the  invoice,  and  enough  narrower  to 
prevent  prices  from  manifolding  thereon. 

Express  Label— As  wide  as  the  invoice,  but  as  long  as  the  heading 
only. 

Express  Receipt— Same  dimensions  as  the  express  label,  but  with  dif- 
ferent printed  matter  thereon. 

The  above  sheets  are  placed  on,  and  held  by  sliding  bill  holder  and 
instantly  brought  to  proper  position  on  sales  sheet  (under  charge  pre- 
ceding). 

The  bill  clerk  then  transcribes  the  goods  on  order  to  be  charged,  with 
billing  machine. 

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These  facts  have  enabled  the  devising  accountant  to  produce  surpris- 
ing results,  to  perfect  new  ideas  and  to  accomplish  the  revolution  in  meth- 
ods, which  began  with  the  introduction  of  the  flat  bed  billing  machine. 

The  reader  can  comprehend  how  a  large  sheet  17x14  can  be  placed  on 
the  writing  surface  of  th£  billing  machine  and  firmly  held  either  on  the 
right  or  left  side  of  same. 

With  a  "Sliding  Bill  Holder"  device  running  parallel  with  the  left  side 
of  the  writing  surface,  an  invoice  (or  a  dozen,  if  necessary),  can  be  held 
in  proper  registration  with  the  large  sheet,  upon  which  is  manifolded  a 
continuous  record  of  all  the  invoices  charged— mind  you,  when  the  bill 
is  made,  the  charge  is  manifolded  on  the  large  sheet— the  sales  sheet. 

This  is  a  safer  plan  than  making  an  invoice  and  then  taking  a  chance 
of  the  office  boy  occasionally  losing  one  before  it  is  copied  in  book,  by 
means  of  a  letter  press— but  no  need  of  dwelling  upon  an  unsafe  way. 

The  forms  of  the  Winsted  Silk  Co.,  illustrated  herein,  are  numbered 
for  identification  purposes,  as  follows: 

1.  Invoice. 

2.  Blind. 

3.  Shippers'  ticket. 

4.  Express  label. 

5.  Express  receipt. 

All  of  these  sheets  are  gummed  on  the  left  edge,  to  facilitate  handling, 
as  they  are  all  held  on  the  sliding  bill  holder  at  once  in  connection  with 

6.  The  sales  sheet, 

which  is  independently  held  on  the  machine.    They  are  described  as  fol- 
lows, viz.: 

Invoice — The  invoice  is  the  top  sheet. 

Blind— This  is  a  narrow  strip  of  paper  under  the  invoice  at  the  left 
edge  of  forms,  just  wide  enough  to  prevent  "quantities"  from  manifolding 
on  to  the  shipper's  ticket. 

Shipper's  Ticket— As  long  as  the  invoice,  and  enough  narrower  to 
prevent  prices  from  manifolding  thereon. 

Express  Label— As  wide  as  the  invoice,  but  as  long  as  the  heading 
only. 

Express  Receipt— Same  dimensions  as  the  express  label,  but  with  dif- 
ferent printed  matter  thereon. 

The  above  sheets  are  placed  on,  and  held  by  sliding  bill  holder  and 
instantly  brought  to  proper  position  on  sales  sheet  (under  charge  pre- 
ceding). 

The  bill  clerk  then  transcribes  the  goods  on  order  to  be  charged,  with 
billing  machine. 

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All  typewritten  matter  on  invoice  is  manifolded  on  to  the  large  sales 
sheet ;  the  various  sheets  are  then  ready  to  be  distributed : 

Invoice — To  be  mailed  or  packed  with  goods  in  a  sealed  envelope. 

Blind — On  this  narrow  strip  is  manifolded  the  quantities  of  each  item 
charged  on  invoice.  It  has  prevented  this  information  from  manifolding 
and  appearing  on  the  shipper's  ticket  directly  underneath.  It  is  of  no 
further  use  and  is  destroyed. 

Shipper's  Ticket— Here's  the  "Positive  Check."  This  ticket  shows, 
with  the  exception  of  quantities  and  prices,  all  typewritten  matter  on  the 
invoice. 

* 

The  packer  (who  acts  as  shipper)  sees  to  whom  the  goods  go — the 
kind  of  goods — but  the  quantity  column  is  blank. 

That  necessitates  the  packer  counting  the  quantity  of  each  item  of 
each  order,  and  marking  his  count  down  in  pencil  on  the  slip. 

He  can't  guess  somebody  else*s  count  is  right.  It  is  up  to  him — ^where 
it  ought  to  be. 

The  packer  (shipper)  returns  all  his  shipper's  tickets  with  his  quantity 
figures  thereon,  to  the  office,  and  they  are  then  compared  by  a  third  party 
with  the  quantities  shown  on  the  large  sales  sheet  to  prove  the  count. 

Express  Label — All  ready  to  be  pasted  on  the  package.  If  the  goods 
are  charged  for  Danville.  111.,  the  packer  (shipper)  has  no  opportunity  of 
sending  it  to  Danville,  Ind.,  because  the  label  is  made  simultaneousy  with 
the  invoice. 

Express  Receipt — ^The  term  is  self-explanatorj'. 

Sales  Sheet — This  sheet  stays  in  the  billing  machine  until  the  page 
(both  sides  are  used)  is  full.  It  is  then  properly  filed  in  locked  binder. 
The  billing  machine  operator  can  tabulate  the  classification  of  sales  with 
the  machine,  in  the  columns  on  the  right  of  total  column,  or  this  work  can 
be  done  later  with  pen. 

Resume — Plan  "Cut  Corners." 

Figure  out  how  to  make  extra  records  when  making  the  invoice  or 
the  order. 

How  to  save  time  and  errors  by  preventing  useless  transcription. 
Manifold  in  triplicate — instead  of  three  different  people  transcribing 
the  same  information. 

Check  automatically  one  man  or  department,  against  another. 
Tell  the  boss  about  it  before  he  tells  you ! — (Elliott-Fisher  Co.) 

(261)     billing  and  journalizing  for  department  stores. 

Salesmen's  tickets,  after  being  checked  off  on  sales  books  and  credited 

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to  the  various  departments,  are  passed  to  the  billing  clerk,  who  bills  and 
journalizing  at  one  operation. 

It  will  be  necessary  in  this  method  to  employ  the  loose  leaf  ledger 
with  marginal  index.  First,  the  tickets  are  sorted  alphabetically,  and  it 
more  than  one  ledger  is  used,  then  the  tickets  belonging  to  each  ledger 
must  also  be  kept  separate,  in  three  divisions  of  the  index,  or  three  vol- 
umes thus:  No.  1,  A  to  H;  No.  2,  I  to  N;  No.  3,  O  to  Z.  Three  corres- 
ponding piles  of  tickets  must  be  kept  also. 

Then,  beginning  with  "A,"  the  tickets  belonging  to  "Mr.  Adams"  are 
placed  together,  the  amount  of  each  ticket  being  copied  on  one  ticket  and 
crossed  out  (not  erased)  from  the  others.  This  total  figure  on  Adams* 
tickets  is  the  amount  of  the  charge  to  be  posted  to  his  account  for  this 
day.  If  a  credit  ticket  is  found  for  goods  returned  by  Adams,  this  must 
be  entered  to  his  credit  on  the  ledger,  and  billed  as  a  separate  entry.  For 
this  purpose  it  is  preferable  to  use  a  two-color  ribbon  on  billing-machines, 
showing  all  credits  in  red. 

After  arranging  Adams'  tickets,  they  are  laid  face  down  on  the  desk, 
and  in  this  manner  the  whole  alphabet  is  run  through. 

It  is  now  preferable  to  post  these  amounts  to  the  ledger  before  billing. 
Care  on  the  part  of  the  ledger  clerk  or  book-keeper  to  keep  all  tickets 
in  alphabetical  order  will  greatly  assist  in  the  billing. 

There  are  several  methods  of  billing  the  charges.  In  retail  stores 
where  itemized  bills  are  sent  to  the  customers  only  once  a  month,  a  large 
bill  head  may  be  used,  and  after  billing  each  day's  charges  the  bill  may  be 
placed  in  a  vertical  file  in  readiness  for  reference  at  any  time  or  for  next 
day's  billing.    Thus  the  whole  sheet  may  be  filed,  both  sides  if  necessary. 

In  this  method  of  billing  only  the  total  footing  on  each  customers 
tickets  and  posted  to  the  ledger,  is  carried  to  the  total  column  of  the  bill. 

The  journalizing  is  accomplished  by  means  of  a  duplicate  sheet  at- 
tached to  the  original,  and  the  use  of  the  carbon  paper.  The  best  method 
of  billing  is  with  a  machine  which  permits  the  use  of  a  carbon  roll,  run- 
ning between  original  and  duplicate. 

must  carry  the  totals. 

In  any  method  of  billing,  the  operator  must  carry  the  total  of  the 
day's  charges  for  each  customer  to  a  recapitulation  sheet  for  the  purpose 
of  arriving  at  the  total  of  the  day's  charges  to  be  passed  to  the  credit 
of  merchandise. 

Before  posting  the  day's  total  to  merchandise  credit,  the  day's  work 
should  be  proved.  The  following  method  is  eft'ective.  The  billing  clerk 
takes  the  salesman's  tickets  and  the  bill  he  has  made;  the  book-keeper 

391 


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American  Business  and  Accounting  Encyclopedia      261-263 


takes  the  narrow  total  ribbon,  and  the  ledger.  The  clerk  now  calls  the 
name  of  the  customer  and  amount  of  the  charge  from  the  ticket,  comparing 
same  with  the  bill.  The  book-keeper  turns  to  the  ledger  account,  checking 
the  entry  with  a  hard  pencil,  and  also  checking  the  amount  on  the  ribbon. 
In  this  manner  a  double  check  is  effected,  and  should  be  an  absolute  proof 
of  the  day's  posting. 

Now  the  total  of  the  ribbon  sheet  is  obtained  and  this  amount  passed 
to  merchandise  credit.  If  a  record  of  the  charge  sales  of  each  department 
is  kept,  the  total  of  these  departments  should  agree  with  the  amount  cred- 
ited to  merchandise.  This  serves  as  an  additional  check,  and  guards 
against  the  loss  or  misreading  of  any  ticket. 

Another  method  of  passing  sales  to  merchandise  credit  is  to  enter  each 
day's  total  on  a  recapitulation  sheet,  and  post  the  grand  total  only  once 
a  month.  In  case  of  several  divisions  or  volumes  of  the  ledger,  each 
section  must  be  kept  separate  on  the  recapitulation  sheet  and  ribbon,  thus 
dividing  the  work  and  furnishing  a  means  of  balancing  each  division 
independently  of  the  others. 

Each  day's  tickets  should  be  securely  tied  or  fastened  together  and 
filed  in  a  convenient  drawer  for  reference.  The  total  ribbons  should  also 
be  kept  at  hand  until  after  the  periodical  balance  is  taken. — (C.  L.  Cook.) 

(262)     A  question  about  department  store  billing. 

The  Question.  I  want  you  to  help  me  out  in  getting  up  a  system  to 
offset  the  one  I  will  outline  to  you,  which  is  a  very  roundabout  one,  I 
think.  The  business  is  wholesale  and  retail  dry  goods,  the  bulk  of  the 
business  the  latter  (retail).  Cards  are  numbered,  and  kept  in  numerical 
order.  The  sales  are  classified  as  charge,  c.  o.  d  and  memorandum  (goods 
sent  on  approval).  The  process  through  which  the  tickets  pass  is  this: 
From  salesman  to  office,  to  be  stamped,  some  tickets  are  stamped  "charge" 
and  some  "c.  o.  d."  (memo,  special  color)  original  remains  in  office,  dupli- 
cate goes  to  salesman  again  and  he  sends  it  with  his  goods  to  the  "shipping 
room ;"  the  following  morning  all  tickets  of  the  previous  day  are  collected, 
matched  together  by  department  number  (16  departments),  then  sales- 
man's number  in  department;  when  all  are  in  and  matched  together, 
original  and  duplicate,  they  are  numbered  alike  with  a  Bates  numbering 
machine. 

Then  they  are  given  to  a  boy  who  looks  up  the  reference  of  each  on 
index  and  puts  the  account  number  on  them;  those  without  a  number  are 
given  to  the  credit  man,  who  passes  on  the  reference  if  new  and  puts  the 
limit  on  it  and  numbers  the  reference  and  the  new  account  card  alike. 

392 


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American  Business  and  Accounting  Encycloi'edia 


Bi 


When  finished  all  are  passed  to  a  girl  who  sorts  them  out  according  to 
the  serial  number  (the  number  stamped  on  them  by  the  first  girl,  com- 
mencing with  No.  1  each  month),  when  she  finds  she  has  all  the  numbered 
tickets  for  thrat  day,  she  arranges  them  according  to  the  account  numbers 
from  No.  1  account  on,  first  the  charges  and  second  the  charge  account 
credits,  next  the  c.  o.  d.'s  and  c.  o.  d.  credits  (each  c.  o.  d.  is  opened  on  a 
small  card,  and  of  course  this  card  is  used  for  all  future  c.  o.  d.'s  to  the 
party),  and  then  the  memos  and  memo,  credits. 

A  young  man  takes  them  next  and  adds  them  up  on  the  adding  ma- 
chine, and  the  amount  of  each  bunch  taken,  charges  and  charge  credits, 
c.  o.  d.'s  and  credits,  and  memos  and  memo,  credits. 

From  him  they  go  to  the  girls  operating  the  Fisher  billing  machines; 
when  they  are  finished,  the  young  man  takes  the  statement  forms  just 
finished  by  the  girls,  and  adds  up  their  entries  of  the  day  thereon,  and  the 
total  should  equal  the  amount  of  his  list  just  drawn  off  before  he  gave  the 
girls  the  tickets  to  enter  from. 

He  next  passes  the  tickets  to  a  girl  who  takes  out  the  account  cards 
according  to  the  account  number  placed  thereon,  and  they  go  to  other  girls 
for  posting;  when  they  are  finished  the  young  man  adds  up  their  entries 
on 'the  cards  to  catch  any  errors,  and  gets  the  total  postings  equal  to  his 
first  adding  up  list. 

Then  the  cards  are  filed  away  again  in  their  numerical  order. 

According  to  the  present  mode  of  doing  things,  all  accounts  unpaid  at 
the  end  of  the  month  are  made  out  in  full  again,  and  the  current  month's 
entries  put  at  the  bottom  of  the  statement,  so  that  if  the  account  is  run- 
ning several  months  a  full  itemized  account  is  sent  each  month,  entailing 
a  lot  of  extra  work. 

The  Answer.  I  have  carefully  read  your  description  of  the  sys- 
tem for  handling  charge  tickets  in  a  retail  dry  goods  business. 
The  system  seems  to  be  all  right  up  to  the  point  where  the  boy 
looks  up  the  reference  index  and  places  the  account  number  on  the  ticket. 
I  would  strongly  recommend  changing  the  manner  of  indexing  to  alpha- 
betical, arranging  the  account  cards  in  strict  alphabetical  order.  Any  card 
manufacturer  can  supply  you  with  sets  of  index  guides  subdividing  the 
alphabet  into  as  many  as  1,500  subdivisions  As  you  can  easily  handle  15 
cards  between  each  two  index  guides  such  an  index  would  accommodate 
22,000  accounts.  Changing  the  alphabetical  indexing  would  do  away  with 
this  operation  entirely. 

After  being  collected  by  departments  and  duplicates  matched  they 
would  be  numbered  serially  and  go  to  the  next  sorter  in  that  order.  When 
she  ascertains  that  no  numbers  are  missing,  she  would  re-arrange  the 

393 


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American  Business  and  Accounting  Encyclopedia      2G2-'H\:\ 


tickets,  as  is  now  done,  keeping  charges  and  c.  o.  d/s  together.  The> 
would  then  be  footed  on  the  adding  machine,  as  at  present,  and  go  to  the 
girls  operating  the  billing  machines. 

The  statements  should  be  in  duplicate,  one  copy  having  a  wider  mar- 
gin and  punched  for  permanent  filing  in  a  loose  leaf  binder.  I  would  also 
recommend  using  a  carbon  roll  on  your  adding  machine,  as  this  gives  you 
a  separate  checking  list  like  the  tape  from  an  adding  machine,  showing 
totals  of  each  ticket.  The  statement  should  now  be  printed  and  totals 
compared  with  totals  obtained  when  listing  the  individual  tickets  on  the 
adding  machine.  If  the  totals  agree  it  is  proof  conclusive  that  the  amounts 
entered  on  the  statements  are  correct;  if  there  is  an  error  a  comparison 
of  the  first  tape  from  the  adding  machine  with  the  carbon  roll  taken  from 
the  billing  machine  will  quickly  locate  it. 

I  can  see  no  necessity  for  posting  the  totals  of  these  tickets  on  the 
ledger  cards  each  day.  Why  not  wait  until  the  end  of  the  month,  and  then 
post  to  each  account  the  totals  shown  by  the  statement.  Remember  you 
will  have  left  in  the  permanent  binder  copies  of  all  statements  for  the 
month,  so  that  items  can  be  located  very  readily.  This  would  cut  out 
another  operation  which  seems  to  me  to  be  entirely  unnecessary.  I  can 
see  no  good  reason  for  making  an  itemized  statement  each  month  covering 
items  prior  to  current  month.  The  best  plan  would  be  to  start  your  state- 
ment at  the  beginning  of  the  month  with  the  balance  shown  on  the  ledger 
card ;  then  all  items  for  that  month  will  be  added — both  debit  and  credit — 
and  after  having  this  itemized  statement  once  very  few  customers  will 
demand  it  the  second  time.  In  expectional  cases  where  such  demand  is 
made  you  will  always  have  your  copy  in  the  file  from  which  another  state- 
ment can  be  made. 

(263)     typewriter  billing  has  helped  business  building. 

System:  "An  assemblage  of  things  adjusted  into  a  regular  whole;  or 
a  whole  plan  or  scheme  consisting  of  many  parts  connected  in  such  a  man- 
ner as  to  create  a  chain  of  mutual  dependencies :  or  a  regular  union  of 
principles  or  parts  forming  one  entire  thing." — Webster's  Dictionary. 

If  you  will  make  a  careful  study  of  the  system,  then  read  the  different 

articles  published  upon  this  subject  in  the  various  magazines,  you  will 

ascertain  that  people  entertain  different  ideas  about  system  as  well  as 

others  differ  in  their  ideas  regarding  architecture,  music,  etc.,  but  from 
the  definition  of  the  word  we  have  a  foundation   upon  which  we   may 

develop  our  individual  ideas  and  suggestions  of  which  are  applicable  to 
the  billing  machine. 

With  the  great  capacity  for  such  machines,  which  have  greatly  facili- 

394 


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American  Business  and  Accounting  Excvcloi'edia 


Bi 


tated  the  handling  of  bills,  orders,  etc.,  with  forms  properly  designed  for 
the  character  of  work  intended,  we  find  an  extensive  field  for  system 
work  in  the  designing  of  these  forms  to  secure  the  best  results,  and  in  view 
of  this  fact,  it  is  essential  that  we  acquire  a  general  knowledge  of  the 
rudiments  of  book-keeping  or  at  least  become  familiar  with  the  nature 
of  the  accounts  of  which  a  written  record  is  made  upon  the  typewriter  in 
order  that  we  may  suggest  a  practical  system  which  will  embody  its  two 
most  important  factors, — elimination  and  concentration, — the  results  of 
which  promote  economy,  diminish  temptation,  lessen  litigation,  and  enable 
persons  at  all  times  to  ascertain  their  situation  from  a  pecuniary  stand- 
point. 

Today  we  are  recording  nearly  all  transactions  upon  the  typewriter, 
thereby  discarding  the  pen  and  our  old-fashioned  bound  books  are  being 
replaced  by  loose  leaf  sales  books,  record  books  and  ledgers. 

Heretofore  we  may  have  been  entering  all  business  transactions  in  a 
bound  day  book  with  pen  in  the  order  in  which  they  occurred,  after  which 
the  debits  and  credits  of  the  accounts  were  entered  in  the  journal  in  the 
order  of  the  dates  from  which  they  were  posted  to  the  ledger;  but,  under 
the  new  method  of  handling  these  transactions,  we  eliminate  the  use  of 
the  day  book,  thereby  eliminating  much  unnecessary  journalizing. 

We  may  have  been  making  a  record  of  all  requisitions  in  a  bound 
invoice  book  with  pen,  but  from  the  fact  that  we  may  make  as  many  copies 
of  the  original  as  we  wish  with  but  one  writing,  we  make  same  out  in 
triplicate.  The  original  is  sent  to  the  party  or  individual  from  whom  v/e 
are  purchasing ;  the  second  copy  is  placed  on  file  as  an  office  record,  and 
the  third  copy  is  sent  to  the  receiving  department.  Upon  the  arrival  of 
the  goods,  this  department  checks  same  against  slips,  registers  date  of 
reception,  etc.,  returns  slip  to  the  office,  where  it  is  checked  against  the 
office  copy,  which  is  compared  with  the  invoice  when  same  is  received. 

Result : — Elimination  of  the  bound  invoice  book.  Typewritten  record 
of  transactions. 

We  may  have  been  entering  all  orders  received  in  a  bound  order  book, 
but,  under  the  new  method,  instead  of  entering  the  same  in  a  bound  order 
book,  we  enter  order  upon  a  set  of  unit  forms  designed  for  this  purpose, 
making  as  many  copies  as  will  facilitate  the  handling  of  that  particular 
transaction.  The  original  we  will  call  our  order  book  record  which  is 
placed  on  file,  and  is  a  record  of  the  order,  complete.  The  second  copy  is 
generally  an  office  copy  or  price  sheet;  the  remaining  copies  may  consist 
of  an  acknowledgment,  requisitions,  salesman's  notice,  packer's  slip,  ship- 
ping memorandum,  etc.,  and  are  distributed  to  the  various  departments 
after  the  order  is  entered. 


395 


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American  Business  and  Accounting  Encyclopedia      263-264 


Our  order  book  copy  is  filed  numerically ;  the  office  copy  is  filed  alpha- 
betically, first,  in  an  unfilled  order  binder  and  then  transferred  to  a  filled 
order  binder  after  the  transaction  is  completed.  The  acknowledgment  is 
mailed  to  the  customer,  while  the  requisitions  are  utilized  for  picking  up 
the  goods  in  the  various  departments.  The  salesman's  record  is  often- 
times filed  territorially,  and  is  used  as  an  automatic  check  against  the  bills 
rendered,  the  amounts  which  have  reached  the  ledger  and  the  filled  order 
binder. 

In  this  manner,  we  secure  an  automatic  check  without  resorting  to 
recapitulation.  As  the  shipping  memorandum  is  filed  chronologically  it 
is  an  easy  matter  to  look  up  an  order  either  through  its  number,  name  of 
the  customer  or  through  the  salesman  who  sold  the  articles  or  through 
date  of  shipment. 

These  unit  forms  are  so  designed  that  each  contain  the  information 
required  by  its  respective  department.  After  the  requisitions  pick  up  the 
goods,  they  are  checked  and  the  goods  forwarded  to  the  shipping  depart- 
ment. 

The  articles  are  checked  against  the  shipper's  ticket,  after  which  it  is 
returned  to  the  office  and  checked  against  the  office  copy. 

Result: — Elimination  of  the  bound  order  book. 

After  the  extensions  are  made  upon  the  price  sheet  which  has  been 
retained  in  the  office  for  that  purpose  the  order  department  has  finished 
with  the  order.  It  is  then  turned  over  to  the  biller,  who  makes  a  type- 
written copy  of  the  sale  or  shipment  upon  an  invoice  blank  and  at  the 
same  time  making  a  record  of  same  upon  a  loose  leaf  sales  sheet  at  one 
writing. 

Result: — Elimination  of  the  bound  sales  book.  Introduction  of  the 
loose  leaf  typewritten  sales  book. 

As  each  sale  or  shipment  is  consecutively  numbered,  it  is  an  easy 
matter  to  quickly  refer  to  same  when  receiving  remittances  covering  any 
particular  shipment  to  compare  same,  also  for  complete  data  when  a 
duplicate  shipment  is  requested. 

The  sales  sheet  may  contain  the  quantity,  description,  amount,  and 
total  column  only;  but,  in  addition,  it  may  contain  a  number  of  disinte- 
gration columns  in  which  sales  may  be  classified  according  to  departments 
or  ledgers. — (H.  S.  Lasher.) 

(264)     BILLS  PAYABLE. 

A  ledger  account  showing  in  detail  or  in  totals  the  amount  of  bills 
payable  issued  in  settlement  of  liabilities;  the  amounts  paid  on  same  and 
balance  due. 

396 


265-266      American  Business  and  Accounting  Encyclopedia 


Bi 


(265)     BILLS  PAYABLE  REGISTER. 

The  method  of  keeping  bills  receivable,  as  described  under  that  head- 
ing, is  appropriate  also  to  the  record  of  bills  payable. 

(266)     BILLS   RECEIVABLE. 

A  ledger  account  showing  in  detail  or  in  totals  the  amounts  of 
bills,  promissory  notes,  etc.,  received  from  customers  or  debtors;  the 
amount  paid  on  same  and  balance  outstanding. 

The  proper  manipulation  of  bills  receivable  account  and  bills  receiv- 
able register,  or  record,  is  so  closely  interwoven  that  it  is  necessary  to 
treat  them  together.  The  proper  end  in  view  is  to  devise  a  system  that 
shall  always  give  complete  information  promptly  when  required  and 
dispense  with  needless  labor.  Many  plans  have  been  evolved  to  accomp- 
lish this,  including  the  combination  in  one  book  of  the  features  of  register 
and  ledger.  This  will  be  considered  later  on  under  the  head  of  "Bills 
Receivable  Ledger." 

Where  the  ordinary  bills  receivable  account  is  carried  in  the  ledger, 
we  would  recommend  the  use  of  key  numbers  instead  of  endeavoring  to 


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write  the  credit  directly  opposite  the  charge  when  the  bill  is  paid.  The 
latter  method  results  in  great  inconvenience  when  taking  off  the  trial 
balance,  which  is  entirely  obviated  by  the  use  of  key  numbers.  We 
append  an  example  of  bills  receivable  account  to  illustrate  the  idea. 

You  will  observe  that  there  are  two  sets  of  key  numbers.  One  set  refers 
exclusively  to  the  credits.  The  other  set  is  intended  to  facilitate  easy  reference 
to  either  debits  or  credits.  Thus  Mr.  Brown  is  No.  3,  and  by  referring  to  the 
credit  column  you  will  find  Mr.  Brown's  payment  No.  3,  but  all  the  credits  are 
also  consecutively  numbered,  and  Mr.  Brown  is  No.  1.  Therefore,  if  anyone 
refers  to  the  credit  side  and  finds  Mr.  Brown  is  No.  1,  they  will  look  to  the 
debit  side  key  No.  1  as  to  why  the  payment  was  made. 

(See  Notes  Receivable.) 

(267)     BILLS  RECEIVABLE  REGISTER  AND  LEDGER. 

One  of  the  best  devices  for  taking  care  of  bills  receivable  with  the 
least  possible  amount  of  trouble.    While  the  form  of  such  a  combination 

397 


Bi-Bl         American  Business  and  Accounting  Encyclopedia      267-270 

book  would  necessarily  be  changed  to  meet  the  different  requirements,  the 
principle  is  the  same,  namely,  the  addition  of  two  money  columns  to  the 
ordinary  bill  book,  one  being  headed  credits  and  the  other  balance.  This 
practically  eliminates  the  ordinary  bills  receivable  account  from  the  ledger, 


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as  the  only  postings  are  made  to  an  account  called  bills  receivable  ledger 
account,  to  which  at  the  close  of  each  month  are  posted  the  total  bills 
received  and  the  total  credits.  For  the  efficient  use  of  this  method  separate 
columns  should  be  provided  for  bills  receivable  in  the  cash  book  and  jour- 
nal. The  totals  of  these  columns  can  then  be  compared  with  the  total 
debits  of  the  bills  receivable  register  as  a  check  on  the  accuracy  of  the 
work.  The  postings  to  the  credit  of  bills  receivable  ledger  account  in  the 
general  ledger  will  also  be  made  at  the  end  of  each  month  from  the  col- 
umns provided  in  cash  book  and  journal.  By  this  method  the  bills  receiv- 
able ledger  does  not  enter  into  the  trial  balance  at  all,  being  represented 
therein  by  the  balance  of  the  bills  receivable  ledger  account  above  men- 
tioned.   Example  of  such  a  ledger  is  appended. 

For  the  purpose  of  facilitating  the  obtaining  of  the  total  credits  for 
the  month  many  accountants  use  a  form  provided  with  twelve  credit 
columns,  one  for  each  month  in  the  year,  transferring  unpaid  notes  at  the 
end  of  the  year. 

(268)     BILLS  RECEIVABLE  SUSPENSE  ACCOUNT. 

An  account  to  which  are  transferred  doubtful  or  uncollectible  bills  re- 
ceivable, in  which  account  they  are  retained  until  it  is  decided  to  charge 
them   off  to  profit  and  loss. 

(269)     BILL  OF  SALE. 

A  written  agreement  under  seal,  by  which  one  person  transfers  his 
rights  to  or  interest  in  goods  and  personal  property  to  another.  It  is  espe- 
cially used  where  immediate  possession  of  the  goods  or  chattels  cannot 
be  given. 

(270)     BLANK  INDORSEMENT. 

The  indorsement  of  a  check  across  the  back  simply  with  the  name  of 
the  person  to  whom  the  check  is  made  payable. 

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(271)     BLANKET  MORTGAGE. 

A  general  mortgage  on  all  the  property  of  a  concern  given  to  further 
secure  bonds  already  partly  secured,  to  obtain  further  loans,  or  secure  a 
reduction  of  interest. 

(272)     BLOTTER. 

A  term  used  to  signify  a  rough  book  of  original  entry,  from  which  the 
entries  are  subsequently  copied  into  another  record  from  which  postings 
are  made.  Blotters  are  commonly  used  for  entering  sales,  orders, 
cash  receipts  and  payments,  etc. 

The  use  of  blotters  for  cash  receipts  and  payments  is  particularly 
inadvisable,  as  it  facilitates  fraud.  (See  auditing  and  also  cash).  For  the 
entry  of  sales  and  orders  they  appear  under  some  circumstances  to  be 
unavoidable,  and  in  such  cases  are  merely  a  form  of  memoranda. 


(273)     BOND   OR  DEBENTURE. 

A  form  of  negotiable  commercial  currency  issued  chiefly  by 
corporations,  municipalities,  states  and  governments,  but  payable  on  a  specified 
date  instead  of  on  demand,  and  secured  by  mortgages,  reserve,  or  sinking  fund. 

An  obligation  for  the  faithful  performance  of  duty  or  service,  secured 
by  property  or  substantial  guarantors. 

Different  varieties  of  bonds  will  be  described  under  the  headings  of 
coupon,  debenture,  preferred,  dividend,  mortgage,  registered,  guaranty. 
maritime,  municipal,  income,  etc. 

Bonds  are  generally  placed  on  the  public  market  for  sale  through 
the  medium  of  a  trust  company  or  trustees  to  whom  the  mortgage  security 
is  executed.  As  bonds  are  sold,  the  amount  realized  on  their  sale  is  charged 
to  cash  and  the  liability  credited  to  bonds  payable  account. 

If  bonds  are  sold  at  a  premium  the  amount  of  the  "premium"  will  be 
credited  to  bonds  premium  account  and  go  into  profit  and  loss  at  the  close 
of  the  financial  year.  In  like  manner  if  bonds  are  sold  at  a  discount,  the 
discount  is  charged  to  bond  discount  account,  and  subsequently  trans- 
ferred to  the  debit  of  profit  and  loss  account. 

(274)     coupon  bonds. 

Bonds  to  which  are  attached  interest  coupons,  said  coupons  to  be  de- 
tached and  presented  for  payment,  with  interest. 

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(275)     COUPONS. 


A  detachable  certificate  attached  to  a  bond,  debenture,  or  strip,  each 
representing  an  instalment  of  interest,  to  be  detached  for  collection  as  the 
instalment  falls  due. 

A  ticket  exchangeable  for  cash  or  goods. 

Those  parts  of  a  commercial  instrument  which  are  to  be  cut,  and  which 
are  evidence  of  something  connected  with  the  contract  mentioned  in  the  in- 
strument. They  are  generally  attached  to  bonds  or  certificates  of  loan  where 
the  interest  is  payable  at  particular  periods,  and,  when  the  interest  is  paid, 
they  are  cut  oif  and  delivered  to  the  payor.  In  the  United  States  they  have 
been  held  to  be  negotiable  instruments,  if  payable  to  bearer  or  order,  upon 
which  suit  may  be  brought,  though  detached  from  the  bond.  If  the  bond  to 
which  the  coupons  were  attached  was  not  negotiable,  or  if  the  coupons  were 
not  payable  to  bearer  or  order,  then  they  would  not  be  considered  negotiable 
instalments  nor  could  suit  be  brought. 

Interest  on  coupons  may  be  recovered  in  a  suit  on  the  coupons  and  the 
rate  of  interest  provided  for  in  the  bond  continues  on  the  coupon  until  it  is 
merged  in  judgment.  A  suit  on  the  coupon  is  not  barred  by  the  statute  of 
limitations  unless  a  suit  on  the  bond  would  be  barred:  otherwise,  however, 
where  the  coupons  have  passed  into  the  hands  of  a  party  who  does  not  hold  the 
bonds. 

(276)       DEFERRED   BONDS. 

Bonds,  the  redemption  of  which  is  contingent  on  the  realization  of  some 
condition  or  future  eventuality. 

(277)       DEBENTURES. 

"A  debenture  is  a  document  admitting  an  indebtedness.  The  term  is 
ordinarily  applied  to  the  acknowledgment  given  by  a  limited  company  of  a 
loan  which  it  has  received,  upon  which  it  undertakes  to  pay  interest  period- 
ically, and  to  repay  principal  upon  such  terms  as  may  be  set  forth  in  the  body 
thereof." 

"A  mortgage  debenture  is  a  debenture  giving  to  the  inscribed  holder 
thereof,  or  to  bearer,  as  the  case  may  be,  a  charge  upon  certain  assets  of  the 
company  which  rank  in  priority  to  all  other  claims." 

Bonds  issued  for  sale  for  the  purpose  of  securing  working  capital,  the 
interest  on  which  is  a  first  charge  on  profits,  i.  e.,  in  priority  to  preferred  or 
other  dividends. 

When  secured  by  mortgage,  they  are  termed  mortgage  debentures,  but 
when  not  secured  by  mortgage,  there  is  generally  a  "floating  charge"  upon  the 

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business  under  which,  if  the  debentures  are  not  paid  when  redeemable,  the 
holders  may  apply  for  a  receiver  and  have  their  claims  scheduled  as  prefer- 
ences in  the  winding  up  of  the  business. 

(278)     debentures,  accounts  and  records  of. 

A  method  recommended  for  dealing  with  redeemable  debentures  on  the 
books  of  account  is  to  charge  cash  and  credit  debentures  account  when  the 
same  are  issued  and  sold.  If  a  sinking  fund  is  provided  for  the  repayment 
of  the  debentures,  charge  debenture  account  and  credit  cash  as  paid,  also 
charge  profit  and  loss  and  credit  debentures  redeemable  account.  When  the 
repayments  have  been  completed  debenture  account  will  be  closed,  but  the  full 
amount  of  the  debentures  will  stand  to  the  credit  of  debentures  redeemable 
account,  offsetting  the  amounts  charged  to  profit  and  loss.  The  amount  to 
the  credit  of  debentures  redeemable  account  now  stands  as  a  resers'e,  and 
would  be  available  for  distribution  if  sufficient  funds  were  on  hand  for  the 
purpose.  Cash  was  received  (less  cost  of  issue  and  sale)  for  the  amount  of 
the  debentures  issued  and  cash  was  paid  out  for  same  when  due,  so  that  the 
actual  profits  of  the  business  were  not  really  affected,  except  so  far  as  regards 
loss  on  discount  or  cost  of  issue  as  above  stated. 

municipal  debentures. 

Millions  of  dollars'  worth  of  debentures  are  handled  annually  throughout 
the  country.  And  the  methods  of  recording  these,  with  the  coupons  that  are 
usually  attached,  are  almost  as  numerous  as  are  the  issuing  bodies.  The  pur- 
pose at  this  time  is  to  discuss  the  subject  of  municipal  debentures,  outlining 
what  is  conceived  to  be  the  best  procedure  on  the  part  of  the  treasurer,  from 
the  inception  of  the  work  for  which  the  debentures  are  issued,  or  to  be  issued, 
up  to  the  payment  thereof,  and  mcidentally  to  discuss  the  best  form  of  deben- 
ture to  issue. 

When  a  public  work  has  been  decided  upon,  the  necessary  authority  or 
consent  having  been  duly  obtained,  there  are  two  methods  which  may  be  fol- 
lowed in  order  that  funds  may  be  provided  for  the  carrying  on  of  the  work, 
(1)  by  issuing  debentures  and  disposing  of  the  same  in  bulk  right  at  the  outset 
of  the  undertaking,  or  by  partial  sales  from  time  to  time  as  the  necessity 
requires,  or  (2)  by  effecting  temporary  loans  as  the  work  progresses,  charging 
capital  or  construction  account  with  the  interest  on  these  loans,  to  be  offset 
later  on  by  the  interest  which  will  have  accrued  upon  the  debentures  if  they 
are  dated  concurrently  with  the  initiation  of  the  work. 

In  many  instances  it  is  impossible  to  tell  at  the  outset  just  how  much  the 
expenditures  are  likely  to  amount  to  on  a  contemplated  work.     The  architect 

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or  engineer  will  furnish  an  estimate  (generally  an  outside  figure),  and  upon 
this  is  based  the  amount  upon  which  authority  is  given  for  the  issue  of  deben- 
tures. It  may  be  that  when  the  tenders  are  called  for  that  much  less  money 
than  suggested  by  the  architect's  or  engineer's  estimate  will  be  required  to 
accomplish  the  purpose ;  and,  if  so,  then  it  will  not  be  necessary  to  issue  deben- 
tures up  to  the  authorized  limit.  The  method  of  providing  the  requisite  funds 
by  temporar}^  loan  would  seem  to  be  preferable,  if  only  for  this  reason;  but 
where  the  work  under  construction  is  of  the  nature  of  a  local  improvement 
( part  to  be  paid  by  the  municipality  or  corporation  and  part  by  the  owners  of 
the  property  to  be  benefited  by  the  work)  there  is  an  added  reason  for  refrain- 
ing from  issuing  the  debentures  until  the  completion  of  the  work.  In  a  case 
such  as  mentioned  the  construction  of  the  improvement  is  in  the  nature 
of  a  partnership,  and,  properly,  the  greatest  care  should  be  taken  to  keep  the 
transaction  separate  and  free  from  other  matters  of  a  like  nature,  and  from 
works  where  only  the  corporation  is  interested.  The  word  "properly"  is  used 
advisedly,  for,  unfortunately,  the  average  municipal  official  is  not  careful  in 
this  regard,  and  works  are  often  undertaken  and  carried  to  completion,  moneys 
advanced,  and  debentures  sold,  without  the  slightest  regard  being  paid  to  the 
equities  of  the  various  interests  concerned. 

The  simplest  way  of  handling  any  matter  is  almost  always  the  best,  and 
the  plan  outlined  below  will  be  admitted  to  have  the  advantage  of 
simplicity.  Supposing  that  the  improvement  has  been  decided  on,  and  the 
preparation  for  the  work  of  construction  is  all  completed,  and  awaiting  the 
provision  of  the  necessary  funds.  With  a  certified  copy  of  the  by-laws  the 
treasurer  applies  to  the  corporation  bankers  for  a  special  line  of  credit  suffi- 
cient to  meet  the  cost  of  the  undertaking  in  question,  agreeing  to  pay  interest 
at  a  rate  to  be  agreed  upon,  on  all  sums  used,  which  interest  shall  be  charged 
to  this  especial  work.  A  special  account  is  then  opened  by  the  banker  for  this 
particular  work,  and  the  interest  is  calculated  at  the  usual  bank  periods.  When 
the  work  has  been  completed  and  all  claims  for  the  construction  of  the  same 
have  been  duly  passed  and  paid,  the  time  for  the  disposal  of  the  debentures  will 
have  arrived.  Debentures  to  the  exact  amount  required  to  reimburse  the  bank- 
ers for  advances  will  then  be  prepared  and  oflfered  for  sale.  Just  here  it  may 
be  interjected  that  many  municipalities  are  in  the  habit  of  issuing  debentures 
bearing  a  higher  rate  of  interest  than  the  money  can  be  obtained  for.  This  is 
done  in  order  that  a  good  premium  for  the  debentures  may  be  obtained,  the 
officials  laboring  under  the  impression  that  the  obtaining  of  big  premiums  o-ives 
the  public  a  more  favorable  idea  of  the  excellence  of  the  credit  which  the 
municipalities  enjoy  in  the  financial  world.  This  is  a  false  idea,  and  the  sooner 
eliminated  the  better  for  all  concerned.  A  careful  study  of  the  money  markets 
at  the  time  the  debentures  are  ripe  for  sale  will  enable  the  official  charged  with 

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their  disposal  to  decide  pretty  accurately  upon  the  lowest  rate  of  interest  which 
the  debentures  can  be  made  to  bear,  in  order  to  dispose  of  them  at  par.  A 
low  rate  of  interest  and  no  premium  is  much  preferable  to  a  big  premium  with 
a  corresponding  increase  in  the  interest  rate.  As  a  matter  of  fact,  investors 
take  advantage  of  the  ignorance  of  officials  in  calculations  of  this  character, 
and,  under  the  cloak  of  an  apparently  large  premium,  they  pay  less  for  the 
debentures  than  if  they  had  been  compelled  to  bid  on  an  issue  bearing  the 
current  rate  of  interest  and  netting  "par."  There  is  also  a  greater  evil  than 
this  in  connection  with  this  question  of  "premiums."  The  majority  of  councils 
and  officials  have  the  mistaken  idea  that  a  premium  obtained  from  the  sale  of 
debentures  is  the  common  property  of  the  municipality,  and  not  of  the  corpor- 
ation and  property  owners  who  are  to  be  espeically  taxed  to  meet  the  deben- 
tures. The  consequence  is  that  the  general  funds  receive  the  advantage  of  the 
premium  derived  from  the  sale  of  the  debentures,  while  the  property  owners 
pay  the  "piper."  It  is  obvious,  therefore,  that  the  obtaining  of  a  premium  is  not 
always  a  benefit  to  those  immediately  concerned. 

The  natural  application  of  any  premium  or  surplus  arising  out  of  the  sale 
of  debentures  is  toward  payment  of  the  first  principal  or  interest  which  falls 
due  on  account  of  these  particular  debentures,  a  pro  rate  reduction  being  made 
in  the  assessment  against  the  property  holders  for  that  particular  year. 

sinking  fund  or  sliding  scale  debenture — WHICH? 

The  best  kind  of  debentures  to  issue  is  open  to  debate.  Which  shall  they 
be— "sinking  fund"  or  on  the  "instalment"  or  "sliding  scale"  plan?  It  may 
be  well  to  explain  the  exact  diflferences  between  the  classes  of  debentures 

referred  to. 

In  the  case  of  "sinking  fund"  debentures,  no  part  of  the  principal  is  repaid 
to  the  holder  or  purchaser  during  the  currency  of  the  debentures.  The  full 
amount  of  interest  and  a  portion  of  the  principal  is  annually  collected.  The 
interest  is  paid  to  the  debenture  holder.  The  principal  is  paid  into  an  account 
known  as  the  sinking  fund,  which  fund  must  be  made  to  earn  a  rate  of  interest 
equal  to  that  figured  on  at  the  time  of  issuing,  and  this  is  compounded  yearly 
during  the  whole  period  of  existence  of  the  debenture  debt,  so  that  at  maturity 
of  the  debentures  there  will  be  in  this  fund  just  sufficient  to  repay  the  principal. 
With  the  rates  of  interest  varying,  it  so  happens  that  often  it  is  not  possible  to 
make  the  sinking  fund  earn  the  amount  contemplated,  or  it  may  be  that  too 
high  a  rate  of  interest  was  allowed  in  the  calculation.  There  are  two  ways  of 
overcoming  this  difficulty  when  it  is  met  with.  Each  year,  before  placing  in 
the  estimates  the  amount  required  to  be  raised  for  the  sinking  fund,  a  valuation 
should  be  made  to  ascertain  whether  the  existing  investments  have  amounted  to 
the  sum  originally  intended  as  that  which  should  be  on  hand  at  that  date.     If 

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deficient,  it  must  be  augmented  by  adding  the  necessary  amount  to  the  ordinary 
yearly  appropriation.  If  it  be  found  that  the  rate  of  interest  being  realized  is 
less  than  that  assumed  in  making  the  original  computation,  and  is  likely  to 
continue  so  then  the  annual  amount  to  be  set  aside  as  sinking  fund  must  be 
re-est,mated  on  the  basis  of  the  decreased  rate  of  interest.  If  i,  be  the  case 
tha  a  mumcipahty  has  neglected  these  precautions  for  some  years,  it  would  be 
well  in  such  instances  to  cover  the  whole  of  the  ascertained  deficiency  in  the 
computation  of  the  necessary  annual  amount  in  the  future.  If  these  precau- 
tions are  taken,  and  fractional  adjustments  are  made  from  year  to  year,  there 
will  be  no  possibility  of  finding  the  sinking  fund  short  when  the  debentures 
mature. 

_       The  common  practice  is  to  calculate  the  interest-earning  power  of  the  sink- 
ing fund  at  the  same  rate  as  the  debentures  bear,  and  this  is  the  pit  into  which 
so  many  municipalities  find  that  they  have  stumbled.     There  are  many  reasons 
why  ,t  IS  not  possible  to  make  the  sinking  fund  earn  interest  equal  to  the  rate 
of  mterest  which  must  be  paid  on  the  debentures,  chief  among  which  is  lack 
of  mvestment.     The  amounts  being  small  and  accumulating  annually,  it  is 
impossible  to  keep  the  fund  continually  invested  at  a  rate  of  interest  higher 
than  that  which  can  be  obtained  by  deposit  in  the  ordinary  savings  bank     It 
follows,  logically,  then,  that  no  matter  what  rate  of  interest  it  may  be  necessary 
to  make  the  debentures  bear,  the  sinking  fund's  interest-earning  power  should 
not  be  calculated  at  a  rate  of  interest  higher  than  the  substantial  savings  banks 
of  the  country  are  in  the  habit  of  paying. 

The  "instalment"  or  "sliding  scale"  debentures  are  figured  out  so  that 
equal  payments  during  the  period  which  the  debentures  have  to  run  of  prin- 
cipal and  interest,  will  be  made.     The  first  year's  payment  will  obviously  be 
largely  interest  and  very  little  principal.     The  second,  a  little  less  interest  and 
more  principal.     Each  year  the  interest  decreases  and  the  principal  increases 
until  in  the  final  year  the  payment  is  mostly  principal.     It  will  be  observed  that 
the  difference  between  the  two  forms  of  debentures  is,  that  in  the  first  case  the 
investor  accepts  only  the  interest  earned  each  year,  leaving  the  principal  in  the 
hands  of  the  municipality  for  reinvestment.     In  the  second  case  the  investor 
finds  himself  under  the  necessity  of  finding  his  own  source  of  reinvestment  for 
the  principal  which  he  receives  year  by  year. 

The  idea  of  sinking  fund  debentures  originated  in  the  fact  that  investors 
were  averse  to  buying  debentures  which  provided  for  the  return  yearly  of  a  • 
portion  of  the  principal,  necessitating  the  trouble  of  the  reinvestment  of  small 
amounts.  At  any  rate,  debentures  of  such  a  character  brought  a  less  price  in 
the  market,  and  hence  the  introduction  of  the  sinking  fund  idea,  which  placed 
the  burden  of  reinvestment  upon  the  shoulders  of  the  persons  or  corporations 
making  the  loan,  thus  giving  the  capitalist  the  advantage  of  a  longer  and,  to 

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to  him,  more  satisfactory  investment.  This  condition  of  affairs  originated 
when  rates  of  interest  were  much  higher  than  now  and  money  was  less  plen- 
tiful. The  day  of  the  sinking  fund  is  past,  however,  the  difference  in  the 
price  obtainable  for  debentures  of  the  two  kinds  being  so  slight,  that  the  trouble 
of  maintaining  the  sinking  fund  largely  exceeds  the  paltry  difference  in  the 
proceeds  of  the  sales.  With  a  thorough  sense  of  the  responsibility  attaching 
to  the  position  which  I  take,  I  have  no  hesitation  in  saying  that  the  sinking 
fund  is  a  curse  to  the  average  municipality.  Lack  of  knowledge  of  finances, 
inability  to  keep  the  sinking  fund  profitably  invested,  the  manipulation  of  the 
fund  by  designing  and  dishonest  officials,  ignorance  in  computing  the  earning 
power — these  are  principally  the  causes  which  lead  to  the  conclusion  voiced 
in  the  preceding  sentence.  In  these  days  of  cheap  money,  with  capitalists 
on  the  alert  for  safe  investments,  and  with  the  keen  competition  that  exists 
in  the  money  market,  the  kind  of  debentures  issued  makes  very  little  difference 
in  the  price  received. 

The  debentures  being  ready  for  sale,  with  the  coupons  (if  coupons  are 
used)  attached,  they  are  offered  to  the  investing  public,  either  privately  or  by 
advertisement.  Usually  the  highest  bidder  is  the  successful  one.  Before  the 
debentures  leave  the  hands  of  the  treasurer  all  the  particulars  relative  to  them 
should  be  entered  in  the  record  book  or  debenture  register  of  the  municipality. 
Full  details  are  entered  concerning  the  issuance  of  the  debentures,  the 
amount,  years  to  run,  dates  payable,  place  of  payment,  annual  payment  of  prin- 
cipal and  annual  payments  of  interest  as  represented  by  the  coupons,  dates 
due,  and  payments  to  the  sinking  fund  when  the  debentures  are  issued  upon 
that  plan.  Other  particulars  as  to  the  number  of  the  by-law,  authorizing  the 
issue,  date  of  sale,  persons  to  whom  sold,  date  of  delivery,  amount  received, 
divided  as  to  principal,  premium  and  accrued  interest.  Then  the  total  amount 
to  be  raised  annually  by  assessment,  with  particulars  as  to  how  much  is  charge- 
able to  the  corporation  as  a  whole,  and  to  the  individual  property  owners  in 
case  the  work  is  in  the  nature  of  a  local  improvement. 

As  already  stated,  the  entries  in  this  register  should  be  made  before  the 
debentures  leave  the  possession  of  the  treasurer.  Upon  receiving  the  proceeds 
of  the  sale  the  necessary  entry  is  at  once  made  in  the  cash  book,  debiting  cash 
and  crediting  the  particular  work  upon  account  of  which  the  debentures  were 
sold. 

To  enable  the  treasurer  to  get  at  the  total  debentures  debt  of  the  munici- 
pality as  it  matures,  year  by  year,  or  to  ascertain  the  gross  amount  of  the 
debenture  liability,  a  further  subsidiary  book  containing  in  abstract  all  deben- 
tures and  coupons  will  be  found  of  great  convenience.  A  book  of  this  descrip- 
tion will  require  very  few  pages,  and  by  using  the  wide-and-narrow  leaf,  can 
be  made  continuous.    A  handy  official  can  prepare  such  a  book  himself.    There 

405 


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American  Business  and  Accounting  Encyclopedia      278-279 


has  been  published  a  book  along  the  hne  suggested,  which  contains  a  complete 
statement  in  abstract  of  all  the  debentures  and  coupons  issued  bv  a  corporation 
between  the  years  1882  and  19U,  and  it  can  be  extended  indefinitely. 

As  debentures  and  coupons  are  paid,  cash  is  credited  and  debenture  and 
mterest  accounts  are  debited  respectively,  and  these  are  closed  into  the  munici- 
pality account  annually. 

The  careful  keeping  of  matured  and  paid  coupons  and  debentures  should 
be  a  matter  of  considerable  moment  to  the  treasurer,  but  in  many  cases  the 
proper  precautions  are  not  taken.  Occasionally  an  official  is  to  be  found  who 
has  devoted  some  thought  to  matters  of  this  sort.  About  as  ingenious  a 
method  of  retaining  these  canceled  coupons  and  debentures  as  I  have  yet  seen 
I  came  across  in  a  small  town  in  western  Ontario  a  short  while  ago  while 
engaged  upon  an  inquiry  into  the  finances  of  the  municipality.  A  large  book, 
similar  to  the  ordinary  invoice  book  used  in  the  commercial  world,  was  spe- 
cially    ruled     as     shown,     arranged     to     accommodate     twenty  '  coupons. 


(Ceupoo* 


Coupon.  pay«t»e  Jor«iAe.o«<.  .4' 
(S^Lb.  Nto  6.1  Km  '^ooo  pMae<«  J«l 

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obs-Qel 


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As  the  coupons  matured  and  were  paid  and  canceled,  they  were  pasted  in  the 
book  upon  the  block  corresponding  to  the  number  Tthe  highest  number  matur- 
ing first).  When  the  final  payment  was  made  and  the  debentures  redeemed, 
the  page  contained  the  completed  debenture  and  all  the  coupons,  duly  can- 
celed.—(i^., //.  Macphcrson,  C.  A.) 

(279)     debentures  sold  at  a  discount. 

In  such  cases  the  amount  of  the  debentures  can  be  entered  on  the  books, 
less  the  discount,  or  the  discount  can  be  spread  over  the  term  of  years  for 
which  the  debentures  are  issued,  either  method  being  considered  allowable.  In 
the  latter  case,  the  discount  on  the  debenture  is  treated  as  a  preliminary 
expense  of  the  incorporation  and  gradually  written  oflf  from  subsequent  profits. 

In  the  case  of  redeemable  debentures  (payable  at  the  end  of  a  specified 
term  of  years),  discount  and  brokerage  must  be  provided  for  by  a  charge  to 
profit  and  loss,  which,  however,  can  be  spread  over  the  term  of  years  covered 
by  the  debentures. 

406 


JiJ80-286      American  Business  and  Accounting  Encyclopedia 

(280)     indorsed  bonds. 


Bo 


A  term  used  on  the  stock  exchange  to  signify  bonds  indorsed  by  transfers, 
assignments,  releases,  etc. 

(281)     guaranteed  bond. 

An  undertaking  made  by  one  party  for  the  faithful  performance  by  another 
party  of  some  service  or  trust,  and  to  make  good  any  loss  or  damage  resulting 
in  case  of  the  failure  of  the  said  second  party  to  faithfully  discharge  said  ser- 
vice or  trust. 

Such  bonds  are  frequently  required  in  cases  of  cashiers,  secretaries,  treas- 
urers, etc.,  and  are  now  usually  furnished  by  insurance  corporations  or  bonding 
companies  organized  to  undertake  such  responsibilities  or  liabilities  at  certain 
specified  rates  or  premiums. 

(282)  income  bonds. 

Bonds  on  which  interest  is  paid  by  way  of  dividend,  or  out  of  profits, 
same  being  non-cumulative— i.  e.,  if  the  interest  is  passed  on  account  of  there 
being  nothing  with  which  to  pay  same,  the  holders  of  the  bonds  have  no  claim. 

(283)  mortgage  bond. 

A  bond  issued  by  a  corporation  secured  by  mortgage  upon  real  or  personal 
property  to  insure  its  redemption.  Prior  to  issuing  such  bonds  it  is  necessary 
to  obtain  the  written  assent  of  stockholders  representing  two-thirds  of  the 

stock. 

A  first  mortgage  bond  must  be  redeemed  in  full  before  any  payments  can 
be  applied  to  the  redemption  of  second  mortgage  bonds. 


(281)     municipal  bonds. 


(See  Debentures.) 


(285)     registered  bond. 


A  bond  payable  to  order  of  holder  and  non-transferable  except  under 
assignment  duly  acknowledged. 

(286)     BONUS. 

A  present,  or  donation,  by  a  corporation  in  consideration  of  services 
or  value  received,  or  to  a  corporation  in  the  shape  of  stock  to  be  sold  in 
order  to  raise  working  capital.    In  the  first  case,  the  amount  may  be  car- 

407 


Bo  American  Business  and  Accounting  Encyclopedia      286-289 

ried  in  a  bonus  account,  to  be  either  closed  into  profit  and  loss  at  the  end 
of  the  fiscal  period  or  distributed  over  a  number  of  years,  so  that  the  full 
amount  may  not  be  a  charge  on  the  first  year's  profits.  The  latter  course 
is  usually  adopted  in  the  case  of  expenses  on  account  of  organization. 
Bonuses  of  this  kind  are  sometimes  paid  in  stock  of  the  company,  the  value 
of  which  must  be  disposed  of  in  a  similar  manner.  It  has  been  suggested 
that  where  the  directors  of  a  corporation  do  not  desire  to  show  a  bonus 
account  on  their  books,  the  assets  of  the  company  should  be  inflated  suffi- 
ciently to  cover  the  amount,  but  such  a  course  cannot  be  recommended 
or  sanctioned  by  good  accountants. 

In  the  second  case  illustrated,  it  is  usual  to  carry  stock  donated  in 
the  treasury  stock  account  until  sold,  crediting  same  to  an  account  called 
"Working  Capital."  As  the  stock  is  sold  cash  is  debited  and  treasury 
stock  account  credited. 

(287)     BOOK  ACCOUNT. 

A  ledger  account.    An  account  receivable  (generally). 

(288)     BOOK  DEBT. 
An  account  receivable. 

(289)     BOOK-KEEPER. 

A  person   appointed   to  take  care  of  the  books  and  accounts  of  a 
business. 

While  a  great  deal  of  good  advice  has  from  time  to  time  been  given 
the  book-keeper  as  to  what  he  should  do  on  entering  upon  his  duties,  in 
the  way  of  verifying  the  books,  cash,  assets  and  liabilities,  etc.,  the  average 
book-keeper  will  find  that  his  employers  do  not  expect  him  to  take  an 
inventory  of  the  business  immediately  upon  commencing  his  duties,  and 
would  resent  any  attempt  on  his  part  to  do  so.    We  recommend,  therefore, 
that  the  book-keeper  should  inventory  the  cash,  reconcile  the  bank  account 
with  outstanding  checks,  and  take  off  an  independent  trial  balance.     If 
the  trial  balance  does  not  agree  he  should  report  the  fact  to  his  employers, 
and  by  means  of  an  error  account  establish  a  balance,  carrying  the  differ- 
ence in  the  error  account  until  such  time  as  he  has  had  an  opportunity  to 
trace  the  cause  of  the  difference  or  differences.     The  new  book-keeper 
should,  of  course,  make  a  thorough   study  of  the   requirements   of  the 
business  in  which  he  is  employed  and  of  the  methods  in  use,  formulate 
plans  for  improvements  which  will  give  better  results  and  shorten  labor 
and  suggest  them  to  his  principal  as  soon  as  a  favorable  opportunity  is 


289-290      American  Business  and  Accounting  Encyclopedia 


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408 


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offered;  thus   calling  attention   to   his   capabilities   without   causing   his 
employers  irritation  or  annoyance. 

The  book-keeper  should  always  recollect  that  no  matter  what  sys- 
tem is  employed,  it  is  within  his  power  to  make  sure  of  the  accuracy  of  his 
own  work.  In  the  case  of  a  corporation  where  a  number  of  individual 
ledgers  are  kept  and  in  which  adjustment  or  controlling  accounts  are  kept 
in  a  private  ledger,  with  each  individual  ledger  the  book-keeper  has  only 
to  establish  an  arbitrary  balance  in  the  first  place,  debiting  and  crediting 
a  memorandum  account  with  all  the  postings  that  go  into  his  ledger 
from  time  to  time,  taking  these  debits  and  credits  from  the  totals  of  the 
books  from  which  he  posts.  In  this  way,  the  book-keeper  can  make  his 
own  balance  of  his  own  ledger  whenever  he  pleases,  and  is  entirely  inde- 
pendent of  the  private  ledger  so  far  as  the  proof  of  the  correctness  of  his 
own  work  is  concerned. 

(290)     BOOK-KEEPING. 

The  science  of  correctly  recording  business  transactions  connected 
with  the  exchange  of  values. 

The  following  points  are  considered  of  great  importance  to  the  book- 
keeper, who  is  recommended  to  bear  them  constantly  in  mind  if  he  wishes 
to  thoroughly  understand  the  "why  and  the  wherefore  of  a  good  system 
of  book-keeping." 

1.  "That  the  record  be  so  explicit  that,  at  any  subsequent  time,  the 
€xact  nature  of  the  transaction  may  be  readily  perceived ; 

2.  "That  the  transactions  should  be  so  classified  that  at  any  time  the 
total  result  of  such  transactions,  or  any  particular  series  thereof,  during 
any  given  period  may  be  readily  ascertained; 

3.  "That  the  amount  of  labor  necessarily  involved  be  reduced  to  a 
minimum." 

The  following  is  quoted  from  a  Scotch  Encyclopedia  of  Accounting: 

"Anyone  engaged  in  business,  who  wishes  to  conduct  it  with  ordinary 

intelligence  and  according  to  business  methods,  must  keep  his  books  so 

that  he  may  get  from  them  all  the  particulars  and  information  which  he 

requires.    Among  the  general  points  are  the  following 

1.  "He  requires  to  have  a  complete  record  of  every  transaction  he  has 
in  connection  with  his  business. 

2.  "He  requires  to  know  exactly  what  his  obligations  are,  and  how 
far  his  capital  and  credit  will  enable  him  to  extend  his  business. 

3.  "He  requires  to  ascertain  the  result  of  his  commercial  dealings  as 
regards  the  component  parts  of  his  business  and  of  his  business  as  a 
inrhole. 

409 


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Bo  American  Business  and  Accounting  Encyclopedia 

4.  "He  also  requires  to  know  the  position  of  his  affairs  from  time  to 
time." 

Books  of  account  may  be  divided  into  two  classes,  (1)  the  regular 
financial  books  and  (2)  statistical  records.  The  regular  financial  books 
are  those  necessary  to  carry  out  the  system  of  double  entry,  and  from  these 
are  compiled  the  main  financial  statements,  such  as  balance  sheet,  trading 
account  and  profit  and  loss  account. 

The  books  of  statistical  record  are  devised  for  the  purpose  of  obtaining 
details  of  cost  of  production,  selling  and  general  expense,  etc. 

The  principal  financial  books  consist  of  sales  book,  purchase  book, 
journal,  cash  book,  ledgers. 

Samples  of  statistical  records  are  stock  ledger,  purchase  distribution 
book,  pay  roll  analysis  book,  sales  recapitulation  and  distribution  books, 
comparative  statements  of  assets  and  liabilities,  etc. 

In  this  work  we  do  not  consider  the  so-called  single  entry  form  of 
book-keeping  as  it  is  not  only  antiquated  and  inefficient,  but  practically 
obsolete.  Only  those  persons  use  the  single  entry  system  of  book-keeping 
who  are  ignorant  of  the  superiority  and  advantages  of  the  double  entry. 

The  great  weakness  of  single  entry  is  that  it  affords  no  opportunity 
to  prove  the  accuracy  of  book-keeping  records.  For  example,  almost  every 
business  house  keeps  sales  records  of  some  kind,  and  the  amounts  of  these 
sales  are  posted  to  the  accounts  of  customers  in  the  customers'  ledger.  By 
single  entry  the  omission  of  posting  whole  pages  of  sales  from  a  sales 
record  to  the  customers'  ledger  would  remain  undetected  except  by  acci- 
dental discovery.  By  a  properly  arranged  double  entry  system  such  an 
expensive  error  could  not  possibly  escape  notice. 

As  this  encyclopedia  contains  a  large  number  of  complete  systems  ot 
advanced  book-keeping,  it  is  not  necessary,  under  this  heading,  to  give  a 
complete  exposition  of  the  subject,  but  the  following  is  an  illustration  of 
book-keeping  methods  and  set  of  forms  used  in  connection  with  the  Pre- 
liminary Book-keeping  Correspondence  Course  conducted  by  The  Inter- 
national Accountants'  Society. 

(291)     THE  eagle  printing  company. 

The  Eagle  Printing  Company  was  organized  Dec.  1st,  1904,  with  a 
capital  of  $10,000,  A.  Johnson  subscribing  $6,000  ($4,000  cash  and  $2,000 
plant  and  machinery),  and  J.  Lang  subscribing  $4,000  cash.  Furniture 
and  fixtures  were  purchased  to  the  extent  of  $490,  and  the  paper  stock  and 
shop  supplies  of  a  bankrupt  printing  company  were  purchased  for  $1,000 
(paper  $728,91,  various  shop  supplies  $271,09).  It  was  agreed  that  John- 
son should  receive  a  salary  of  $150  and  Lang  a  salary  of  $125  per  month 

410 


291  American  Business  and  Accounting  Encyclopedia  Bq 

for  services.  The  rent  of  the  office  and  shop,  including  power  for  running 
presses,  was  $100  per  month. 

We  append  particulars  of  the  transactions  for  the  first  month,  viz., 
sales  book  (showing  distribution  of  cost  of  work  and  profit  on  same), 
schedule  of  purchases  during  month,  schedule  of  cash  receipts  and  expen- 
ditures, and  schedule  of  journal  entries. 

The  starting  point  of  the  business  transactions  is  as  follows : 

statement  of  assets  and  liabilities  a  s  at  date  of  commencement  of 

business,  dec.  1st,  1904. 
Assets.  Liabilities. 

$6,510.00 Cash. 

2,000.00 Plant  and  machinery. 

1,000.00 Shop  inventory. 

490.00 Furniture  and  Fixtures. 

Capital    , $10,000.00 

$10,000.00  $10,000.00 

schedule  "a.** 
accounts  payable  debits. 

W.  T.  McCormack  $6.00,  allowed  to  J.  H.  Gillett  &  Co.  on  account 
of  poor  quality  of  paper. 

W.  T.  McCormack  $18.00,  allowed  to  G.  W.  Ammerman  &  Co.  on 
account  of  poor  quality  of  pap^r. 

W.  T.  McCormack  $18.00,  allowed  to  J.  F.  Bell  on  account  of  poor 
quality  of  paper. 

customer's  account  credit. 
One  dollar  and  eighty  cents  allowed  to  W.  T.  Sailing  for  overcharge. 

USX  OF  C.\SH  RECEIPTS. 

J.  H.  Gillett  &  Co $  70.65 

G.  W.  Ammerman  &  Co 712.59 

W.   T.   Baker    1.95 

D.  T.   Gillings    315.70 

W.    Moore    18.51 

Detroit  Sanitary  Supply  Company 275.49 

W.   T.    Griffin    232.7r> 

H.   T.    Holbrook    642.10 

W.   T.   Sailing    238.61 

W.   T.   Sailing    613.20 

LIST  OF   DISCOUNTS   ALLOWED  TO  CUSTOMERS. 

W.   T.   Griffin $4.75 

H.  T.   Holbrook 13.10 

W.  T.  Sailing 4.87 

411 


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American  Business  and  Accounting  Encyclopedia 


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LIST  OF   CASH    DISBURSEMENTS. 

W.  T.  McCormack $1,620.12 

Office  and  Supplies 18.00 

Composition   216  78 

Binding    345  39 

Press  work , 301.70 

Postage    3  85 

Salaries 275.00 

Rent  and  Power , 100.00 

DISCOUNTS   DEDUCTED. 

W.  T.  ]\IcCormack , $85.27 

SCHEDULE  "B." 

Dec   2  W.  T.  McCormack $587.50 

**     2  Page  &  Company 47.83 

**     5  Buflfalo  Ink  Co. ....!.       8*00 

12  W.  T.  McCormack 461.00 

"   12  Buflfalo  Ink  Co .^...........     18^00 

16  W.  T.  McCormack 310.40 

18  Page  &  Company 44.10 

19  Page  &  Company 6.43 

24  Page  &  Company 360.00 

"   26    W.  T.  Mc<:ormack 387.50 

Paper   Stock  was   purchased   from  W.   T.   McCormack;   envelopes 
from  Page  &  Co.,  ink  from  Buflfalo  Ink  Co. 

Make  forms  of  cash  book  and  journal  and  incorporate  entries  from 
schedule  (A).    Provide  special  columns  in  cash  book  for  discounts. 

Illustrate  controlling  account  with  customers*  ledger  and  sales  account 
Submit  trial  balance  of  work. 

Make  trading  account,  profit  and  loss  account  and  working  balance 
sheet. 

SOLUTION. 

TRIAL  BAI,ANCE,  DEC,   31,  '04. 

^ash    $6,750.72 

Plant  and  Machinery 2.000.00 

Inventory,  Dec.  1 1,000.00 

Furniture  and  Fixtures 490.00 

Accounts  Receivable 1,111.29 

General  E.xpense  296.85 

Rent  and  Power 100.00 

discount    $       62.55 

Paper  Stock  2,163.75 

Ink    26.00 

Composition   216.78 

4U 


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American  Business  and  Accounting  Encyclopedia 


55»1 


291 


Ameucan  Business  and  Accounting  Encyclopedia 


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Binding    345.39 

Binding    345  39 

Press  Work 301.70 

Sales    4,255.57 

Capital    .   10,000.00 

5^ge&  Co  •• 458.36 

Buffalo  Ink  Co 26  00 

$14,802.48        $14,802.48 
ACCOUNTS    RECEIVABLE    CONTHOLUNG   ACCOUNT. 

r*       ,.    e    «              ^                ^^^    31,  Cr.               Bal. 

Dec.  31,  S.  B $  4,299.37                          C $  3,121.56 

Dis 22.72 

J 43.80     Dr.  $1,111.28 

SALES   ACCOUNT. 

-.       ,,    ,                     I>r                Dec.  31,  Cr.  Bal. 

*^«-  31,  J $        43.80  J $  4,299.37   Cr.    $4,255.57 

opening  entries  and  manifold  blanks. 

We  now  present  the  necessary  particulars  for  a  continuation  of  the  trans- 
actions of  The  Eagle  Printing  Co.  for  the  month  ending  Jan.  31st.  These  par- 
ticulars consist  of: 

Schedule  A— Order  Register  and  Sales  Book. 

Schedule  B — List  of  Purchases. 

Schedule  C — List  of  Cash  Receipts  and  Expenditures. 

Schedule  D— Journal  Entries. 

Submit  trial  balance  of  work.  Make  trading  account,  profit  and  loss 
account,  and  balance  sheet.  Provide  for  a  reserve  for  depreciation  of  5 
per  cent  per  annum  on  plant  and  machinery,  and  10  per  cent  per  annum  on 
furniture  and  fixtures. 

SCHEDULE  "B." 

Jan.    2.  Page  &  Co.,  Envelopes. : $13  92 

Jan.    2.  Page  &  Co.,  Paper ."..*!.!!!.!.!.  302^15 

Jan.   4.  W.  T.  McCormack,  Paper 33a00 

Jan.    5.  Page  &  Co.,  Paper  and  Envelopes 48J5 

Jan.    6.  W.  T.  McCormack.  Paper 555!60 

Jan.   6.  Page  &  Company,  Envelopes 207^50 

Jan.   6.  W.  T.  McCormack,  Paper 508  70 

Jan.   7.  Buffalo  Ink  Co.,  Ink 75^00 

Jan.   7.  Page  &  Co.,  Paper  and  Envelopes '     41.65 

Jan.    8.  Page  &  Co.,  Paper  and  Envelopes '     10.77 

Jan.  12.  W.  T.  McCormack,  Paper [,]  360.00 

Jan.  15.  Page  &  Co.,  Envelopes 300  00 

Jan.  18.  Buffalo  Ink  Co ,  Ink ,[    75^00 

■     SCHEDULE  "C" 

UST  OF  CASH   RECEIPTS   AND  EXPENDITURES. 
CASH    RECEIPTS. 

Jan.    5.    W.  F.  Trescott $18.97 

G.  W.  Moore 1.05 

Jan,    6.    W.  G.  Brown 353 

F.  C.  Smith 3.71 

J.  G.  Huber [[]       3^50 

416 


. 


Jan.    9. 


Jan.  12. 


W.  Sommerville  3.78 

A.  Gratz 4.87 

W.  J.  Wilson 2.50 

J.  F.  Moore  46.50 

J.   McLaughlin    81.09 

W.  F.  Whitney 882.00 

2%  discount  18.00 

Jan.  14.     G.  P.  Upton 735.00 

2%  discount 15.00 

D.  F.  Morton 1.46 

A.  C.  McLeod 122.00 

G.  F.  Sheeley  64.00 

W.   C.   Ball    42.50 

F.    C.    Dester    1000.00 

J.  T.  Wing   500.00 

SCHEDULE   OF  CASH    PAYMENTS. 


Jan. 
Jan. 
Jan. 


17. 
21. 
23. 


on  account 
on  account 


Jan. 
Jan. 
Jan. 
Jan. 


Jan, 


Jan. 


Material  Purchases. 

10.     Page  &  Co $458.36 

Buffalo  Ink  Co 26.00 

23.    W.  T.  McCormack 1000.00  on  account 

J.  F.  Moore,  (A.  R.) 3.75 

26.     Buffalo  Ink  Co 73.50 

Discount  1.50 

30.  Page  &  Co '. 296.10 

Discount 6.05 

SUNDRY  DISBURSEMENTS  FOR  MONTH. 

Stamps     5.00 

31.  Repairs     13.00 

Office  Supplies    21.37 

Salaries     275.00 

Rent    100.00 

TRADING  EXPENSES    FOR    MONTH. 

31.     Press   Work    $912.11 

Binding     681.56 

Composition    100.00 

SCHEDULE  "D." 


JOURNAL  ENTRIES. 


Inventory,  Jan.  31    

W.  T.  McCormick,  Dr.  to  J.  T.  Moore,  Cr. 
(Allowance  on  defective  paper.) 


SOLUTION. 

TRIAL  BALANCE,  JAN.  31,  1905. 

Dr. 

Cash     $  6,301.53 

Plant  and  Machinery  2,000.00 

Inventory — Dec.  31,  1904  1,386.00 

Furniture  and  Fixtures   490.00 


417 


.$690.00 
.  375.00 


Cr. 


II 


i  I 


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291 


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418 


291-293      American  Business  and  Accounting  Encyclopedia 


Bo 


Accounts  Receivable   3,760.48 

Purchase  Account    2,829.04 

Discount     25.45 

Expense     414.37 

Composition     100.00 

Press  Work   91211 

Binding     681.56 

Accounts   Payable    

Accounts   Payable    

Sales    

Surplus     •• 


$10,000.00 
1,451.89 
6,195.00 
1,253.65 


$18,900.54     $18,900.54 


TRADING   ACCOUNT,  JAN.    31,   1905. 


Dr. 

Inventory— Dec.  31,  1904 $1,386.00 

Purchases    2,728.04 

jnk    101.00 

Composition' '.'.' 10000 

Press  Work 912.11 

Binding 681.56 

Gross  Profit   976.29 


Sales   

Inventory— Jan.  31,  1905 


$6,885.00 


Cr. 

$6,195.00 
690.00 


$6,885.00 


PROFIT    AND   LOSS   ACCOUNT,  JAN.   31,   1905. 


Expense .$  414.37 

Discount     25.45 

Depreciation    24.82 

Net  Profit   511.65 


Gross   Profit   from  Trading  Ac... $976.29 


$    976.29 


$  97t».2«.» 


.\SSETS. 


R.ALANCK  SHEET.  JAN.  CV,  VTJE. 


LIABILITIES. 


Cash    $6,301.53 

Plant  and  Machinery   2,000.00 

Inventory— Jan.  1,  1905   690.00 

Furniture  and  Fixtures   490.00 

Accounts  Receivable   3,760.48 


$13,242.01 


Accounts  Payable    $  1,45189 

Capital 10,000.00 

Reserve  for  depreciation  24.83 

Surplus  D 1.765.30 

$13.24201 


(292)     BOOK-KEEPING  LITERATURE. 

COMPILED  BY  RICHARD  BROWN,  PROFESSOR  OF   MERCANTILE  LAW,  ST.   MUNGO's  COLLEGE. 

GLASGOW,   SCOTLAND. 

The  following  is  a  list,  with  notes,  of  printed  books  on  book-keeping.  It  is  as  full 
—to  the  end  of  the  seventeenth  century— as  the  writer  can  make  it,  containing  every 
book  in  the  European  languages  of  which  he  can  find  a  trace.  No  one  can  claim  com- 
pleteness for  a  bibliography  of  ancient  authors,  but  there  is  no  published  list  known  to 
the  writer  which  contains  even  half  the  number  of  the  books  here  mentioned.^  From 
the  beginning  of  the  eighteenth  century  only  English  books  are  included  in  the  list,  and. 
especially  as  regards  publications  of  recent  date,  only  a  few  of  the  more  important. 

Venice,  1494.  Lucas  Pacioli.  "Frater  Lucas  de  burgo  Sancti  Sepulcri."  "Suma 
de  Arithmetica  Geometria  Proportioni  e  Proportionalita." 

Another   edition.     Tusculano,   1523. 

Another  book  entitled  "La  Scuola  perfetta  die  mercanti  di  Fra  Pacciolo  di  Borgo, 
Santo  Sepulcro."     Venice,  1504. 

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American  Business  and  Accounting  Encyclopedia 


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'i 


^^^•w/JSo?°v"P'iP^^^^^^°^  °"  book-keeping.     The  author   follows   the 
method  of  Venice,"  and  the  system  described  is  what  we  call  double  entry 

K-„«clri  iT^'u^^^^     Heinrich    Schreiber.     "Henrichen    Gramateum."     "Bcfaend   vnd 
Kunsthch  Rechnung  nach  der  Kegel  vnd  welhisch  practic,"  etc 

«i>   ?''^*{r.''J,?2^  J.^""^"  ^"<1  completed  at  Vienna  in  1518)     "Henricus  Grammateti.;" 
Rechenbuchhn,  Kunstlich,  behend  vnd  gewiss.  auff  alle  KauffmannSt  Sri™" 
Other  editions:  1545.  and  Frankfurt,  1572. 

^*'%?nl?^  ^^'""'^"  *I-^^*''^  °"  *^^  ""^j^^*-    Describes  a  kind  of  book-keeping 
closely  corresponding  to  single  entry.  wu*.  »ccp«jg 

Ta,Vn4"*''''  ^^^i  1  ^r»?r'''  Antonio  Tagliente.     "Considerando  io  Joanni  Antonio 
Taiente  .    dlaudabile  modo  de  tenere  conto  de  libro  dopio  cioe,  el  Zornale?  etc 

form  of^edger''"'"'  '^"  "''  °^  ^'^  ""^  ^''  ^^  ^^^™P^^^'  ^^'  ^^'^  "° 

oder^S&telU^rWe^^^^^^^^^  p:^^^^'^"^  ^^^^^"^^^  ^^^^^^^^  ^^^  «-- 

Another  edition.       Nurnberg,  1546. 

Describes  the  rudiments  of  Italian  book-keeping,  but  not  very  clearly 
costumT  d''  Venetia^''''''''^  ^^^'"^"     "Quademo  doppio  col  suo  giornale  secondo  0 

Another  edition.     Venice^  1554 

A  close  copy  of  Pacioli,  with  simply  the  addition  of  examples. 
M,/a«    1539.     GiROLAMO  Cardano.  "Practica  Arithmetice  et  mensurandi  Singularis- 
Reprinted  in  the  author's  collected  works.    Leyden,  1663. 

^^T<i'k  k^ing^"^'"^   "^^  "*'°"^  "^'°''""'  tractandorum,"  deals  briefly  with 

R^ons^r'aTo'   df late"  e'xc'iltt  W±'rLl"!i'  ^'""'^  "^"""'"^  '"='™=«°''  " 
An  English  translation  published  in  London  1547  entitled  "A  nnt,M.  ,-j i 

The  earnest  known  Dotch  and  French  works  on  book-keeping.    Part  I  is  orae- 
nafuS/ettv^n-to^^ies'^e^c"-    ^"'  ""  '""""^  excel.'en?exa™p1eI-o7  re's?. 

An  excellent  book,  drawn  largely  from  Pacioli  and  Manzoni 
Antxverp,  1550.     Valentin  Mennher  de  Kempten.     "Practique  brifue  oour  cvfr*r 
tt  tenir  Liures  de  Compte  touchant  le  Principal  train  de  raarclSndise "  ^ 

«rJ^«.«^^"*'^K^*"''-^*'°"  ^^  ^'''''''"  ^°^^A'  published  at  Barcelona  in  1565  entitled 
Compendis  y  breue  instruction  por  tener  Libros  de  Cuenta,  Dcudas,  y  de  MercaXria  " 

Another  edition   (in  French)   published  at  Lyon,  1591. 

Another  book  by  Mennher,  published  at  Antwerp  m  1565.  entitled  "Prarrinni.  nmif 
G2:meTrTe.'' '""""'"  '  "^""'''^  ^  *^"'^  ^^"^^  ^'  C^mptes.  aae%  k  Re^J^^'^Jsn 

420 


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American  Business  and  Accounting  Encyclopedia 


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Mennher  added  various  improvements  in  details  to  the  system  of  double  entry. 

London,  1553.  James  Peele.  "The  maner  and  fourme  how  to  kepe  a  perfecte 
reconyng  after  the  order  of  the  most  worthie  and  notable  accompte  of  Debitour  and 
Creditour  set  forthe  in  certain  tables  with  a  declaracion  thereunto  belong>'ng." 

Another  work  by  Peele  was  published  in  London  in  1569,  entitled  "The  patheway  to 
perfcctness  in  the  accomptes  of  Debitour  and  Creditour:  in  manner  of  a  dial(^;ue  very 
pleasant  and  proffitable  for  Marchaunts  and  all  other  that  minde  to  frequent  the  same, 
once  againe  set  forthe  and  very  much  enlarged,"  etc 

In  both  books  a  system  of  double  entry  is  described  such  as  Peele  believed  to  be 
used  in  Venice.     In  the  earlier  publication  the  "great  booke  of  accomptes" 
is  called  "Quaterne"  (from  the  Italian  "Quaderno"),  in  the  later  "Leager." 

Venice  {?)  1558.    Alvise  Casanova.    "Specchio  lucidissimo." 

Said  to  be  simply  a  copy  of  Pacioli  and  Manzoni. 

Venice,  1573.    Benedetto  Cotrugli.    "Delia  mercatura  e  del  mercante  perfetto." 

A  French  translation,   dated  1582. 

This  book  is  stated  to  have  been  written  and  completed  in  1458,  though  not  printed 
till  1573.  There  is  a  description  of  mercantile  book-keeping  with  brief  rules 
which  indicate  familiarity  with  the  system  of  double  entry. 

Antwerp  (?)  1573,    Michiel  Coignet.    A  Dutch  work  on  book-keeping. 

Mantua,  1586.  Angelo  Pietra.  'Tndrizzo  de  gli  Economi  o  sia  ordinatissima  in- 
struttione  da  regolatamente  formare  qualunque  scrittura  in  un  libro  doppio." 

Treats  of  the  accounts  of  monasteries. 
London,  1588.  John  Mellis.  "A  briefe  instruction  and  maner  how  to  keepe  bookes 
of  Accomptes  after  the  order  of  Debitor  and  Creditor,  and  as  well  for  proper  Accompts 
pustible,  etc.  By  the  three  books  named  the  Memoriall  Journall  and  Leager,  and  of 
other  necessaries  appertaining  to  a  good  and  diligent  marchant.  The  which  of  all  other 
reckoninges  is  most  lawdable:  for  this  treatise  well  and  sufficiently  knowen,  all  other 
wayes  and  maners  may  be  the  easier  and  sooner  discerned  learned  and  knowen.  Newely 
augmented  and   set   forth   by  John   Mellis,   Scholemaister. 

The  author  acknowledges  that  he  is  but  the  "reneuer  and  reviver  of  an  auncient 

old  copie"  of  Oldcastle  referred  to  above.    The  original  portion  of  the  work 

consists  of  some  forms  of  books  and  a  treatise  on  arithmetic.    The  system  of 

book-keeping  described   is   "after  the  forme  of  Venice." 

Amsterdam,  1588.    Nicolaus  Petri  Daventriensis.    Also  1595  and  1596.    The  last 

entitled  "Practicque  omte  Leeren  Rekenen  Cypheren  ende  Boeckhouwen  met  die  Reghd 

Coss,"  etc 

Contains  arithmetic,  algebra,  geometry,  and  an  example  of  book-keeping. 

Rotterdam  {?)  1590.    Eleius  Eduard  Leon  Mellema.    A  Dutch  writer. 

Madrid,  1590.  B.  S.  de  Solorzana.  "Libro  de  Caxa  y  manual  de  Cuentas  de  Mer- 
caderes."     "Compendio  para  tener  y  regir  los  libros  de  Cuentas  de  Mercaderes." 

(?)   1592.     Baethelemy  de  Rentereghem.     a  Dutch  writer. 

Hamburg,  1594.     Passhier-Goessens.    A  good  German  writer. 

{?)   1595.     Martinus  Wenceslaus.     a  Dutch  writer. 

London,  1596.  W.  P.  "The  Pathway  to  Knowledge.  Conteyning  certatne  briefe 
Tables  of  English  waights  and  measures.  .  .  .  With  the  Rules  of  Cossicke,  Surd, 
Binomicall,  and  Residuall  Numbers,  and  the  rule  of  Equation  or  of  Algcbere  .  .  .  and 
lastly  the  order  of  keeping  of  a  Marchant's  booke,  after  the  Italian  manner,  by  Debitor 
and  Creditor.    .     .     .    Written  in  Dutch,  and  translated  into  English  by  W.  P." 

(.^)  1598.    Martin  van  den  Dycke.    A  Dutch  writer. 

Middelburg,  1603.    Jan  Coutebeels  of  AntwerpL 

Leyden,  1605-7.     Simon  Stevin  of  Bruges.    "Mathematica  hypomnemata,"  etc 

The  second  volume  of  this  work  treats  of  "Book-keeping  for  Princes  (or  States) 
after  the  Italian  manner." 

i?)  1609.    SiMONE  Grisogono  di  Zara.     "Mercante  arrichito  dal  perfetto  qatf 

dcrniere." 

Venice,  1610.  Giovanni  Antokio  Moschettl  "Dell'  universal  trattalo  di  lihri 
dojipL" 

Follows  Tagliente,  Manzoni,  and  Casanova. 

4ai 


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Amsterdam,  1615.     Hendrick  Waxinghen  van  Campen.     "Tresoor  vant  Italiaens 
Boeck-Houden." 

Other  editions  by  Ioaxnes  Buingha.  published  in  Amsterdam  in  1627  and  1639. 
Amsterdam,  1616.  Jan  Willemsz  von  Lowen.  "Goulden  Schoole." 
London,  1622.  Gerard  Malyxes.  Merchant.  "Consuetude,  vel,  Lex  Mercatoria,  or. 
The  Antient  Law-Merchant.  Divided  into  three  parts:  according  to  the  essentiall  parts 
of  Trafficke.  Necessarie  for  all  Statesmen,  Judges.  Magistrates.  Temporall  and  Civile 
Lawyers,  Mmtment,  Merchants,  Mariners,  and  all  others  negotiating  in  all  places  of  the 
world." 

Has  a  chapter  on  the  keeping  of  merchants'  accounts  by  double  entry. 
London.  1632.    I.  Carpenter,  Gent.    "A  most  excellent  instruction  for  the    .    .    keep- 
ing rnerchants  bookes  of  accounts  by  way  of  Debitor  and  Creditor.    .    .     .     And 
here  is  adioyned  the  practice  by  an  example  of  the  Inventory,  Journal!,  and  Lidger,"  etc. 
Largely   taken   from    Hendrick   Waninghen. 
Bologna   {?),  1632.     Matteo  Maixardi.     "Scrittura  Mercantile." 
London,  1636.     Richard  Dafforxe  of  Northampton.  Accountant.     "The  Merchants' 
Mirrour,  or  Directions  for  the  perfect  ordering  and  keeping  of  his  accounts.  Framed  by 
way  of  Debitor  and  Creditor,  after  the  (so  tearmed)  Italian  manner:  containing  250  rare 
qiiestions,  with   their  answers,  in   forme  of  a  Dialogue.     As  likewise  a  Waste   Booke, 
with  a  compleat  Journall  and  Leager  thereunto  appertaining    .    .    .    and  also  a  Moneth- 
Booke,"  etc. 

An  excellent  book  describing  double  entry  in  its  full  development. 

Palermo,  1636.     Lodovico  Flori.     "Trattato    del    modo    di    tenere    il    libro    doooio 
domestico."  *^ 

Another  edition,  Palermo,  1677. 

London,  1652.     John  Collixs.  Fellow  of  the  Royal  Societv.     "An  Introduction  to 
Merchants  Accompts,  containing  seven  distinct  questions  on  accompts,"  etc. 

Florence,    1655.      Bastiaxo    Venturi.      "Delia    scrittura    conteggiante    di    oosses- 
sioni,    etc.  *^ 

Treats  of  Estate  Management  and  Book-keeping. 

Bologna    (H,  1666.     Giacomo  Vexturoli.     "Scorta  di  Economia  o  sia  Dialoeo  di 
scrittura   famigliare." 

Another  edition.     Bologna,  1717. 

London,  1660.  Abraham  Liset.  Gent.  "Amphithalami.  or  the  Accountant's  Closet 
Being  an  abridgment  of  merchant's  accounts  kept  bv  Debitors  and  Creditors  exactly  and 
accurately  shewing  how  to  order,  state,  and  keep  accounts  either  of  a  publick  Firm  a 
private  Estate,  into  a  single  Book,  without  a  memorial,  and  Journal,  or  annal ;  whereby 
calculation  may  be  made  at  pleasure  of  the  advance  or  arrear,  gain  and  loss,  of  the  whole 
stock   and   architecture,"   etc. 

Brescia  {?),  1671.  Antonio  Zambelli.  "Ragionato  o  sia  il  trattato  della  scrittura 
ttniversale. 

Another  book  by  Zambelli,  entitled  "Mercantesche  dichiarazioni  della  scrittura 
doppia,"   dated  1681. 

Edinburgh,  1693.  Robert  Colinson.  "Idea  Rationaria,  or  the  Perfect  Accomptant 
Necessary  for  all  merchant  and  Trafficquers,  containing  the  true  forme  of  Book-keeoine 
according  to  the  Italian  methode,"  etc. 

London,  1695.  Edward  Hatton.  "The  Merchant's  Magazine,  or  Trades  Man's 
Treasury,'    etc.;  and  subsequent  editions. 

London,  1711.  Abraham  Nicholas.  "The  Young  Accomptant's  Debitor  and  Credi- 
tor;  or.  An  Introduction  to  Merchants'  Accounts,  after  the  Italian  Manner,"  etc. 

Edinburgh  1718.  Alexander  Malcolm.  "A  New  Treatise  of  Arit'hmetick  and 
Book-keeping. 

London,  1721  (2nd  Edit.)     William  Webster.    "An  Essay  on  Book-keeping." 

London,  1731.  Alexander  Malcolm.  "A  Treatise  of  Book-keeping;  or  Merchants' 
Accounts,     etc. 

Edinburgh  1736.  John  Mair.  "Book-keeping  Methodiz'd;  or,  a  Methodical  Treatise 
of  Merchant-Accompts,    etc.,  and  subsequent  editions. 

editionl***""^^*'  "68.     John  Mair.     "Book-keeping  Modernized,"  etc.;  and  subsequent 

432 


I 


292-293 


American  Business  and  Accounting  Encyclopedia 


Ho. 


London,  17.94.  Thomas  Dilworth.  "The  Young  Book-keeper's  Assistant,"  etc.;  and 
subsequent  editions. 

Bristol.  1796.  Edward  T.  Jones.  "Jones's  English  System  of  Book-keeping,  by 
Single  or  Double  Entry;"  and  subsequent  editions. 

Glasgow,  1798.  C.  Buchanan.  "The  Writing-master  and  Accountant's  Assistant." 
etc. 

London,  1801.     P.  Kelly.     "The  Elements  of  Book-keeping."  etc. 

Hawick,  1807.    William  Lorrain.     "Book-keeping  by  Double  Entry,"  etc. 

Glasgow,  1815.  C.  Morrison.  "A  Complete  System  of  Practical  Book-keeping  appli- 
cable to  all  Kinds  of  Business,"  etc.;  and  subsequent  editions. 

Leeds.  1820  (3rd  Edit.).  James  Morrison.  "A  Complete  Treatise  on  Practical 
Book-keeping,"  etc. 

London,  1841.    A.  G.  Henderson.    "Book-keeping  by  Single  and  Double  Entry,"  etc 

Edinburgh,  1861.  F.  Hayne  Carter.  "Practical  Book-keeping  adapted  to  Commer- 
cial and  Judicial  Accounting,  with  Sets  of  Books  and  Forms  of  Accounts;"  and  subse- 
quent editions. 

Oxford,  1868.  Sir  R.  G.  C.  Hamilton  and  John  Ball.  "Book-keeping;"  and  subse- 
quent editions. 

London,  1893.  Lawrence  R.  Dicksee.  "Book-keeping  for  Accountant  Students;** 
and  subsequent  editions. 

Edinburgh,  1899.    George  Lisle.    "Accounting  in  Theory  and  Practice.** 


(293)     BOOT  AND  SHOE  MANUFACTURERS'  ACCOUNT. 


The  Cutting  Department  of  a  Shoe  Factory.  A  recent  change  from 
time  work  to  piece  work  in  a  cutting  department,  made  necessary  a 
new  form  of  work  slip  in  that  department.  Each  job  given  a 
cutter  consists  of  several  cases  of  lots  of  shoes  made  on  several 
patterns  which  will  work  up  to  the  best  advantage  the  leather 
to  be  used.  A  work  slip  is  made  out  for  each  job,  giving  the  case  num- 
bers, styles,  patterns  and  short  descriptions  enabling  the  cutter  to 
secure  his  patterns  and  arrange  his  work  to  advantage.  These  slips  are  also 
valuable  in  cost  accounting,  as  they  record  the  time  and  gain  or  loss  In 
leather  on  each  job  and  form  a  record  of  the  cutters'  work.  Cost  on  shoes 
must  be  figured  very  closely  and  it  is  important  to  have  accurate  figures  on 
the  beginning  of  the  shoes,  especially  when  that  forms  a  large  percentage 
of  the  cost.  The  usual  method  of  figuring  piece  work  is  to  provide  the 
operator  with  a  book  in  which  he  enters  the  case  number,  number  of  pairs 
and  the  amount  earned  on  each  lot  handled.  This  makes  it  necessary  to 
carefully  check  each  item  for  mistakes  in  copying  from  the  tickets.  Many 
disputes  arise  from  an  entry  of  a  case  number  which  has  been  credited  to 
another  operator.  To  avoid  these  troubles  and  to  have  all  extensions  made 
by  the  office  force  and  checked  by  the  operators,  the  form  illustrated  was 
devised.  This  form  is  made  in  duplicate,  the  carbon  copy  which  cannot  be 
altered  without  detection  being  returned  with  the  completed  work.  A 
cutter  will  average  about  four  slips  weekly  and  to  make  up  the  pay  roll 
for  the  department  it  is  only  necessary  to  add  these  slips.  The  same  lot 
cannot  be  paid  for  more  than  once  and  the  slips  are  accurate  proof  in  case 
of  damaged  work.    Errors  in  extensions  or  prices  are  immediately  reported 


i 

ti 


423 


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American  Business  and  Accounting  Encyclopedia 


292 


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by  the  cutter,  preventing  disputes  after  work  is  done.  As  it  is  necessary  to 
have  some  form  of  slip  to  obtain  figures  as  to  economical  cutting  of  each 
variety  of  stock  used  and  the  quality  of  the  cutter's  work,  there  is  no  extra 
time  used  for  the  pay  ro\\.—(J.  A.  Sttiherland.) 

A  Simple  System  for  Shipping  Shoes.— It  is  a  fortunate  shoe  manu- 
facturer, who  is  able  to  sell  his  output  at  a  nice  profit  and  if  he  is  able  to 
make  his  shoes  on  time,  he  is  indeed  to  be  envied.  But  many  a  manufac- 
turer loses  the  advantage  of  good  sales  and  factory  work  by  the  handicap 
of  a  poor  or  careless  system  of  shipping.  The  time  arrives  when  the  bulk 
of  the  orders  must  be  shipped  and  he  finds  himself  shipwrecked  on  a  sea  of 
promises.  Generally  in  this  emergency  the  office  force  is  hastily  equipped 
with  "wouldn't  rip"  overalls  and  invited  to  "accept"  positions  in  the  ship- 
ping department.  Mistakes  in  shipping  are  always  annoying,  sometimes 
costly  and  invariably  cause  trouble  for  the  house, .salesman  and  customer. 
A  good  system  is  half  a  victory,  but  too  much  system  becomes  a  burden 
and  worse  than  no^ie.  The  system  adopted  should  be  simple.  It  should  be 
elastic,  readily  applicable  to  a  large  or  small  volume  of  business  and  above 
all  inexpensive  in  operation.  It  should  enable  the  shipping  clerk  or  office 
manager  to  fix  positively  the  responsibility  for  mistakes,  or  carelessness. 

The  system  described  is  designed  for  a  factory  making  500  to  5,000 
pairs  daily  and  shipping  on  immediate  or  future  orders  direct  to  the  retailer 
and  provides  for  orders  shipped  complete  or  partially.  A  jobbing  house 
could  also  use  these  forms.  A  specially  ruled  sheet,  Form  1,  and  a  book 
ruled  as  Form  2  are  all  that  are  required.  Form  1  is  made  in  tablet  form, 
50  white  original  sheets  carbon  backed  and  50  yellow  duplicates.  The 
sheets  are  about  six  by  nine  inches  in  size,  and  the  white  sheet  is  per- 
forated for  a  canvas  post  binder.  The  system  is  best  described  by  following 
the  shipment  made  to  Myers.  Provided  with  the  original  order  clerk  J. 
E.  L.  assembles  the  shoes  on  a  stock  truck.  Each  item,  width,  pairs  and 
sizes,  where  not  a  regular  run,  are  entered  on  Form  1  and  its  duplicate. 
The  shoes  are  now  wheeled  to  the  packing  tables  and  J.  E.  L.  enters  the 

424 


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American  Business  and  Accounting  Encyclopedia 


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shipment  on  the  record,  Form  2.  From  this  record  he  takes  consecutive 
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orders  his  goods  routed  via  the  B.  P.  &  J.  Ry.,  the  clerk  copies  this  on 
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425 


1 

,1 


Bo. 


American  Business  and  Accounting  Encyclopedia.        21)3-^94 


being  placed  on  a  hook  for  the  bill  clerk  and  the  yellow  sheet  left  with 
the  goods.  Packer  M.  M.  packs  the  order,  re-checking  the  goods,  from  the 
yellow  sheet  which  he  incloses  in  the  case  after  signing.  He  does  not  pack 
the  goods  unless  the  sheet  is  signed  by  the  clerk  assembling  the  order.  The 
marker  checks  the  "mark"  column  in  the  record  if  he  finds  the  correct 
number  of  cases  and  when  the  bill  of  lading  is  made  that  column  is  checked. 
The  bill  clerk  in  removing  the  originals  from  the  book  will  call  for  any 
missing  number  thus — no  shipment  can  be  made  without  a  charge,  a  very 
important  precaution.  In  tracing  delayed  shipments  or  disputed  accounts 
the  number  readily  establishes  the  date  and  route  of  shipment  and  locates 
the  bill  of  lading  which  is  filed  numerically.  As  billed  each  item  is  checked 
on  the  original  order.  If  completed  the  order  is  filed  with  the  customers" 
correspondence;  if  partially  shipped,  it  is  returned  to  the  proper  binder. 
After  billing,  Form  3  is  filed  in  a  post  binder  by  date,  which  is  also  prac- 
tically numerically. 


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Form  :.'. 


A  branch  house  not  billing  direct  makes  Form  1  in  triplicate  and  the 
record  book.  Form  2,  is  made  duplicate  loose  leaf.  A  copy  of  each  day's 
record  sheet  and  a  copy  of  every  shipping  ticket,  Form  1,  is  mailed  to  the 
main  office.  This  system  is  easily  changed  to  conform  to  local  conditions. 
— (J.  A.  Siitlierland.) 

(294)     accounting  system  in  the  shoe  manufacturing  business. 

Other  countries  excel  in  some  industries,  but  in  shoe  making  we  have 
led  for  a  number  of  years  in  style,  comfort,  finish  and  magnitude  of  prod- 
uct. There  are  a  number  of  firms  making  over  10,000  pairs  daily.  One 
wonders  where  they  go  to,  but  they  seem  to  be  disposed  of  easily.  We 
have  originated  special  machinery  to  such  an  extent  that  we  have  branch 
factories  in  England  and  Germany  and  xepert  machine  operators  showing 
them  how  to  beat  us  at  our  own  tricks. 

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Shoemakers,  as  a  rule,  make  a  fair  living,  and  I  have  never  heard  of  a 
strike  in  the  shoe  business  on  account  of  not  being  paid  a  living  wage,  as 
has  been  the  case  in  the  textile  industries. 

Shoe  factory  accounting  differs  from  some  others,  in  the  number  of 
operations  necessary  to  produce  the  finished  product,  some  50  or  60,  accord- 
ing to  the  style  produced.  Large  manufacturers  run  what  are  called  country 
factories  in  small  towns,  where  rent,  taxes,  or  power  are  given  by  the  town 
to  keep  money  circulating  and  the  people  employed  at  a  lower  wage  scale 
than  in  cities  given  over  to  the  industry  where  the  unions  make  the  prices, 
and  are  so  well  organized  that  one  must  buy  union  shoes  and  the  other 
necessaries,  or  not  be  in  good  standing. 

The  manufacturers'   samples  are  shown  to  the  prospective  buyers. 


hr 

Stack 
Style 
Price 

TipPiirsltl 

fMth 

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ft 
U 

1- 

2.3.4.5.6.. 

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o 


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2  .  3 

.  4  . 

.  5 

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.  8  .  9  .  10  . 

11 

.  12 

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11 

Sample  Tag 


Inner  and  Outer  Sole  Tag 


They  apparently  embody  all  the  variations  one  could  wish  for,  but  no,  there 
is  needed  what  is  known  as  a  sample  sheet,  to  give  kind  of  last,  stock, 
bottom  finish,  trade  mark,  stamp,  etc.  Sample  tags  are  made  out  from 
this  sheet,  and  samples  made  up  six  months  in  advance  of  the  season 
These  tags  accompany  the  shoes  through  the  factory  and  are  tied  to- 
gether and  filed  in  the  tag  department  after  samples  are  shipped. 

The  office  work  divides  itself  into  three  branches ;  the  tag  department, 
in  which  the  orders  are  made  up  to  go  through  the  factory ;  the  factory 
accounting,  taking  in  the  time-keeper  and  clerks  checking  work  done  on 
shoes,  which  may  be  slips  or  coupons,  also  getting  the  shoes  through  on 
time  under  what  is  known  as  the  time  and  color  system ;  the  accounting  of 
sales,  purchases,  etc. 

The  samples  from  which  the  goods  are  sold  are  made  sometimes  as 

427 


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American  Business  and  Accounting  Encyclopedia 


294 


Sizes 

1 

ZZi 

33 

i4 

41 

5  5i 

G 

fci 

7 

8 

9 

lO 

II 

12 

13 

-       =d 

\Jar\p 

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QrLii)iij6 

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T.p 

l(]ner 

Outer 

Tcip 

Counter 

Heel 

Ed^e 

Fi.^jsl) 

Label 

Sr«KNo 

SocKlitjii^ 

PocKirj^ 

Manufacturing    Tag.      Slipper    Dept. 

much  as  a  year  ahead  of  the  time  the  style  will  be  worn,  especially  if  in 
the  jobbing  trade.  Some  factories  cater  to  retailers  and  mail  order 
customers  at  a  large  margin  of  profit,  but  more  salesmen,  more  clerks  in 
the  tag  and  sales  department,  help  to  offset  this. 

An  order  is  obtained,  is  copied  in  a  loose  leaf  order  book  wide  enough 
for  the  detail  of  the  number  of  cases,  pairs,  sizes,  kinds,  upper  stock,  style, 
last,  and  width  and  checking  off  shipments.  The  loose  leaf  system  is  neces- 
sary here  as  the  order  book  is  in  almost  constant  use  by  each  of  the  three 
departments  in  entering,  pricing,  checking,  and  hurrying  orders. 

The  sample  tags  of  the  customer  are  consulted.  Similar  tags  are  made 
out  from  them  for  shoes  in  multiples  of  a  dozen,  24,  36,  60,  or  72,  accord- 
ing to  style  and  size  of  shoe,  children's  in  60,  or  72  pairs,  men's  and  women's 
in  12,  24,  or  36.  The  shoes  on  each  tag  are  called  a  case.  The  finer  the 
grade  of  shoe,  the  smaller  the  number  of  pairs  to  the  case.  Manufacturing 
prices  are  figured  on  a  60  pair  basis;  72  pairs  of  children's  shoes  up  to  Uj/z, 
figure  the  same  as  60  pairs  of  men's  or  women's. 

The  tags  are  next  entered  in  a  factory  work  book  with  20  or  30  vertical 
columns,  printed  at  the  top  of  column  with  the  different  manufacturing 
operations,  and  at  the  left  with  a  number  on  each  horizontal  line,  and  a 
space  for  name  and  detail. 

Each  tag  is  entered  on  a  numbered  line  with  the  corresponding  num- 
ber entered  on  the  tag.  Through  the  factory  the  case  is  traced  by  this 
number,  and  all  the  work  done  on  the  shoe  is  checked  by  it.  The  work 
book  may  be  split  up  in  two  or  three  sections  for  as  many  clerks.  The  tag 
may  have  strung  with  it,  a  tip,  a  lining,  and  an  under  stock  tag,  when  it  is 
ready  to  start  on  its  journey,  commencing  with  the  cutting  room. 

About  all  the  processes  are  by  piece  work  but  this  varies  greatly  in 
different  factories,  as  well  as  methods  in  its  accounting.  In  Brockton, 
Mass.,  it  is  almost  wholly  done  by  the  coupon  system,  a  coupon  tag  accom- 
panying each  case  tag  with  number  of  pairs,  price,  and  kind  of  work  on  it, 

4?8 


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and  detached  by  the  workman  after  finishing.  The  week  coupons  are  listed 
by  the  operator,  passed  in  to  the  ofiice,  checked  with  the  list,  paid,  and 
burned.    If  the  coupon  is  lost,  the  workman  loses  his  money. 

In  the  checking  system  the  work  is  passed  in  on  slips  daily,  or  bi- 


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weekly,  giving  numbers,  pairs,  price,  total  and  kind  of  work.  This  is 
entered  by  workman's  initial  or  number  in  the  work  book  above  described. 
Under  this  system  there  is  no  possibility  of  paying  twice  for  work  if 
properly  checked  case?  can  be  traced  in  the  factory  and  poor  work  charged 
back.  If  a  man  loses  a  number,  it  can  be  traced.  It  costs  more  than  the 
coupon  system,  and  there  is  some  trouble  from  ignorant  workmen  on  pass- 
ing in  wrong  numbers. 

429 


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American  Business  and  Accounting  Encyclopedia.        294-295 


Sample  cases  are  outside  of  the  regular  work,  although  given  a  number, 
and  are  done  mostly  on  time,  costing  about  one-third  more  than  regular 
goods. 

The  shoes  reach  the  packing  room,  and  the  case  tag  comes  back  to  the 
office,  somewhat  the  worse  for  wear,  is  entered  in  a  shipping  or  bill  book  by 
factory  number,  stock  number  (by  which  the  jobber  traces  the  shoe),  num- 
ber of  pairs,  kind,  upper  stock,  style,  last,  width,  and  sizes,  all  abbreviated 
as  much  as  possible. 

Price  is  next  obtained  from  the  order  book  and  the  number  of  cases 
shipped  is  checked  there  and  frequently  the  number  of  cases  of  a  particular 
run  is  checked  against  the  sizes.  Bill  may  be  made  out  from  the  shipping 
book  and  compared  with  the  tags.  Many  claims  came  up  in  connection  with 
shoes  short  in  cases  as  all  the  card  board  boxes  go  in  the  wooden 
case,  while  one  pair  of  shoes  may  be  spoiled,  leaving  an  empty  box.  One 
firm  partly  solved  the  trouble  by  turning  the  empty  box  around,  so  that  the 
label  came  at  the  bottom  and  the  blank  end  at  the  top. 

Where  a  main  and  a  country  factory  are  run  on  one  set  of  books, 
sales  and  purchases  may  be  entered  from  the  journals  in  the  same  ledger 
in  different  colored  ink,  or  a  distinguishing  postmark  used,  and  controlling 
accounts  opened  with  each  factory  in  the  general  ledger. 

Some  shoe  manufacturers  are  running  their  own  stores.  Each  store 
may  be  considered  as  a  customer,  charged  with  merchandise  and  expenses, 
and  credited  with  sales.  A  mail-order  business  may  be  taken  care  of  on  a 
card  system,  if  necessary  to  preserve  name  and  kind  of  shoe  sold. — (V.  W 
Thompson.) 

(295)     customer's  check  in  the  shoe  repairing  business. 

This  system  is  designed  for  shoe  repairing  establishments  or  can  be 
used  by  shoe  stores  who  do  repairing  and  wish  to  keep  that  department 
separate.  The  total  sales  could  be  credited  to  one  ledger  account  and  thus 
keep  a  distinct  record.    The  form  as  illustrated  hardly  needs  any  explana- 


Cor)bir)cit7of)  Re|3giir  S<nles  Record  a?)^  CiJstop)ers    Ct^eck 


Good   Cobblif)^    Co- 


Good  Cobbling  Co-   ^ 


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«»»■■»*****■»*    ***^  •»mm  -*^  -*—  — —    •■■ 


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Rebotrmd 
bate 


Good  Cobblir\A  Co. 


AoouKt"     JS 


lid 


430 


295-296       American  Business  and  Accounting  Encyclopedia. 


Bo. 


tion  and  is  easily  applied  without  disturbing  any  other  system  that  may  be 
in  use.  When  a  customer  leaves  shoes  to  be  repaired  the  kind  of  work  is 
checked  and  the  amount  entered  both  in  the  check  and  in  the  column  at 
the  left  of  the  check.  These  checks  are  separated  by  a  perforated  line  so 
that  they  are  easily  torn  off. — (C.  P.  Ritmer.) 

French  Method  of  Designating  Sizes. — A  special  agent  of  the  United 
States  government  is  making  a  tour  of  the  shoemaking  centers  of  conti- 
nental Europe.  In  a  recent  letter  to  his  home  government  be  related  much 
of  interest  that  he  saw  during  a  visit  to  a  number  of  shoe  factories  in 
France.    While  in  that  country  he  observed  and  gave  careful  study  to  the 


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French  method  of  designating  sizes,  which,  he  found,  was  vastly  different 
from  that  used  by  shoe  manufacturers  in  America. 

This  agent  of  the  United  States  government  forwarded  a  comparative 
table  of  the  French  and  standard  English  sizes,  which,  we  believe,  will  be 
studied  with  real  interest  by  shoe  retailers  in  this  country.  The  table  is 
shown  herewith. 

A  peculiar  point  in  connection  with  shoemaking  in  France  is  that  the 
manufacturers  there  do  not  manufacture  half  sizes,  as  is  commonly  done 
in  this  country. — The  Shoe  Retailer, 

(296)     accounting  for  the  retail  shoe  business. 

This  system  of  stock-keeping  originated  11  years  ago,  and  in  that 
length  of  time  it  has  been  put  to  the  test  many  times  and  in  many  ways,  and 
has  always  come  out  on  top.  By  this  system  a  dealer  can  tell  at  a  moment's 
notice  from  whom  a  certain  shoe  came,  and  when,  the  kind  of  shoe,  the 

431 


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American  Business  and  Accounting  Encyclopedia 


296 


size  and  width.    If  it  is  sold  and  again  returned  it  also  tells  by  what  clerk 

it  was  sold,  the  price  received  and  the  day  it  was  sold.     If  the  customer 

comes  back  and  complains  that  the  shoes  have  not  worn  as  well  as  they 

should,  considering  the  price  paid  for  them,  etc.,  the  dealer  can  tell  exactly 

to  a  day  how  long  the  customer  has  had  the  shoes. 

But  to  do  this  it  is  necessary  to  live  up  to  the  system.  Here  is  the 
plan  : 

In  the  first  place,  you  must  have  your  stock  book  properly  ruled  and 
numbered,  as  shown  in  Exhibit  1.  Then  you  require  a  good,  hard,  rotary 
rubber  stamp  that  automatically  prints  any  number  desired,  as  shown  in 
Exhibit  3.  The  stamp  should  have  letters  on  the  first  part  of  it  and  then 
numbers,  either  one  letter  or  one  number.  If  you  want  to  take  the  men's, 
boys'  and  youths'  lines  first,  use  the  letter  A  and  the  number  1  up  to  99999i 
then  B,  and  so  on  up  to  M,  and  the  balance  of  the  letters,  N  to  Z,  for 
women's,  misses'  and  children's  shoes.  Each  and  every  pair  of  shoes 
received  from  the  factory  or  wholesaler  must  be  entered  on  the  books,  with 
date  received,  the  kind,  who  from,  the  size,  the  width,  the  cost,  in  your  own 
cost  mark,  and  the  selling  price  in  plain  figures.    The  number  given  each 


Dat* 
I90A 

No 

Kind 

From 

Size 

Widtl^Cost 

Sell 

Dat« 
Sold 

A30I 

MensPMColtBlD 

Hanan 

7 

D 

Asc 

6^ 

1 

%* 

302 

Rex 

•• 

7- 

D 

«t 

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303 

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8 

D 

•• 

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304 

f » 

t* 

8- 

D 

•t 

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3a5 

Men'sGunlMBal 

JJ?Smrth.Co 

6- 

B 

Ret 

40fi 

306 

46  Last 

•f 

7 

B 

f« 

«• 

3 

yy^^ 

307 

t* 

t» 

7- 

B 

•t 

«• 

308 

t» 

•« 

8 

B 

«t 

•t 

309 

•* 

•• 

6 

C 

f* 

•• 

310 

t« 

ff« 

6- 

c 

•t 

f 

311 

Boy^BxCfBal 

Ldii^ShoeKb 

2- 

D 

fsc 

229 

312 

26  Last 

»♦ 

3 

D 

f» 

»t 

% 

313 

•• 

•t 

3- 

D 

•t 

tf 

3 

M 

314 

•• 

ft 

4 

D 

f» 

f* 

315 

tf 

•r 

4 

D 

t« 

•  • 

316 

»t 

•  • 

4- 

D 

f« 

•  t 

317 

.•• 

•• 

5 

D 

•  • 

t« 

Exhibit  1. 


432 


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American  Business  and  Accounting  Encyclopedia 


Bo. 


pair  of  shoes  should  be  used  for  the  mate  number.  First,  the  number 
is  stamped  on  the  face  of  the  carton  in  the  upper  right-hand  corner,  then 
the  shoes  are  stamped  on  the  soles  or  marked  with  a  scratcher  on  the  sole 
of  each  shoe.  Then  you  stamp  on  the  lining  of  the  left  shoe,  just  below  the 
top  facing,  the  same  number,  using  red  indelible  ink  for  this  purpose.  After 
the  lot  shoes  has  been  marked  in  this  way,  they  are  ready  to  be  placed  on 
the  shelves. 

This  system  enables  you  to  put  your  goods  up  quickly  if  they  have 
been  left  on  the  ledge  during  the  rush.  Even  your  extra  clerks  can  put 
away  stock  without  making  errors. 

Suppose  Clerk  No.  1  takes  down  a  pair  of  shoes.  No.  A301,  as  described 


Exchan^Q  Slip 


Daie  '/'/o.  Clerk.  3 

No.  A  301    »  Returned 

Taken   =   No.  F63 


Exhibit  3. 


^i  BRYCE  BROS.  &  CO. 

SHOBS 

Na9  H«MM  Btook 
If?  8l8  •«««Re.* 


.t«0- 


■^-^ 


'*'.".>  V wi.ti> «»  «••••  »"»  tUS 


^  BirCE  BIOS.  &  CO. 

SHOBS 


815 


i^ttimr* 


I — 


t^j:^^ 


^ 


««*••«•«  cai 


¥ir 


Exhibit  4. 


Exhibit  3. 


by  the  number.    They  are  men's  patent  colt  bluchers,  and  on  your  stock 
book  are  described  as  follows : 


Date  received. 

Kind. 

From. 

Size. 

1906. 

No. 

Pat.  Colt. 

1-22 

A301. 

Blucher. 

Hanan. 

f 
Date 

Width. 

Cost. 

Sell. 

Clerk. 

Sold 

D 

Asc 

6.00 

1 

5-5-06 

^     433 


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American  Business  and  Accounting  Encyclopedia 


2})G 


If  the  clerk  sells  this  pair,  he  makes  out  his  sales  check  as  shown  in 
Exhibit  2.  This  sales  check  is  in  duplicate.  The  clerk  takes  both  parts  to 
the  cashier,  who  stamps  both  the  original  and  duplicate  "Paid."  The 
cashier  keeps  the  original,  and  the  clerk  delivers  the  duplicate,  with  the 
shoes,  to  the  man  at  the  wrapping  counter.  The  duty  of  the  man  at  the 
wrapping  counter  is  to  see  that  the  number  on  the  duplicate  is  the  same  as 
that  marked  on  the  sole  of  the  shoe  or  stamped  on  the  inside.  If  the  num- 
bers correspond,  the  shoes  are  done  up  and  the  clerk  delivers  the  package  to 
the  customer. 

Now,  the  original  part  of  the  sales  check  goes  to  the  office  and  is 
checked  on  the  book  as  shown  in  Exhibit  1.  Here  you  have  a  complete 
record  of  this  particular  pair  of  shoes  from  the  time  you  received  them  up 
to  the  time  they  were  sold.  Suppose  the  party  who  purchased  the  shoes 
brings  them  back  to  be  exchanged  and  the  clerk  who  now  waits  upon  the 
customer  is  No.  5.  He  takes  the  shoes  to  the  cahsier's  desk,  with  the  paper 
or  box  or  whatever  they  were  returned  in.  The  cashier  is  shown  the  num- 
ber on  the  sole  or  inside,  A301,  and  if  the  price  ticket  is  torn  off,  the  cashier 
ascertains  the  price  of  the  shoe  from  the  clerk  and  then  makes  out  an 
exchange  slip  and  hands  it  to  the  clerk. 

The  shoes  are  returned  to  the  department  or  section  of  stock  where 
they  belong,  and  Clerk  No.  5  gives  the  customer  a  pair  of  shoes  stamped 
F65.  This  number  is  marked  on  the  exchange  slip  by  the  clerk,  as  shown  in 
Exhibit  3.  If  the  sale  price  of  F65  is  50  cents  more,  the  clerk  makes  out  a 
cash  sale,  recording  the  exact  amount,  as  shown  in  Exhibit  4.  These  slips 
go  to  the  office  in  the  same  manner  as  cash  or  charge  slips. 

Suppose  that  in  three  months  this  customer  returns  and  complains  that 
the  shoes  did  not  wear  well  and  states  he  has  only  had  them  six  weeks  at 
the  most.  You  ask  the  customer  to  take  off  the  left  shoe  so  that  you 
may  examine  it  and  see  how  badly  it  is  worn.  Looking  inside,  you  see  that 
the  letter  and  the  number  F65,  stamped  on  the  lining,  is  badly  soiled  and 
that  the  size  and  case  numbers  are  obliterated,  but  you  plainly  see  F65, 
because  you  have  used  red  indelible  ink  in  stamping.  You  now  go  to  the 
office  and  look  up  number  F65  on  the  stock  book,  and  that  record  gives 
you  the  day  and  date  sold,  who  sold  the  shoes,  the  size,  width,  price  and 
make,  etc.,  also  the  fact  that  the  customer  has  had  the  shoes  three  months 
instead  of  a  little  over  a  month,  as  stated. 

By  this  method  of  keeping  stock,  the  proprietor  or  manager  knows 
whether  the  shoe  has  given  proper  service  or  not,  and  whether  the  cus- 
tomer has  grounds  for  a  genuine  kick.  It  also  gives  information  as  to  how 
different  lines  of  goods  are  wearing. 

Another  thing,  a  clerk  cannot  sell  goods  without  being  detected  for 
any  other  price  than  they  are  marked.  Another  important  thing  is  this, 
when  a  customer  wears  out  a  new  pair,  the  manager,  or  the  one  in  charge, 

434 


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American  Business  and  Accounting  Encyclopedia. 


should  O.  K.  the  duplicate  to  the  man  wrapping  up  the  old  shoes,  showing 
the  transaction  to  be  correct. 

The  stock  books  are  indexed  so  that  it  is  possible  to  find  each  lot  from 
any  one  manufacturer.  Lot  numbers  can  be  used  with  the  system.  This 
system  is  in  use  by  some  of  the  best  dealers  in  the  United  States  and  is 
considered  by  them  to  be  the  most  perfect  system  in  use  today.  Here 
are  just  a  few  of  the  many  advantages  in  using  this  system : 

It  keeps  a  complete  record  of  each  pair  of  shoes  ever  purchased. 

It  gives  a  perfect  record  of  what  lines  you  have  each  day  in  stock. 

It  tells  exactly  how  many  pairs  you  have  had  from  any  one  manu- 
facturer during  the  season  and  how  they  were  sold. 

It  keeps  a  check  on  your  salesmen  and  their  sales. 

It  makes  salesmen  more  careful  in  fitting  shoes,  for  if  shoes  sold  by 
No.  1  are  exchanged  and  No.  3  makes  the  exchange.  No.  3  gets  the  credit 
for  the  sale.     In  this  way  salesmen  are  made  to  take  care  of  their  own 

exchanges. 

You  can  take  inventory  from  your  stock  books.  I  know  one  instance 
where  a  stock  of  $23,000  was  inventoried  in  seven  hours  and  figures  given. 
It  took  two  days  and  a  half  the  old  way,  and  when  it  was  completed  there 
was  $37  difference  in  favor  of  the  single  number  system. 

There  are  many  good  systems  in  use,  but  I  believe  this  is  the  most 
simple,  with  the  added  advantage  that  it  does  not  mark  the  cartons  or  the 
shoes  as  some  systems  do,  because  the  single  number  does  the  entire  busi- 
ness.— The  Shoe  Retailer. 

(297)     COSTS  OF  shoe  manufacturing. 

In  this  line  of  cost  accounting,  there  is  a  multiplicity  of  detail,  which 
sifts  down  rapidly,  under  intelligent  supervision,  into  orderly  and  plainly 
understood  final  results,  the  amount  of  technical  skill  required  in  the 
evolution  of  the  various  cost  systems  in  vogue  being,  however,  quite 
different  from  that  required  in  other  lines  of  business. 

Whatever  methods  of  grouping  the  business  records  is  adopted  in  a 
voucher  record  book  (or  far  better  a  loose  leaf  system  of  accounting),  the 
cost  sheets,  once  well  arranged,  supplement  in  a  most  excellent  and  accurate 
manner,  the  ordinary  daily  records  of  the  business,  and  form  an  auxiliary 
to  such  records,  the  value  of  which  cannot  be  too  highly  estimated. 

The  object  of  the  cost  cards  of  various  classes  used  in  the  different 
departments,  and  of  the  periodical  cost  sheet  itself,  is  to  show  a  double 
kind  of  cost— first,  of  the  various  styles  of  shoe  made,  and  second,  of  the 
different  sizes  under  each  style. 

Regarding  the  ordinary  form  of  purchase  journal  (Form  1)  Some  con- 
cerns employ  on  the  other  side,  a  "consumption  account,"  taken  from  the 
process  cards,  both  for  fully  completed  and  partially  complete  cases  of 

435 


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I 

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shoes ;  and  the  cost  accounts  are  only  summarized  monthly  as  a  rule,  unless 
some  critical  emergency  arises  in  the  process  of  manufacturing,  or  a  sus- 
picion of  unjustifiable  waste  and  loss,  which  may  temporarily  necessitate 
making  up  the  sheets  weekly,  notwithstanding  the  amount  of  labor  in- 
volved. 

The  work  of  the  cutting  department  comes  first ;  and  on  receipt  of  an 
order  for  a  certain  number  of  cases  of  a  given  size  and  style  of  shoe, 
measurements  of  all  the  kinds  of  leather  and  cloth  and  supplies  are  on 
hand,  filed  in  cabinets  or  recorded  in  specially  ruled  books,  showing  pre- 
cisely the  scores  of  items  large  and  small,  which  enter  into  the  cost  of 
making  up  that  special  grade  of  shoe,  even  down  to  the  amount  of  twine, 
glue,  paste,  eyelets,  lacings,  thread,  tacks,  etc.  This  is  for  the  raw  material 
employed,  however,  the  prices  or  value  of  the  constituent  items  being  filled 
in  by  the  office,  and  differing  from  period  to  period,  according  to  the  fluctua- 
tions of  the  market. 

The  cuttings  passing  through  the  hands  of  the  foreman  of  that  depart- 
ment, are  not  necessarily  made  to  order,  but  the  leather,  cloth  and  other 
supplies  which  are  "cut"  may  be  prepared  in  advance  of  orders  and  are 
usually  so  prepared ;  but  the  cuttings  must  be  so  arranged  upon  the  long 
receiving  tables,  or  so  classed  in  compartments  or  upon  shelves,  that  it 
may  be  seen,  at  a  glance,  just  how  much  material  is  on  hand  for  a  case  or 
a  dozen  cases  of  the  special  variety  of  shoe  represented. 

This  method  of  classification,  it  will  be  observed,  is  of  great  value  in 
inventory  stock. 

Frequent  examinations  of  the  waste  pile  in  the  cutting  room  will  soon 

436 


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prove  whether  or  not  good  goods  are  being  thrown  away  in  the  process 
of  manufacturing. 

Cutting  Room  Record.— Form  2  shows  how  the  cutting  room  record 
is  made  up,  each  column  being  sectionalized  in  pounds  and  feet,  as  the 
raw  material  is  bought  in  both  ways  and  the  cuttings  made  accordfngi>. 
Some  concerns,  before  the  last  column  headed  "balance  forward."  insert 
another  column  for  the  record  of  the  weekly  waste  of  material  in  both 
pounds  and  feet. 

Now,  for  the  process  cards  in  Form  3  showing  the  departments 
through  which  the  shoes  pass  en  route  to  the  shipping  department  or  sales- 
room. This  form  provides  for  every  possible  operation  upon  a  pair  of 
shoes,  and  checking  columns  are  provided  to  indicate  in  advance,  the  special 
operations  to  which  ordered  cases  of  shoes  are  to  be  subjected,  so  as  to 
prepare  them  for  transmission  to  the  customer. 

This  manual  of  directions  is  duplicated  for  the  various  departments 
through  which  the  order  passes  during  the  filling  of  that  order;  and  from 
it,  in  the  second  column,  the  cost  is  made  up. 

On  the  reverse  of  this  form  is  usually  another  set  of  directions  or 


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Form   4. 


processes  for  the  material  part  of  the  order,  the  opposite  side  being  for 
the  operations  only.    This  is  marked  as  Form  4. 

At  the  end  of  this  last  form  it  will  be  noted  that  the  sundry  costs  of 
manufacturing  are  not  so  fully  classed  as  a  strict  adherence  to  the  best 
accounting  methods  requires;  it  does  not  provide  in  detail  for  prorata 
charges  of  insurance,  advertising,  waste,  depreciation  on  equipment,  interest 
and  discount,  and  some  few  other  items  properly  chargeable  to  manufac- 
turing, but  summarizes  under  two  brief  captions  ''expense  factory"  and 
"expense  office." 

In  other  cases  the  extensive  detail  of  this  card  shown  by  Form  3  and 
its  reverse  in  Form  4  is  changed  into  special  tickets  or  sheets  for  each 
department,  as  shown  in  Form  5  where  the  work  of  the  "bottoming  room" 
alone  is  illustrated  for  a  case  of  special  shoe. 

Again,  some  factories  receive  large  consignment  orders,  from  whole- 
salers who  send  in  their  own  specifications  (the  specification  sheet  illus- 
trated in  Form  6),  listing  in  detail,  the  class  of  work  to  be  done  in  filling 
that  special  order,  for  the  number  of  cases  given ;  and  frequently  the  same 
class  and  size  of  shoe  is  ordered  upon  two  or  more  forms  like  this,  where 

438 


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American  Business  and  Accounting  Encyclopedia 


Bo 


^— J- 

Kjrnae 

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F 

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Case ^wioin- ■  •■■■ 

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Form  5. 


some  slight  variation  in  the  construction  detail  is  to  be  noted  for  the  in- 
formation of  the  manufacturer. 

Sheets  Kept  in  Books— As  some  of  these  order  sheets  measure  12x20 
inches,  books  are  provided  for  their  reception,  filing  and  indexing,  with 
provisions  for  notation  spaces  during  the  filling  of  the  order  and  on  its 
completion,  indicating  amount  of  material,  labor,  general  cost,  date  of  com- 
pletion, and  of  shipment,  amount  charged,  folio  of  ledger  in  which  entered 
and  similar  data. 

Now  there  is  necessitated  a  departmental  cost  system,  as  well  as  a 
manufacturing  cost  system ;  that  is,  a  system  by  which  the  separate  cost  of 
carrying  on  the  cutting  room,  the  fitting  room,  the  bottoming  room,  and 
the  finishing  and  shipping  departments  can  be  reached.  The  findings,  which 
include  scores  of  little  items,  some  of  which  have  been  already  specified,  are 
listed  on  this  special  form  of  reporting  sheet  for  the  different  departments, 
according  to  the  classses  of  supplies  used  in  ^ach ;  these  supplies  being 
inventoried  carefully  at  the  end  of  each  cost  period,  and  the  amount  used 
in  each  department  checked  up  to  see  how  much  waste  or  loss  has  occurred. 
In  this  departmental  figuring,  the  prorata  of  salaries,  insurance,  fuel  and 


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439 


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American  Business  and  Accounting  Encyclopedia 


297 


light,  etc.,  come  in  and  are  assigned  to  each  in  correct  instalments  accord- 
ing to  well  known  accounting  principles;  and  then,  at  the  end  of  agreed 
periods,  the  amount  of  material  furnished,  in  different  processes  or  stages 
of  completion,  is  credited  up  to  the  respective  departments,  to  show  their 
returns  for  the  charges  made  against  them. 

This  is  not  done  in  many  cases,  however,  notwithstanding  its  value  as 
one  of  the  accounting  features  of  a  shoe  manufactory,  owing  to  the  time 
and  expense  required. 

We  come  now  to  what  may  be  termed  a  summary  cost  sheet,  which 
in  reality,  is  a  duplication  in  some  sense,  of  the  previously  stated  forms, 
but  it  is  much  more  comprehensive;  and  it  can  be  readily  seen  how  its 


SUMMARY    COST    SHtfcT 

Order- 
No. 

Slyle 

5iz.e 

nrji^bjcd    V%/(OrK 

\l')fi')ibyd   Work 

No.  of 
Cose* 

No.  oji 

Sold 

Ref 
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OVjer 
Cci-R 

' 

Form  7. 


blanks  can  be  filled  up  from  the  summarizing  of  the  other  cards  and 
sheets  illustrated.  The  idea  is  to  show  the  entire  history  of  the  cost  depart- 
ments upon  a  single  instead  of  upon  a  number  of  isolated  although  closely 
related  sheets  or  process  cards. 

This,  Form  7,  would  have  to  be  in  actual  practice  at  least  15x25  inches 
and  provide  for  100  ruled  lines  for  giving  adequate  expression  to  the 
conditions  which  it  sets  forth.  As  will  be  noted,  it  is  provided  with  refer- 
ence columns,  so  that  its  footings  can  be  checked  with  the  partial  returns 
of  other  sheets  and  cards  which  it  takes  up  and  groups  in  synthetic  form. 

Some  Important  Considerations. — But  in  its  use,  a  number  of  im- 
portant considerations  come  into  use,  and  they  are  listed  as  follows  in 
conclusion  : 

(a)  Whatever  valuations  for  the  raw  material  are  assumed  at  the 
start,  for  use  on  the  cost  sheet,  must  be  retained  in  both  the  usual  and 
the  so-called  "departmental  cost  sheet,"  until  the  end  of  the  month,  no 
matter  how  much  the  cost  of  the  raw  material  may  vary  during  that  time ; 
this  to  secure  the  true  relations  of  the  variant  cost  items. 

(b)  Considering  the  fact  that  at  the  present  time,  there  is  a  slow  but 
steady  increase  in  the  value  of  all  classes  of  leather,  and  other  shoe  manu- 

440 


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American  Business  and  Accounting  Encyclopedia. 


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facturing  supplies,  the  monthly  cost  sheets  will  have  to  be  changed  so  as 
to  reflect  this  advance,  the  changing  trade  conditions,  so  that  the  esti- 
mates used  in  figuring  up  at  the  end  of  each  successive  month,  will  have 
to  be  slightly  increased  in  framing  the  cost  sheet  for  the  ensuing  month, 
so  long  as  the  market  continues  to  advance ;  and  again,  the  selling  price, 
having  to  be  advanced  of  necessity,  to  keep  pace  with  the  increased  raw 
material  cost,  that  feature  (of  selling),  would  naturally  depend  absolutely 
upon  this  changing  of  values. 

(c)  In  order  to  reach  the  correct  cost  of  each  size  in  the  different 
styles  of  shoe  turned  out,  two  adjustments  will  be  needed;  first,  to  find  out 
from  the  cards  of  various  cost  sheets,  the  cost  for  all  the  styles  separately ; 
and  after  this  is  done,  we  can  proportion  the  general  costs  for  each  size 
m  each  style  on  the  basis  of  the  material  costs  for  that  special  style.  This, 
it  will  be  noted  is  a  different  method  of  going  to  work  from  that  illus- 
trated in  Form  4  at  the  end  where  the  total  cost  account  is  made  up,  and 
this  recommendation  is  made  from  the  very  incompleteness  of  that  form. 
The  raw  material  is  the  only  basis  upon  which  these  general  costs  can  be 
prorated  (insurance,  taxes,  advertising,  fuel  and  light,  superintendence, 
depreciation,  commission,  etc.). 

(d)  The  careful  analysis  of  cost  made  in  this  way  will  check  leaks, 
waste,  and  other  forms  of  loss  and  trace  to  the  proper  source,  the  cause 
of  the  same. 

(e)  It  does  not  matter  whether  the  costs  are  determined  upon  12 
case  lots  or  100  case  lots  of  shoes  made,  if  the  correct  cost  principles  are 
carried  through  the  process  cards  illustrated. 

(f)  In  listing  the  various  findings  named  in  manufacturing,  it  is 
much  better  to  have  them  printed  alphabetically  instead  of  the  somewhat 
haphazard  method  often  used. 

(g)  Care  will  have  to  be  used  in  preparing  cost  sheets,  to  make  due 
allowance  for  goods  returned  to  and  by  the  company  during  the  period 
reported  upon ;  this,  to  keep  correct  tab  on  stock  in  trade  and  the  gross 
and  net  earnings. 

(h)  It  is  not  possible  to  always  advance  the  selling  price  to  cor- 
respond with  the  advance  in  the  cost  of  the  raw  material,  some  provision 
will  have  to  be  made  in  connection  with  each  monthly  cost  sheet,  explain- 
ing the  apparent  loss  in  returns,  as  compared  with  other  periods ;  and  if, 
through  extraordinary  skillful  management  and  purchasing  ability,  (such 
as  securing  goods  at  a  bankrupt  or  fire  sale)  does  enable  the  manufacturer 
to  make  his  cost  account  for  a  given  month  or  series  of  moxths,  less  than 
previously,  that  fact  would  have  to  appear  as  an  item  in  the  explanation 
memoranda  at  the  bottom  of  the  cost  sheet,  or  tabulated  on  a  specially 
ruled  memorandum  sheet  to  be  attached  to  the  cost  sheet  itself. 
— (Preston  H.  Grover.) 

441 


Bo.  American  Business  and  Accounting  Encyclopedia 

(298)       SYSTEM   OF   COMPARATIVE    RIXORDS  AND  THEIR  ADAPTATION. 


^98 


I  wish  to  state  that  I  have  been  using  this  system  of  comparative 
records  in  the  leather  business  for  a  number  of  years  with  the  most 
beneficial  results,  and  I  have  changed  the  nature  of  the  business  only  to 
show  the  reader  that  the  system  is  applicable  to  any  business  which  can 
be  sectionalized  or  whose  goods  can  be  classified. 


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Form  1. 

As  the  space  is  limited  I  will  not  go  into  the  details  of  the  accounting 
methods  used  in  order  to  secure  the  data  necessary  to  compile  the  facts  as 
shown  on  the  statement  and  graphic  charts  but  will  say  that  they  should 
be  along  scientific  lines,  also  that  when  once  properly  installed  it  will 
require  less  time  to  keep  these  comparative  statements  and  charts  up  to 
date  than  it  does  to  write  the  foregoing  paragraphs. 

By  referring  to  Form  1,  comparative  statement,  you  will  notice  that 
I  have  divided  the  shoe  business  into  five  divisions,  represented  by  columns 
1  to  5.  showing  the  daily  sales  in  dollars  and  cents.  Columns  6  and  7 
show  the  daily  sales  and  are  used  in  making  the  daily  comparisons. 
Columns  8  and  9  show  the  sales  cumulatively  and  afford  the  information 
at  a  glance  as  to  how  the  month  is  going. 

The  column  10,  increase  or  decrease,  shows  the  increase  or  decrease 
m  a  sum  total  from  day  to  day.  The  first  day  of  the  month  shows  an 
increase  of  $17,  the  second  and  third  likewise  show  increases  or  $95  for 
the  three  days.  These  figures  are  recorded  in  black.  All  decreases  are 
shown  in  red  but  to  designate  the  decreases  on  the  statement  herewith  I 

442 


jW8  American  Business  and  Accounting  Encvclopeuia  Bo. 


Form   2— Ladies  and  Gentlemen  $5  to  a  line— Rubbers  and    Repairing   $2   to  a  line— Sundries   $1  to  a 

line — Department  chart  showing  comparisons  and  net  increase  and  decrease  in 

sales — "O"  around  figures  denotes  decrease. 

have  placed  a  circle  around  the  amounts  showing  a  decrease.     All  figures 
pertaining  to  1906  are  shown  in  red. 

Column  11,  weather  conditions,  if  properly  kept  will  very  often  show 
why  the  sales  of  a  certain  day  last  year  are  ahead  of  the  sales  of  the  cor- 

443 


Bo. 


American  Business  and  Accounting  Encyclopedia 


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Form  3— $4  to  a  line— Salesman's  chart — Daily  sales— Solid  lines  1906 — Dotted  lines  1907— "O"  around 

figures  denotes  decrease, 

responding  day  of  this  year.    Last  year  the  weather  could  have  been  ideal 
while  this  year  it  was  a  rainy  or  otherwise  bad  day. 

The  last  section  of  this  form  shows  the  monthly  sales  cumulatively 
and  directly  below  this  calculation  will  be  found  the  sum  of  $209.  This 
shows  the  increase,  in  dollars  and  cents,  to  August  1st.  By  referring  to 
the  daily  sales,  columns  6  and  7,  we  find  that  they  show  an*  increase  of 
$123  for  the  month. 

444 


298 


American  Business  and  Accounting  Encyclopedia 


Bo. 


Form  4— Ladies  and  Gentlemen  $40  to  a  line— Rubbers  $5  to  a  line— Repairing  $2  to  a  line— Sundries 
$1  to  a  line— Solid  lines  1906— Dotted  lines  1907 — Monthly  chart  showing  comparisons 
of  sales,  also  net  increase  and  decrease  of  each  department — "O 
around  figures  denotes  decrease. 

Naturally  a  manager  would  take  it  easy  and  feel  contented  knowing 
that  his  business  is  on  the  increase. 

The  fact  of  an  increase  is  plain  on  the  surface  but  would  it  not  pay 
him  to  analyze  his  sales,  dig  beneath  the  surface?  Probably  he  will  find 
something  that  will   place  an  entirely  different  light  upon  the  subject. 

445 


Box. 


American  Business  and  Accounting  Encyclopedia      298-301 


Abnormal  gains  in  one  department  may  cover  losses  in  some  of  the  others 
and  still  the  business  could  show  an  increase  on  the  comparative  statement. 

In  placing  records  and  data  before  the  manager  in  graphic  form,  I 
claim  he  can,  with  practically  no  calculation,  see  how  his  business  is  going, 
as  a  whole  or  by  department.  While  Form  1  shows  an  increase  of  $123, 
Form  2  is  necessary  to  show  that  all  is  not  gold  that  glitters.  A  glance 
tells  that  while  it  is  true  that  we  increased  our  sales  to  the  amount  of  $123, 
it  is  also  true,  nevertheless,  that  the  sales  of  ladies'  shoes  are  on  the 
decrease  and  have  been  so  all  during  the  month  of  August. 

This  should  be  sufficient  to  make  any  manager  sit  up  and  take  notice. 
His  next  move  would  be  to  see  how  his  salesmen  are  doing.  Are  they 
holding  their  own  or  are  they  decreasing?  His  first  thought,  no  doubt, 
would  be  that  some  one  of  his  selling  force  was  not  keeping  abreast  with 
his  sales  of  the  preceding  year.  It  might,  however,  be  only  too  true  that 
one  is  falling  behind  in  his  sales  while  the  others  are  increasing  sufficiently 
to  cover  up  the  losses  of  the  delinquent  salesman.  It  is  a  case  whicU 
needs  investigation. 

By  referring  to  Form  3  we  find  that  each  and  every  salesman  is  show- 
ing an  increase.  Here  is  a  statement  of  affairs  which  needs  be  looked  after. 
A  business  shows  a  net  increase  of  all  departments  but  on  analyzing  thi? 
departments  we  find  one  is  losing  daily  and  the  others,  by  abnormal  in- 
creases, carry  the  loss  and  show  an  increase  on  the  surface  of  facts. 

The  loss  in  this  department  can  not  be  placed  on  the  selling  force  as 
the  records  show  that  they  are  selling  ahead  of  their  record  of  a  year  ago. 

By  referring  to  Form  4  you  will  note  that  the  ladies'  shoe  department 
shows  a  decreasing  tendency.  I  dare  say  any  up-to-date  manager  would 
have  taken  means  to  stay  the  decrease  long  before  the  month  of  August 
and  at  the  same  time  arrived  at  the  conclusion  that  the  patronage  bestowed 
upon  his  house  by  the  ladies  is  drifting  elsewhere. 

These  records  properly  compiled  will  keep  a  manager  posted  as  to 
what  his  business  is  doing,  the  standing  of  the  various  departments  and 
the  record  of  his  selling  force,  and  if  he  heeds  the  warning  thrown  out 
by  these  charts  he  will  always  be  ahead  and  never  hang  out  the  signal  of 
distress. 

(299)     BOSTON  BANK  LEDGER. 
See  Balance  Ledger. 

(300)     BOUGHT   INVOICE   BOOK. 
See  Purchase  Record. 

(301)     BOTTLING  WORKS— ACCOUNTING  SYSTEM  FOR. 
All  accounting  systems  are  similar  in  principle,  differing  only  in  the 

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American  Business  and  Accounting  Encyclopedia  Bot. 


varied  application  of  these  principles,  that  is,  in  the  various  forms  used  in 
carrying  the  transactions  into  record. 

bur  business  differs  from  most  others,  in  that  we  have  two  elements 
to  contend  with,  namely,  manufacturing  and  purchasing  finished  produc^ 
the  sale  of  which  we  carry  under  the  caption  of  Manufactured  Goods  and 
Mt^rchandise  Bought.  Our  manufactured  goods  are  sold  in  valuable  con- 
tainers which  necessarily  must  be  returned,  in  order  for  us  to  realize  a 
small  margin  of  profit,  and  one  of  our  objects  in  view  is  that  we  must 
carefully  and  systematically  record  our  shipments. 

Our  organization,  however,  is  the  first  center  of  our  interest,  as  one 
cannot  readily  understand  the  working  of  our  business  until  he  is  ac- 
quainted with  it.  As  charts  can  express  more  on  one  page  than  columns 
of  figures  and  paragraphs  of  writing  on  another,  we  use  this  method  of 
illustration,  and  will  then  draw  your  attention  to  our  chart  of  organiza- 
tion which  expresses  the  elements  entering  into  our  business. 

Taking  up  our  organization,  one  can  readily  see  the  advantages  accru- 
ing from  the  systematic  arrangement  of  the  different  departments.  We 
have  at  the  head  of  our  business  the  business  partners  who  are  the  highest 
authority  in  our  organization.  Directly  under  them  comes  the  general 
manager  who  is  the  virtual  head  of  our  business.  He  has  authority  over 
all  departments,  and  to  him  do  all  of  the  departments  report.  Each 
department  head  in  turn  has  charge  of  his  department  and  its  workings. 
Our  department  managers  now  have  a  basis  and  foundation  for  all  their 

actions. 

This  division  of  our  business  is  but  the  foundation  of  our  organiza- 
tion, and  as  it  stands  would  work  well,  but  not  near  so  perfect  were  it  not 
for  the  definite  written  instructions  issued  to  the  different  department 
heads,  which  method  averts'  all  cause  of  conflict  of  authority,  at  the  same 
time   stimulating  co-operative   interest,   "the  vital  being  of  a  successful 

business."  u   j      r 

Having   charted   our   organization,   we   use   this   graphic   method   ot 

illustration  throughout  our  business,  as  we  find  we  can  so  arrange  our  costs 

that  they  will  be  as  much  of  a  unit  in  our  system  of  accounting  as  the 

remaining  elements. 

This  brings  us  to  the  method  or  system  of  recording  our  different 
transactions,  and  from  chart  appended  herewith,  one  cannot  but  help  notice 
the  unit  system  to  which  the  different  record  books  adapt  themselve-. 
Each  form  of  record  being  as  a  unit  of  a  unit,  centering  upon  the  general 
ledger  at  its  terminal.  In  order  to  thoroughly  understand  this  unit  system 
of  accounting,  it  is  necessary  to  bear  in  mind  that  every  record  must  "fit 
in  with  the  rest,"  otherwise  incomplete  without  it. 

All  of  our  representative  accounts  are  carried  in  our  general  ledger  as 
our  balance  sheet  shows,  thus  centralizing  all  items  under  their  respective 
headings  and  in  concise  form.     This  ledger  carries  controlling  accounts 

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301 


with  the  different  ledgers,  and  from  these  accounts  can  be  determined  the 
exact  balance  of  the  ledgers,  which  for  ready  reference  is  of  considerable 
value. 

In  our  cash  journal  or  cash  journal  voucher  record,  we  have  columns 
for  distribution  to  the  different  ledgers  as  well  as  for  our  current  expenses 
and  miscellaneous  items.  The  footings  of  the  ledger  columns  as  posted 
to  the  general  ledger  will  give  us  the  exact  condition  of  these  subservient 
ledgers.  This  method  of  recording  transactions  gives  us  data,  which  is  of 
considerable  value  in  making  comparative  statements. 

Comparisons  may  be  readily  made  of  sales  in  different  territories  as 
well  as  of  collections. 

.  Our  general  ledger  is  dependent  upon  the  voucher  record  for  its 
entries,  this  record  being  in  turn  the  home  of  the  entries. which  directly 
interest  the  other  ledgers,  and  which  for  convenience  sake,  we  have  divided 
into  sales  ledgers,  accounts  payable  record  and  factory  ledger.  Our  sales 
ledgers  in  turn  being  divided  territorially  into  A,  B,  C  and  city. 

Our  sales  ledgers  contain  all  accounts  with  our  customers,  our  ac- 
counts payable  record  with  our  open  creditors,  and  our  factory  ledger 
pertaining  to  our  factory,  and  also  in  which  all  expense  items  of  our  fac- 
tory are  analyzed. 


CHART 

cr 

organization 

ASHLAND  BOmJNC  WORKS 


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American  Business  and  Accounting  Encyclopedia  Borr. 

CHART  OF  ACCOUNTS— BALANCE  SHEET 
ASHLAND  BOTTLING  WORKS 


m 

» 

Construction 
Real  Estate 

ODeratinfir  ■•■•• 

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Account 

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City  Ledger  Accounts  Rec 
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449 


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American  Business  and  Accounting  Encyclopedia 


301 


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301 


American  Business  and  Accounting  Encyclopedia 


Boi. 


Our  records,  as  our  organization  tend  to  centralize,  our  general  ledger 
acting  in  the  stellar  capacity,  guiding  our  purchases,  production  and  sales. 
Taking  each  up  in  their  turn  we  can  more  readily  pick  out  the  advan- 
tages accruing  from  our  system. 

As  we  must  have  a  product  before  we  can  sell,  our  first  attention  will 
be  drawn  to  our  purchasing  department,  where  raw  material  or  manufac- 
tured goods  in  its  primal  state  is  purchased. 

The  purchasing  agent  has  charge  of  all  of  our  purchases,  to  and  in- 
cluding a  certain  amount.  He  makes  all  purchases  upon  requisitions  from 
the  different  departments.  These  requisitions  are  made  out  in  duplicate, 
one  copy  of  which  is  sent  to  the  purchasing  agent,  the  other  copy  is  kept 
on  file  in  the  office  where  it  originated.  This  authority  of  purchase  is 
O.  K.'d  by  the  department  head  where  the  requisition  had  its  source.  The 
purchase  is  then  made  upon  receipt  of  quotations  as  to  price.  Each  pur- 
chase is  given  an  order  number  which  gives  our  stores  department  authority 
for  O.  K.  of  receipt,  price,  and  approval  of  goods.  The  material  is  now 
on  hand,  our  stores  department  having  received  same.  The  next  turn  is 
to  its  proper  distribution.  An  accurate  record  of  this  distribution  is  kept, 
stores  being  let  out  only  upon  what  we  term  a  secondary  requisition,  which 
is  a  requisition  for  a  supply  or  merchandise  bought  issued  by  the  fore- 
man of  different  departments  in  our  manufacturing  departments  or  by  our 
shipping  clerk. 

Supplies  are  the  minor  part  in  the  manufacture  of  our  goods,  labor 
being  the  major.  Record  of  our  employes'  time  is  kept  from  cards  issued 
them  each  day,  time  and  distribution  of  labor  thereon  being  put  on  by  the 
foreman  who  has  charge  of  the  work  on  which  the  men  are  employed. 
Record  of  this  time  is  kept  by  the  time-keeper. 

This  labor  and  that  material  gives  us  our  finished  product,  record  of 
which  is  kept  in  conjunction  with  our  stores  department. 

Our  product  as  well  as  the  merchandise  bought  is  sold  in  four  dif- 
ferent territories,  and  as  previously  noted  we  have  four  distinct  divisions 
of  our  sales  ledgers,  each  recording  the  sales  and  collections  therein  of  the 
different  customers  on  that  route.  This  division  is  of  material  assistance 
to  us,  being  of  economic  as  well  as  of  comparative  value. 

Its  economic  value  being  in  that  we  can  readily  locate  a  customers 
account,  making  postings  and  statements  with  a  good  rate  of  speed  not 
otherwise  attained.  We  have  our  customers'  accounts  divided  locally, 
that  is,  by  town  and  then  also  listed  alphabetically  under  that  town. 

The  comparative  value  being  in  that  we  can  make  valuable  compara- 
tive statements.  Graphic  methods  are  used  in  order  to  clearly  illustrate 
the  comparison  of  sales  of  our  different  products  and  of  these  products  in 
the  different  territories.  Referring  to  the  chart,  you  can  readily  determine 
the  comparison  of  sales,  as  you  have  the  picture  before  you  not  needing 

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DC/-\t  tl 

cmrkM 

mtnMtnrn  m> 

rvc<\^v/k^i  I  iv^i  ^                                        — '' 

ASHLAND  BOTTUNC  WORKS 

190 

PURCHASING  ACENTr- 

PLEASE  PURCHASE  FOftOUR  DEPARTME^^•  THE  FOLLOWING  MATERIAL 

QUANTITY 

OCSaVTXM 

OATi; 

WANTtO 

FOM  USE  OF  PVIKHASINC  OCPARTMENT 

. ^ 1 

1 

fiff^ft^n    _ .^ 

.  .  .  .^DEPARTMENT 

Men 

to  go  into  a  jumble  of  figures.  However,  to  make  this  chart  or  statement 
valuable  and  with  as  little  detail  as  possible,  present  conditions  as  well  as 
prior  conditions  must  be  taken  into  account.  Sales  of  the  current  month 
as  compared  with  the  average  daily  sales  the  same  month  the  year  previous. 
In  connection  with  the  sales  ledgers,  the  manner  of  entry  will  no 
doubt  be  of  interest  and  in  this  connection  we  will  explain  the  method. 
As  a  sale  is  made  invoice  is  rendered  and  duplicate  retained  in  invoice 
record,  this  invoice  in  turn  being  posted  to  the  ledger  designated  thereon. 
Recapitulations  of  the  sales  are  made  and  posted  as  per  invoices  each  day 
to  the  sales  book,  and  at  the  end  of  the  month  this  record  is  voucher^d  and 
entered  on  the  voucher  record  as  per  its  distribution.  This  gives  us  the 
sales  to  the  different  individual  ledgers.  The  credits  to  these  ledgers  are 
made  up  of  cash  payments  and  sundry  credits,  the  credits  being  made  out 
the  same  as  invoices,  and  go  through  the  same  routine  as  the  sales.  The 
cash  collections  record  which  has  columns  for  distribution  to  the  different 


ASHLAND  BOTTLING  WORKS 

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301 


'  American  Business  and  Accounting  Encyclopedia 


BoT. 


ledgers  is  also  vouchered  at  the  end  of  the  month,  and  the  collections 
thereon  being  distributed  as  per  voucher  distribution. 

As  a  necessary  adjunct  to  our  sales  records,  we  must  as  previously 
stated,  keep  an  accurate  record  of  our  bottles  and  cases,  and  this  is  done 
by  means  of  a  card  record.  Various  colored  cards  representing  the  dif- 
ferent kinds  of  cases  and  future  contents,  as  Al  would  represent  pop  bottles, 
and  B2  siphon  seltzer  and  so  on.  Each  case  has  two  cards,  both  being 
numbered  as  the  case.  Every  customer  has  a  folder,  and  in  this  folder  is 
placed  one  of  the  case  cards,  which  case  has  been  shipped  the  customer, 
with  the  information  filled  in.  The  remaining  or  other  card  is  placed  in 
numerical  order  in  a  cabinet  which  contains  only  cards  of  the  same  kind 
of  case.  By  referring  to  the  folder  one  can  tell  the  kind  of  case  and  the 
number  of  each  kind,  that  a  customer  has,  and  what  length  of  time  they 
have  been  out.  This  information  is  placed  upon  the  individual  cards  as 
the  case  is  shipped.  And  on  its  return,  the  information  necessary  to  com- 
plete the  record  of  the  case  is  taken  from  the  shipping  tag,  and  in  the 
event  of  the  tag  being  lost  or  badly  mutilated,  the  record  of  the  case  is 
completed  by  tracing  to  the  card  the  number  of  the  case.  Thus  we  can 
easily  find  out  how  many  cases  of  each  kind  are  on  hand. 

Having  followed  our  raw  material  from  its  purchase  to  its  final  sale, 
we  will  turn  back  and  follow  its  constituents  and  their  relative  factors  of 
expense,  which  gives  us  the  cost  of  these  goods. 

With  this  purpose  in  mind,  we  will  revert  back  to  our  balance  sheet 
and  from  it  pick  out  the  items  directly  relating  to  manufacturing. 

This  we  find  divided  into  labor,  supply  and  general  expense,  and  these 
in  turn  re-divided. 

Taking  up  labor,  which  we  have  divided  into  productive  and  non- 
productive. The  productive  being  that  labor  necessary  to  the  manufacture 
of  our  goods,  whereas,  the  non-productive  covers  all  miscellaneous  labor 
charges,  all  of  which  we  have  previously  divided  into  numerous  divisions 
as  to  operation.  The  recording  of  this  time  we  have  previously  outlined. 
Our  next  consideration  is  the  supply  expense,  distribution  of  which  wo 
have  also  outlined.  Our  general  expense  takes  in  several  intangible  ele- 
ments as  up-keep  and  depreciation;  these  items  cannot  be  accurately  de- 
termined unless  one  uses  a  scale  for  depreciation  allowing  certain  life  to  all 
depreciable  property.  Our  other  general  expenses  are  of  a  tangible  nature 
and  are  readily  figured.  This  concludes  our  manufacturing  expense  of 
rather  our  manufactured  goods,  and  as  our  cost  sheet  appended,  all  items 
are  taken  into  consideration  and  relatively  apportioned. 

Now  that  we  also  deal  in  merchandise  bought,  we  also  distinguish 
expenses  relative  to  this  department  and  have  divided  this  expense  into 
labor  supply  and  general,  these  in  turn  being  re-divided. 

In  order  to  market  these  goods  and  to  keep  the  business  running  we 
have  need  for  a  commercial  or  selling  and  running  expense.    This  expense 

453 


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is  divided  into  different  items,  and  as  a  whole  distributed  prorata  over 
the  sales  of  merchandise  bought  and  manufactured  goods.  We  now  have 
our  costs  and  can  determine  our  revenue  from  the  sales  of  our  manufac- 
tured goods,  merchandise  bought,  allowances  and  sundry  receipts.  The 
next  element  is  our  profit  or  loss  as  the  case  may  be,  and  this  is  found 
by  deducting  our  expenses  from  our  revenues. 

The  forms  of  records  used  in  our  business  may  be  easily  adapted  by 

•±54 


301-302 


Amlikran  Business  and  AcouMixti  Excvclui-edia     Bot.-Bra. 


COST  sheet— ASHLAND  KOTTLE  WORKS. 
SALES    AND    REVENUES. 


Amount. 


Per  cent. 
Current  Mo. 


Manufactured    Goods 

Mdse.   Bought   

Allowances  to  us 

Sundry  Receipts   

Total  .\mount. 


.$. 

.$. 
.$. 

.$. 


COMMERCIAL  EXPENSE 


Office   Salaries    5  • 

Miscellaneous    Office    Expense $ . 

Salesmen's  Salaries  |  • 

Miscellaneous  Expense    $• 

Advertising    *. |  • 

Administrative    *  • 

General  Expense  *  • 

Total  .\mount ?• 


S. 
S. 

s. 

$- 

$. 

$. 
$. 

$• 


Manufactured 
Mdse.    r.ought 


PRO-RATA  OF  COMMERCIAL  EXPENSE. 

$ 

S 

? 


Goods    $ 

S 


Total  Amount $• 


MANUFACTURED   GOODS    EXPENSE. 


Labor — Productive    

Non-Productive    

Supply — Supplies    

In  Freight   

Supply  Expense   

General — Light    

Heat    

Power    

Taxes    

Insurance    

Upkeep   and   Depreciation. 

Mis.  General 


.$. 
.$. 
.$. 
.$. 
.$. 
.$• 
.$. 
.$. 
.$. 
.$. 
.$. 
.$. 


Total  Amount $• 

Per   cent    of   Commercial    Expense $. 

Total   Mfg.   Goods   Expense $• 


$. 
$. 

$• 
S  ■ 
$. 
$• 
$. 
$. 
$. 
$• 
$. 
$. 
$. 
$. 

?• 


MDSE.  BOUGHT  EXPENSE. 


Labor — .Ml    Labor    |- 

Supply — Supplies    |- 

In   Freight    |- 

Mis.  General   Expense ?• 

General  Expense    f  • 

Total  .Amount $• 

Per  cent  of  Commercial  Expense $• 

Total   Mdse.   Bought   Expense $. 


S. 
S. 
$. 
$. 
$. 
$. 
$• 
$■ 


TOTAL  CURRENT  EXPENSES. 

Commercial    Expense    | J^'- 

Mfg.  Goods  Expense | *  •  • 

Mdse.    Bought    Expense $ *•• 

Total  Amount $ *•• 

NET  PROFIT. 

Sales  and  Revenues $ 


Per  cent. 
Previous  M^ 

$ 

$ 

s.. 

$ 

? 

S 

$ 

s 

s 

$ 

$ •-•• 

$ 

? 

$ 

s..-- 

? 

$ 

$ 

$ 

$ 

5 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

s 

$ 

$ 

$ 

$ 

s 

? 


Current   Expenses 


Net  Profit $. 


Others,  our  charts  may  be  used  in  varying  cases,  and  changed  to  suit 
individual  needs.  Our  organization  may  be  used  as  a  basis  for  figuring 
out  others,  the  divisions  may  be  further  extended  and  divided  as  the  exten- 
siveness  of  the  business  demands.  And  as. our  system  exhibits  through 
our  monthly  reports  and  statements,  the  exact  condition  of  our  business, 
showing  whether  we  are  either  progressing  financially  and  physically  or 
whether  we  are  falling  off,  so  may  others  determine  the  net  results  of 
their  own. — (Otto  A.  Bohehn.) 

4oo 


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American  Business  and  Accounting  Encyclopedia 


301 


(302)     BRANCH  STORES— MANAGEMENT  AND  ACCOUNTING. 

In  providing  for  an  efficient  supervision  of  branch  retail  stores  by  a  main 
wholesale  store— a  system  that  shall  be  at  once  comprehensive,  simple  and 
practical— it  is  necessary  to  define  the  precise  objects  we  desire  to  attain. 
These  we  will  present— first,  in  the  shape  of  headings  under  which  we 
propose  to  describe  our  system,  and  in  the  way  in  which  they  will  be 
treated;  and  second— in  an  explanation  of  the  methods  to  be  adopted  in 
order  to  achieve  the  desired  results. 

Objects. — The  treatment  of  purchases  and  sales  so  as  to  secure  a  per- 
petual inventory  with  the  smallest  amount  of  trouble  and  expense. 

A  daily  or  weekly  report  of  the  trading  results  of  each  department  of 
each  branch. 


6flle6  Bistributioi^. 
Cat^rjei  Goods 


2 

4 

6 

7 
to 
31 


ToPAfltoes 


Corr 


Peocl^ 


e  j> 


Peara 


Apficata 


GreenPeai, 


Pif)g  Apple 


A  daily  or  weekly  exhibit  of  the  business  transacted,  and  profit  made 

by  each  branch. 

H^DS  Under  Which  System  Will  be  Described. — Purchase  records. 
Stores  records.  Branch  debits.  Sales  records.  Branch  accounts  receivable. 
Records  of  cash  receipts.  Daily  and  weekly  dissection  of  cash  and  credit 
sales.     Departmental  trading  accounts.     Branch  trading  accounts. 

At  the  outset  it  will  be  understood  that  the  following  accounts  will  be 
kept  by  main  office  with  branch  stores: 

Branch  Merchandise  Purchases. 

Branch  Cash  and  Credit  Sales. 

Branch  Expense. 

Also  separate  accounts  with  each  department  of  each  branch  in  regard 
to  which  it  may  be  desired  to  ascertain  the  net  results  of  trading. 

Purchasing  Department. — All  merchandise  for  the  branches  shall  be 
purchased  in  the  usual  way  by  the  main  office  purchasing  department.  Or- 
ders received  at  main  store  or  delivered  direct  to  branches  shall  first  be 
'cbHed  tc  the  General  Purchase  account  and  credited  to  accounts  payabk 

466 


II 


302 


American  Business  and  Accounting  Encyclopedia 


Bra. 


The  merchandise  intended  for  the  branches  will  then  he  credited  to  the 
General  Purchase  account  and  charged  to  the  branches  at  selling  price  (list 
selling  prices  will  be  furnished  to  each  branch  by  the  main  office). 

The  branch  merchandise  purchase  accounts  shall  be  ruled  with  two 
sets  of  columns  on  the  debit  and  credit  sides.  In  the  first  debit  column  will 
be  entered  cost  price  and  freight  of  merchandise  purchased.  In  the  second 
column  will  be  entered  the  selling  price  at  which  the  merchandise  is 
charged.  The  reason  for  this  arrangement  is  that  experience  has  shown 
it  to  be  an  excellent  plan  for  preventing  theft  of  stock.  The  manager  is 
aware  that  he  will  have  to  render  an  itemized  account  of  the  goods  put  in 
his  care— he  will  see  that  the  goods  are  accounted  for  by  his  clerks.  Each 
office  will  be  provided  with  a  cash  register.  The  best,  although  somewhat 
expensive,  is  the  one  with  a  drawer  for  each  clerk,  numbered  or  by  letter. 
By  this  means,  each  evening  the  strip  can  be  cut  off,  the  name  of  the 
branch  manager,  number  of  branch  and  date  attached,  and  the  whole  can 
be  forwarded  to  main  office. 

Thus,  at  any  rate,  an  accurate  check  can  be  had  on  all  employes,  and 
the  nature  and  amount  of  every  sale  is  recorded. 

Purchase  returns  are  entered  in  the  credit  columns. 

In  order  to  prevent  fraud  in  duplication  of  invoices,  etc.,  purchase  orders 
will  be  made  in  quadruplicate ;  one  copy  to  parties  from  whom  purchases 
are  made ;  one  copy  for  the  branch  for  which  ordered  (if  specially  ordered)  ; 
one  copy  to  the  receiving  room  and  one  copy  for  the  purchasing  depart- 
ment file.  No  invoice  will  be  O.  K.'d  for  payment  unless  the  receiving 
clerk's  O.  K.'d  copy  of  purchase  order  is  attached,  and  all  purchase  orders 
will  be  numbered  consecutively  when  printed.  If  specially  ordered  for 
delivery  to  a  branch,  the  branch's  O.  K.'s  copy  of  purchase  order  will  be 

attached. 

By  adopting  this  plan  the  trading  accounts  at  selling  price  will  exactly 
balance,  providing  the  sales  record  and  inventories  are  correct,  or  other- 
wise will  call  immediate  attention  to  important  differences  and  the  depart- 
ments in  which  they  have  occurred.  Also,  the  branch  store  managers  will 
not  know  exactly  how  much  profit  has  been  made  by  the  business  of  which 
tlvey  have  charge. 

Branch  Stores  and  Inventories. — In  this  kind  of  business  where  there 
is  such  a  variety  of  supplies  it  will  be  found  best  to  use  loose  sheets  for 
stores  records,  and  dissection  of  sales,  as  per  illustration.  A  boy  may  be 
employed  to  dissect  sales  each  day  from  cash  and  charge  tickets,  the  ac- 
curacy of  the  work  being  easily  proved  by  a  recapitulation  of  the  amounts 
of  the  tickets.  The  totals  may  be  carried  to  the  inventory  sheets  each  day, 
or  each  week,  as  considered  advisable. 

These  sheets  will  be  made  in  duplicate,  a  copy  being  forwarded  to  the 
main  office  each  day.     In  this  way  the  main  office  will  carry  a  perpetual 

457 


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American  Business  and  Accounting  Encyclopedia 


303 


inventory  of  all  stock  on  hand  at  the  branches,  and  will  verify  it  from  time 
to  time  by  taking  actual  inventory  of  certain  departments,  or  sections. 

The  inventory  sheets  will  be  sectionalized  into  departments  so  that  the 
necessary  statistics  for  these  departments  will  be  always  available. 

Branch  Expense, — All  expenditures  made  on  behalf  of  the  branches 
will  be  debited  to  the  branch  expense  accounts. 

Branch  Sales.— Cash  registers  will  be  employed  at  the  branches  as 
above  indicated,  for  cash  sales,  and  probably,  also,  for  charge  sales,  as 
these  devices  are  now  arranged  so  as  to  provide  for  both  records  as  well 
as  for  separate  department  records. 

Both  cash  and  charge  tickets  will  be  delivered  to  the  main  office  after 

dissection. 

Branch  Accounts  Receivable. — Provide  each  branch  with  a  combina- 
tion loose  leaf  ledger  and  sales  record,  indexed  in  the  usual  way.  At  each 
opening  in  the  ledger  the  right-hand  page  will  be  the  sales  record  and  the 
left-hand  page  the  ledger  account.  The  sales  record  is  made  in  duplicate 
from  the  salesmen's  tickets,  the  original  constituting  a  statement  to  be 
mailed  to  the  customer  at  the  end  of  each  month,  and  the  duplicate  the 
permanent  sales  record,  the  total  of  which  is  posted  monthly  to  the  debit 
of  the  customer's  account  on  the  left-hand  page. 

There  are  other  ways  of  accomplishing  the  same  result  but  this  appears 
to  be  a  very  convenient  method. 

Daily  reports  of  credit  sales  are  rendered  to  the  main  office,  as  also  lists 
of  receipts  on  account. 

The  wholesale  house  will  carry  in  its  general  ledger  controlling  accounts 
with  the  branches,  and  at  the  end  of  each  month  will  verify  the  balances 
of  these  controlling  accounts  by  listing  the  balances  of  the  branch  accounts 
receivable  ledgers,  at  which  time  they  can  also  make  a  list  of  accounts 
overdue  for  special  attention. 

The  total  cash  and  credit  sales  should  be  entered  each  day  in  a  sum- 
mary sales  book,  the  grand  totals  at  the  end  of  each  month  to  be  credited 
to  the  branch  cash  and  credit  sales  accounts. 

Cash  Records.— The  branches  will  render  to  the  main  office  a  daily 
report  of  receipts  from  cash  sales  or  charge  accounts,  accompanied  by  the 
total  receipts  for  the  day ;  or,  in  some  cases,  these  receipts  may  be  deposited 
in  a  bank  to  the  credit  of  the  account  of  the  main  store. 

A  fixed  sum  per  day  shall  be  allowed  to  each  branch  for  the  purpose 
of  making  change,  and  for  petty  expenditures,  same  to  be  continuously 
restored  by  making  up  each  day  the  amount  expended  on  the  preceding  day. 

Distribution  of  Expense.— At  the  end  of  each  month  each  branch 
should  be  charged  with  its  proportion  of  administrative,  or  main  office  ex- 
pense, to  cover  cost  of  any  direct  supervision  from  the  main  store,  or 
clerical  work  on  branch  records  and  on  accounts  relating  to  branches. 


458 


302-303      American  Business  and  Accounting  Encyclopedia 


Bra. 


These  charges  are,  of  course,  made  by  journal  entries,  debiting  branch 
accounts  and  crediting  main  office  accounts  involved,  such  as  salary,  ad- 
vertising, cost  of  delivery,  etc. 

A  proper  proportion  of  branch  general  expense  based  on  departmental 
turnover  shall  be  distributed  over  the  departments  with  which  separate 

trading  accounts  are  kept. 

Trading  Accounts,  Etc.— We  are  now  ready  to  prepare  our  statistical, 
)mparative  statements,  which  will  be  drawn  up  as  per  the  following 


or  coi 


illustration  of  one  branch  and  its  departments. 

BRANCH  1. 

DEPARTMENT  TRADING  ACCOUNT,  MAY  31. 


Dr. 

Inventory  at  Selling  Price,  5/1...$.. 
Purchases  at  Selling  Price,  5/31..$.. 


Cr. 


Sales   S. 

Inventory  at  Selling  Price,  5/31..$. 


department  trading  account  at  cost. 


Dr. 


Cr- 


Inventory,  5/1  J Sales 

Purchases   | I"^^' 

Direct  Expense $ 

Distribution  Expense  $ 

Net  Profit ^ 


entory,  5/31 


$. 


BRANCH  1. 
general  trading  account,  may  31. 


Dr. 


Cr. 


?°S^S^r.::::::;::::::::s::::::  toSI  ^nto^ie^w 

Total  Direct  Expense $ 

Total  Distribution  Expense $ 

Net  Profit ^ 


$. 


— f£.  Henderson.) 
(303)    SUPPLY  and  expense  departments  of  branch  banking. 

The  question  of  supply  and  expense  in  the  maintenance  of  branch  stores 
and  offices  Is  one  that  has  not  received  much  consideration  in  the  past. 
It  seems  to  have  been  considered  sufficient  when  the  main  store  or  office 
has  included  such  expenses  in  a  general  way  and  the  detail  has  been  lost 

track  of.  e      u     - 

Probably  until  recently  the  only  branches  or  departments  of  a  busi- 
ness conducted  by  methods  herein  described  have  been  the  sub-stations  ol 


459 


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American  Business  and  Accounting  Encyclopedia 


303 


the  post  offices  in  large  cities  where  such  branches  have  long  been  estab- 
lished. 

While  this  article  deals  only  with  banking  the  argument  is  adaptable 
to  other  businesses  as  well  and  in  this  article  the  salient  points  are  strongly- 
emphasized. 

For  only  a  small  number  of  years  the  business  men  of  the  United 
States  have  taken  advantage  of  the  handsome  opportunities  for  profits 
offered  by  placing  and  operating  stores,  under  one  executive  management, 
in  different  cities  and  in  the  country  surrounding  that  wherein  their  main 
office  is  located ;  in  other  words,  by  distributing  their  business  from  several 
branch  offices  instead  of  from  one  principal  place  of  business.  As  evidence 
of  the  wisdom  of  this  policy  is  its  widespread  adoption  by  conservative 
business  men.  One  of  its  most  striking  examples  is  that  of  branch  office 
banking,  which,  however  is  long  past  the  experimental  stage.  It  has  been 
carried  on  for  many  years  by  the  banks  of  Scotland,  which  are  by  far  the 
most  notable  exponents  of  this  method  of  banking. 

The  Bank  of  Scotland,  organized  in  1695,  has  over  125  branches  in 
successful  operation,  Paris  Bank,  Limited,  England,  has  164  branches ;  Lon- 
don City  and  Midland  Bank,  338;  The  Comptoir  National  D'Escompte  de 
Paris,  165.  Canada  is  also  in  the  fore  with  over  1,200  branch  banks  through- 
out the  Dominion,  and  we  can  expect  to  see  the  American  leaders,  although 
far  in  the  rear  at  present,  by  the  aid  of  American  originality  and  aggressive- 
ness pushing  the  Scottish  pioneers  before  many  years  have  lapsed. 

It  is  in  such  an  institution  that  the  ingenuity  of  the  executive  officers 
is  taxed  to  the  utmost,  for  it  is  here  that  a  perfect  system  and  a  most 
thorough  knowledge  of  detail  is  necessary  to  those  in  charge,  because  the 
bank  must  take  advantage  of  every  small  opportunity  to  cut  down  expenses 
if  it  would  obtain  the  best  results. 


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One  saving  in  particular  is  that  maintained  in  the  supply  department 
in  a  large  branch-banking  institution.  By  an  economical  and  practical  sys- 
tem of  the  purchasing  and  distribution  of  supplies  at  the  principal  office 
each  branch  participates  in  the  advantage  of  wholesale  rates,  reducing  this 
expense  to  the  minimum.  With  a  company  doing  a  large  branch-banking 
business  the  supply  department  assumes  immense  proportion,  and  must  be 
carefully  looked  after. 

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A  description  of  such  a  system  now  in  operation  in  a  large  trust  com- 
pany is  hereinafter  described.  It  really  covers  a  complete  accounting  for 
every  dollar  passed  through  the  expense  account  each  year  and  the  ulti- 
mate filing  of  vouchers  with  the  supporting  bills  accompanied  by  the  O.  K. 
of  the  official  responsible  for  expenditures,  for  the  auditors'  examination. 

Purchasing  the  Supplies. — In  the  purchasing  of  supplies  it  is  neces- 
sary that  but  one  man  do  the  ordering,  so  that  orders  will  not  be  dupli- 
cated and  similar  costly  mistakes  made. 

The  order  blank  used  is  of  the  ordinary  form,  carrying  a  number,  witii 
instructions  to  the  firm  from  whom  goods  are  ordered  to  refer  to  the  num- 
ber in  billing.  This  is  essential  as  it  is  impossible  for  the  buyer  to  identify 
all  purchases  by.  the  bill.  The  order  blanks  are  bound  in  books  of  one 
hundred  each  with  yellow  duplicates  alternating,  on  which  carbon  copies 
are  made.  The  numbers  and  dates  of  orders  contained  in  the  book  are 
labeled  on  its  back  after  the  entire  book  has  been  used  up  and  the  books 
are  filed  consecutively,  so  that  it  is  the  work  of  but  a  minute  to  locate  an 
order  either  by  number  or  date. 

Supplies  are  delivered  direct  into  the  hands  of  the  stock  clerk,  and 
are  held  for  the  arrival  of  the  billing  to  be  checked  up,  and  when  quality 
and  quantity  are  found  correct,  the  stock  is  placed  on  the  shelves,  and  the 
bill  stamped  with  the  date  of  receipt  and  initials  of  the  person  who  checked 
the  count. 

Two  samples  of  all  printed  forms  are  pasted  into  the  buyer's  scrap 
book  in  order  of  receipt,  and  marked  with  date,  name  of  maker,  quantity 
received,  rate  per  thousand  and  total  of  bill.  This  latter  procedure  is  car- 
ried out  in  regard  to  everything  in  the  line  of  printed  stock,  even  to  taking 
the  last  two  pages  from  all  blank  books.  Two  samples  of  each  form  are 
thus  preserved  and  the  top  one  so  pasted  that  it  can  be  removed  for  use 
as  copy  when  the  next  order  is  placed.  This  plan  has  the  advantage  of 
allowing  the  buyer  to  make  notation  on  such  preserved  copies  of  any 
changes  or  improvements  which  he  may  have  in  mind  to  make  in  the  next 


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order,  and  incidentally,  make  it  an  easy  matter  to  continually  improve  forms 
and  blanks  to  meet  the  needs  of  a  growing  business.  Ideas  are  thus  pre- 
served to  come  to  notice  at  the  opportune  time  to  be  available.  As  m 
actual  practice  it  is  noticeable  that  inspirations  usually  appear  after  a  new 
stock  has  been  laid  in,  the  value  of  this  feature  is  realized.  The  sample 
remaining,  after  one  has  been  used  as  a  copy  for  a  new  order,  is  valuable  in 
that  it  is  a  good  check  on  the  new  stock  in  regard  to  quality,  workman- 
ship, finish,  etc.  , 

The  Buyer's  Record.— Acting  both  as  an  index  to  the  buyer  s  scrap 
book  and  also  as  a  complete  buying  record  of  each  kind  of  stock,  is  the 
buyer's  record  card,  a  facsimile  of  which  is  herewith  produced. 

This  card  is  kept  in  an  alphabetical  file  in  the  buyer's  desk,  and  con- 
tains  the  essential  data  concerning  all  purchases  of  any  kind  of  stock.  As 
all  entries  are  O.  K.'d  bv  the  buyer,  he  makes  those  entries  on  this  card 
while  the  invoices  are  in  his  hands,  and  as  it  is  the  work  of  only  a  few 
seconds  to  make  each  entry  his  time  is  taken  up  but  very  little  in  keepmg 
these  cards  correct  and  up  to  date,  even  with  a  large  business. 

\s  will  be  noted,  the  card  covers  the  date  of  purchase,  from  whom 
purchased,  quantitv,  price  per  thousand,  etc.  It  also  indicates  to  him  how 
long  previous  supplies  have  lasted,  and  thereby  is  a  guide  as  to  how  much 

to  order. 

The  most  important  item  in  actual  practice,  however,  is  the  rate 
charged  by  various  printers  and  stationers  who  have  furnished  the  stock, 
and  the  advantage  of  buying  in  large  quantities.  It  has  been  found  by 
experience  that  the  reduction  in  the  cost  of  supplies  made  possible  by  this 
knowledge  being  kept  before  the  buyer  will  cover  the  expenses  of  the  clerks 
employed  in  this  department. 

To  locate  a  sample  in  the  scrap  book  it  is  necessary  to  merely  turn  to 
the  corresponding  record  card,  note  the  number  of  the  page  of  the  scrap 
book  on  which  the  sample  is  located  and  turn  to  same. 

Showing  the  data  contained  on  the  buyer's  record  card  and  also  a 
detailed  statement  of  the  disbursement  of  the  stock,  balance  on  hand,  form 
number,  etc.,  is  the  stock  ledger  card  an  example  of  which  is  produced 
herewith.  This  card,  while  similar  to  the  buyer's  record  card,  shows  in 
addition  by  whom  the  stock  was  used.  It  is  essentially  different  also  in 
that  it  is  used  exclusively  in  the  supply  department,  and  all  entries  thereon 
are  made  by  a  clerk  of  this  department.  After  the  stock  has  been  checked 
with  the  billing  and  the  samples  removed,  both  the  samples  and  the  invoice 
are  temporarily  attached  to  a  stock  ledger  card  and  given  to  another  clerk 
to  fill  in  the  heading  on  a  billing  machine,  as  the  cards  are  too  heavy  to 
be  readily  used  on  a  standard  typewriter. 

The  card,  which  is  a  5x8,  is  very  simple  and  scarcely  needs  any  explana 
lion.    The  name  is  placed  in  the  upper  left  hand  corner.    "Sample"  refers 

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to  the  book  and  page  number  of  the  scrap  book  containing  the  samples. 
For  convenience,  each  form  is  given  a  number,  the  letter  preceding  the 
number  denoting  the  department  by  which  the  form  is  used.  The  size  of 
the  form  is  placed  directly  under  the  form  number.  The  dismbution  will 
be  spoken  of  later.  The  remainder  of  the  form  is  self-explanatory.  A 
check  mark  is  placed  beneath  the  stock-receipt  stamp  on  the  invoice  to 
show  that  the  necessary  entry  has  been  made  on  the  stock  ledger  card,  as 
a  check,  so  that  no  entries  will  be  overlooked. 

The  value  of  this  card  is  far  reaching  because  of  the  accurate  and  com- 
plete data  it  contains.     It  is  really  the  corner-stone  of  the  whole  supply 

system. 

Employes  wishing  to  get  supplies  present  requisition  blanks  similar  to 
the  accompanying  illustration.  These  are  used  by  both  main  and  branch 
office  clerks  alike,  and  when  turned  into  the  stockroom  are  spindled,  for 
use  in  making  entries  to  the  stock  ledger  cards,  before  referred  to,  thereby 
making  it  unnecessary  for  the  stock  clerk  to  stop  to  make  memoranda  of 
each  withdrawal  from  stock. 

Expense  Department. — It  is  expedient  to  dwell  here  upon  what  is 
termed  the  distribution  of  the  expense  department.  The  expense  is  classi- 
fied according  to  its  kind,  to  the  different  divisions,  as  salar>%  supplies, 
rent,  etc.,  as  shown  on  the  expense  register.  The  same  charge  is  also  made 
to  the  department  incurring  the  expense,  these  consisting  of  bank,  safe 
deposit,  trust  corp,  etc.  It  will  be  seen  that  the  total  amount  charged  to 
the  various  divisions  of  expense  will  equal  the  total  amount  charged  to 
the  departments,  if  the  entries  are  correctly  made.  The  manner  of  making 
entries  is  clearly  shown  on  the  illustration  of  the  expense  register. 

Different  columns  distribute  the  charge  as  to  classification  of  expense 
and  distribution  to  departments,  the  total  of  the  columns  on  each  page 
balancing  each  other.  A  supplemental  section  provides  for  all  expense  paid 
for  which  we  expect  to  be  reimbursed,  under  the  heading  of  expense  return- 
able and  the  final  column  shows  the  date  and  disposition  of  such  pay- 
ments. For  instance,  all  telephone  charges  and  telegrams,  chargeable  to 
individuals  in  the  office,  are  recorded,  and  bills  rendered  to  such  individuals 
each  month.  This  covers  also  any  supplies  purchased  by  individuals  and 
other  items  of  the  kind,  which  are  usually  small,  but  are  so  hard  to  keep 
track  of  by  ordinary  methods  of  memorandum. 

No  entry  is  made  on  the  expense  register  unless  an  expense  voucher 
check  has  been  drawn  for  the  same,  and  entry  is  then  made  from  this 

voucher. 

The  voucher  check  is  a  form  of  heavy  paper  measuring  7x8  inches.  On 
the  lower  half  of  one  side  is  printed  the  form  of  an  ordinary  check,  and 
the  upper  half  is  reserved  for  indorsements.  As  the  voucher  is  folded 
lengthwise,  the  check  appears  on  the  front,  and  the  place  for  indorsements 


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on  the  back,  resembling  an  ordinary  check  in  this  respect.  The  inside  of 
it  contains  data  showing  the  distribution  of  the  charge,  as  entered  on  the 
expense  register,  and  also  shows  what  the  check  is  in  payment  for.  There 
is  also  a  place  for  the  name  of  the  clerk  drawing  same  as  well  as  for  the 
clerk  who  approves  it.  Of  course  the  officer  responsible  for  expenditures 
signs  the  check  before  it  is  sent  out. 

All  main  office  bills  are  checked  with  the  monthly  statements  and 
O.  K.'d,  in  addition  to  the  stock  clerk,  by  the  officer  responsible  for  expendi- 
tures, before  voucher  check  is  drawn  for  same.  Bills  are  filed  numerically 
after  being  numbered  to  correspond  with  voucher  check,  and  when  checks 
have  been  returned  they  are  turned  in  to  voucher  clerk  by  the  book-keepers 
and  used  as  covers  in  which  to  file  away  the  bills  they  paid.  Thus  each 
voucher  check  is  filed  in  numerical  order  and  an  alphabetical  index  kept  of 
these  files,  there  being  a  file  for  each  office. 

Branch  expense  vouchers  are  handled  in  exactly  the  same  manner  as 
those  of  the  main  office.  The  auditor  has  before  him,  therefore,  when 
checking  up  the  expense  account,  the  approval  of  an  officer,  the  approved 
bill,  the  O.  K.  of  the  stock  clerk  responsible  for  quantities,  and  stamp  to 
show  that  goods  were  received  and  the  cancellation  of  the  paying  office. 

Vouchers  are  drawn  at  main  office  for  bills  rendered  to  branch  offices, 
after  latter  have  been  O.  K.'d  by  the  branch  managers. 

Each  branch  has  a  separate  expenes  account  and  separate  set  of  leaves 
in  the  expense  register,  which  is  kept  at  main  office,  and  is  of  the  loose 
leaf  variety,  permitting  of  leaves  being  put  in  and  taken  out  at  will.  Each 
branch  when  originally  formed  is  indicated  by  a  letter,  and  its  place  in 
the  expense  register  is  so  indicated  by  an  ordinary  alphabetical  index  with 
protruding  tabs  on  which  are  printed  the  letters  corresponding  to  the 
branches. 

It  has  been  mentioned  before  that  nothing  was  entered  on  the  ex- 
pense register  or  charged  to  the  expense  account  that  was  not  supported 
by  a  voucher  check  properly  filled  out.  There  are  in  actual  practice  many 
srnall  items  of  expense,  such  as  express  charges,  that  are  paid  through  the 
teller's  window.  To  take  proper  care  of  these  is  used  a  blue 'slip  the  size 
of  a  check,  marked  at  the  top  "expense  debit."  It  contains  a  place  for  the 
distribution,  memo,  of  the  charge,  amount,  data,  O.  K.  of  an  officer  and 
signature  of  payee.  When  above  has  been  correctly  filled  out,  it  is  paid  by 
the  paying  teller,  who  holds  it  as  cash.  Every  three  or  four  days,  depend- 
ing upon  the  amount,  these  cash  items  are  given  to  the  voucher  clerk,  who 
draws  an  expense  voucher  to  reimburse  the  paying  teller's  cash. 

Distribution  of  the  Charge. — The  distribution  of  the  charge  (for  sup- 
plies) is  shown  on  the  stock  ledger  card  to  indicate  to  the  voucher  clerk 
how  to  charge  the  different  departments  for  stock  used.  As  it  is  imprac- 
ticable to  make  separate  charges  for  each  supply  of  stock  given  out  for 


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V02?CHE:R  RLCORO                                           EXPENSL  CLASSinCATION 

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main  office  use  the  departmental  distribution  is  fixed  on  the  basis  of  esti- 
mated consumption  when  the  stock  comes  in.  Each  branch,  however,  Is 
charged  with  the  actual  amount  they  make  requisition  for  at  the  cost  price, 
and  with  each  supply  sent  them  is  a  charge  or  delivery  slip  bearing  a  num- 
ber and  showing  the  date,  quantity  and  price.  A  duplicate  by  carbon  is 
kept  of  this  slip  in  the  storeroom.  A  delivery  slip  book  is  kept  for  each 
branch  with  memo,  copy  in  both  date  and  numerical  order,  and  at  the  end 
of  each  month  a  bill  is  rendered  to  the  branch  manager,  detailing  all  charges 
made  to  him  for  the  month.  He  checks  this  up  by  means  of  the  original 
charge  slips  mentioned  above,  and  returns  the  bill  with  his  O.  K.  An 
expense  voucher  is  drawn  on  his  office  for  this  amount,  payable  to  the 
main  office  and  credited  to  main  office  expense  account,  the  credit  being 
made  to  department  expense  in  the  same  ratio  as  the  departments  were 
originally  charged.  This  voucher  is  put  through  the  clearing  house,  as  is 
customary.  This  check  is  charged  to  the  branch's  expense  account  on  its 
own  books  and  is  a  voucher  for  the  entry  in  it. 

In  conclusion,  it  is  wise  to  say  just  a  word  supplementary  to  what  has 
already  been  termed  expense  returnable.  For  this  two  separate  books  are 
kept.    One  is  a  journal  permitting  entries  of  date,  expense,  voucher  number, 


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memo,  of  the  charge,  amount,  classification  of  expense  and  department 
incurring  same,  also  date  bill  was  rendered  and  date  was  paid. 

This  journal  is  posted  from  the  vouchers  and  items  are  checked  with 
the  entries  in  expense  returnable  column  from  expehse  register.  The  date 
bill  was  paid  is  posted  from  the  expense  returned  register,  which  resembles 
the  expense  register,  shown  before,  in  regard  to  size,  ruling  and  printing, 
with  the  exceptions  that  in  the  expense  returned  register  is  a  column 
headed  "by  whom  paid,"  instead  of  "to  whom  paid,"  and  the  last  column, 
which  is  reserved  for  remarks. 

As  soon  as  an  item  of  expense  returnable  is  paid  it  is  entered  in  the 
expense  returned  register,  and  as  before  mentioned,  the  date  of  payment 

noted  in  the  journal. 

An  alphabetical  index  is  kept  of  the  journal  to  facilitate  finding  any 

desired  item.— (i?.  D.  M.) 

(304)     methods  for  the  supervision  of  branch  houses. 

To  the  average  book-keeper  in  the  branch  office  of  a  large  corpora- 
tion it  may  sometimes  appear  that  the  general  office  is  crowding  him  up 
with  an  accumulation  of  reports  and  detail,  for  no  other  purpose  than  to 
keep  him  busy.  The  local  manager,  too,  unless  he  has  had  experience  in 
A  large  business,  is  likely  to  remark  on  the  amount  of  red  tape  required. 
To  him  it  seems  that  the  general  management  might  be  reasonably  satis- 
fied with  the  good  profits  he  is  regularly  turning  over  to  them,  and  that 
most  of  the  comparative  statements,  aiffl  other  statistics  his  office  is  called 
upon  to  furnish  are  to  a  great  extent  unnecessary,  as  well  as  burdensome. 

Possibly  these  gentlemen  fail  to  realize  that  the  management  in  the 
general  office  is  just  as  anxious  to  eliminate  all  unnecessary  work  as  they 
arc.  Every  extra  item  of  work  adds  to  the  running  expense  of  the  busi- 
ness, and  much  labor  and  thought  have  been  expended  on  the  problem  of 
cutting  down  the  clerical  work,  both  in  the  branches  and  the  general  office, 
while  at  the  same  time  supplying  the  management  with  all  the  essential 
facts  connected  with  the  various  branches  and  departments. 

The  auditing  department  in  the  general  office  is  the  place  where  most 
of  the  reports  are  received  and  colaborated,  and  on  its  efficiency  will  the 
president  and  general  manager  be  dependent  for  a  clear  statement  of  affairs. 
We  will  not  attempt,  in  this  article,  to  go  into  the  minutiae  of  the  work 
of  the  auditing  department,  but  will  endeavor  to  state,  as  briefly  as  pos- 
sible, what  may  be  taken  as  the  most  essential  facts  to  be  collected  and 
tabulated,  in  order  to  give  the  management  a  thorough  knowledge  of  the 
working  of  the  industrial  machine ;  and  how  to  accomplish  this  result  with 
the  minimum  of  labor,  time  and  reports.  Comparative  statements  may,  of 
course,  be  multiplied  almost  indefinitely.  Emergencies  may  necessitate 
the  getting  up  of  special  comparisons,  and  certain  businesses  may  find  them- 

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304 

selves  benefited  by  particular  statements  which  would  be  of  little  use  to 
others  but  there  are  certain  facts  that  must  be  laid  before  the  manage- 
ment knd  directorate  before  they  can  gain  the  necessary  information  to 
formulate  plans  and  decide  on  their  policy  of  carrying  on  the  busmess 

It  must  be  known  what  profits  and  losses  are  being  made  from  time 
to  time  •  where  the  volume  of  business  is  increasing  and  where  it  is  falling 
off;  which  branches  are  paying  and  which  are  running  at  a  loss;  what  .. 
costs  to  purchase  or  produce  the  articles  dealt  in,  and  the  cost  of  distribut- 
ing  and  marketing  them  at  the  different  points  throughout  the  tern  ory 
covered ;  how  large  a  stock  of  goods  is  being  carried  at  the  various  branches 
the  amount  of  cash  on  hand  and  in  the  banks;  and,  possibly,  the  condition 

of  customers'  accounts.  .„  ,      ,       j  •     *v,    A^\y^ 

To  effect  these  objects  the  principal  means  will  be  found  in  the  daily 
weekly  and  monthly  reports  of  the  current  work  carried  on  at  each  ^^^"^^ 
house,  and  comparative  statements  of  the  volume  of  business  for  the  cor- 
responding  period  in  previous  years.  These  reports  will  necessarily  be 
compiled  from  the  books  and  records  of  the  branch  houses,  and  should  be 
accurate  statements  of  the  actual  transactions.  ,       ^    ^        i. 

As  a  check  on  the  accuracy  of  the  figures  turned  in  by  the  branches, 
all  large  corporations  maintain  a  corps  of  traveling  auditors,  whose  duty 
h  is  to  visit  the  branches  at  intervals,  and  check  over  the  work,  compar- 
ing  the  books  with  the  reports  sent  in  to  the  general  office  These  travel- 
mg  auditors  can  frequently  aid  the  management,  by  including  in  their 
olcial  reports,  many  facts  regarding  local  conditions  and  the  personnel  of 
the  office  force,  which  could  not  be  otherwise  obtained 

While  specialized  businesses  will  require  special  reports,  there  arc 


3md.^**cx 


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i.iST      r/c/ters 


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Cm'S**f£^ 


Form  1. 


467 


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American  Business  and  Accounting  Encyclopedia 


304 


Ca<.\^/^iPi^rj\-   l^nf^Jpe^fiFrjiWt^^                                              l^o7                                                              Rrflfjcfj 

DATE. 

AccoyNT 

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Form  2. 


certain  reports  which  will  be  needed  by  all  firms,  and  these  may  be  listed 
as  follows : 

Cash  reports. 

Stock  reports. 

Sales  reports. 

Trial  balance. 

Loss  and  gain  statement. 

Assets  and  liabilities. 

Inventories. 

Earnings  and  expenses. 

The  daily  cash  report  (Form  1),  is  simply  a  copy  of  the  cashier's  daily 
cash  balance.    This  may  be  bound  in  book  form,  with  duplicate  pages, 

468 


304 


American  Business  and  Accounting  Encyclopedia 


Bra. 


the  carbon  copy  being  torn  out  and  forwarded  to  the  general  office,  t:ie 
original  being  retained  as  a  permanent  record  of  the  branch  office.  This 
will  take  up  no  extra  time  of  the  cashier,  as  he  will  require  to  balance  his 
cash  daily  for  his  own  satisfaction  as  well  as  that  of  the  management. 

A  more  detailed  form  of  cash  report  is  shown  in  Form  2.  It  is  in- 
tended as  a  weekly  report.  The  balance  as  per  previous  report  is  first 
shown,  the  total  cash  rei:eipts  for  the  week  are  entered  in  one  amount,  and 
the  expenditures  are  then  entered  in  detail.  If  desired,  the  vouchers  for 
these  expenditures  may  accompany  the  reports.  Where  a  traveling  auditor 
visits  a  branch  at  short  intervals,  this  report  may  be  considered  unneces- 
sary, but  it  has  been  found  useful  in  checking  undue  expenditures  in  dis- 
tant or  unimportant  branches  which  are  not  visited  so  frequently.  It  is  a 
re-script  of  the  cash  book  and  voucher  reccftd  for  the  week. 

Form  3  is  a  summary  of  the  stock  record  for  the  week.  It  gives  in 
condensed  form  the  purchases,  sales  and  stock  on  hand,  with  the  cost  and 
selling  prices.  The  actual  inventory  is  compared  with  the  book  inven- 
tory and  any  excess  or  shrinkage  is  thus  shown.    A  glance  at  the  volume 


Oi^Hai^ 


SlOtk  Report  .j'or Wee kEndin^ 
.    J ^^^ 


-«*5o- 


-13. 


6old 
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Resid*nr  rt«9«^*^ 


Form  3. 


of  sales  compared  with  the  inventory  will  show  at  once  if  the  branch  is 
overstocked  on  any  article,  and  whether  the  shortage  or  shrinkage  is  abnor-. 
mally  high.  The  quantity  of  the  articles  sold  is  here  shown  without  the 
cash  value.  For  information  on  this  point  we  will  consult  the  monthly 
report  of  sales. 

To  avoid  a  multiplicity  of  report  forms,  we  have  included  the  next 
reports  in  one  (see  Form  4).  This  gives  us  in  one  sheet,  the  trial  balance, 
totals  of  inventories,  loss  and  gain  statement,  expenses  for  the  month,  and 
a  statement  of  assets  and  liabilities,  with  a  comparative  statement  of  sales 
for  the  present  month  and  the  corresponding  month  of  last  year.  This 
balance  sheet  should  be  accompanied  with  detailed  inventories,  a  copy  of 


469 


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American  Business  and  Accounting  Encyclopedia 


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Bolgpcg   Sl^eet'  for 


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COMPARATIVE    STATEMENT  OF  MONTHLV  SALES 


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Form  4. 


the  monthly  pay  roll,  showing  the  amount  paid  for  labor,  from  the  manager 
down  to  the  office  boy  or  porter,  which  must  agree  with  the  amount 
charged  to  labor  account  for  the  month  (Form  5),  and  a  report  of  such 
accounts  as  are  delinquent  (Form  6). 

Corporations  which  only  close  their  books  annually  or  semi-annually 
will  prefer  the  simple  monthly  trial  balance,  a  separate  loss  and  gam 
statement  being  sent  in  at  the  end  of  the  financial  period. 

470 


304 


American  Business  and  Accounting  Encyclopedia 


Br. 


Riy  Roll  S\l^t\ittfr  !for  Morjt^  o|'_ 


J9o. 


J5rtti^K 


name: 


POSITIOW 


■IME. 


RATE. 


AMOi>NT 


REMARKS 


Exflf^ioed  fl^cl  opproved. 


Re»id*^1"  M«^^»» 


Form  5. 


Sof^f^i  of  C'TTf*  «yil'P'-ys,-,<i,nirKHMXXX.  OCPHWTMnT  .i  ^ly^byMo-f^ly  BJ.^6l)f^  }.r>«.E,^ fio 

e  ARNINC6 


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L.OS* 


EXPENSES 


i    i  i    I  i 


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.fcjfcsc 


■"'i-*"'*^- 


FORM    7. 


These  reports  are  filed  as  they  reach  the  general  office  after  being 
stamped  with  the  date  and  hour  they  are  received.  A  separate  file  is  kept 
for  each  form  of  report  for  each  branch.  A  card  index  is  kept  for  the 
reports  of  each  branch  house,  on  which  is  entered  the  date  when  each 
report  from  that  branch  is  received. 

With  these  reports  before  us,  we  gain  a  good  idea  of  the  work  being 
done  at  the  various  branches,  and  it  will  be  seen  that,  taking  them  as  a 
basis,  many  useful  comparative  statements  may  be  compiled  for  the  direc- 

4n 


Bka. 


American  Business  and  Accounting  Encyclopedia      304-309 


■Stiff?  i^yfryt" 


off   QeMr^Vfr^   Accotfrf 


.IV- 


.\bn 


N«iryr 


MA 


P«6« 


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21 


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JJ 


EiuiiiyneJ  «n|d  Ap^roveJ 


Ruiietjf-  hoyiO»»» 


Form  6, 


tors,  and  any  changes  or  improvements  affecting  a  branch  house  can  be 
made  by  them  without  having  to  consult  the  manager  of  the  branch. 

Every  morning  at  10  o'clock  a  summary  of  the  daily  cash  reports  is 
laid  before  the  general  manager,  showing  the  amount  of  cash  on  hand 
and  in  banks  at  each  branch. 

Every  Monday  afternoon  an  analysis  of  the  stock  reports  is  submitted 
to  him,  duplicates  being  made  for  the  benefit  of  the  purchasing  and  sales 
departments. 

On  the  15th  of  each  month  the  directors  have  a  statement  giving  the 
important  figures  from  the  various  balance  sheets.  When  desired  more 
detailed  information  can  be  furnished  them  by  the  auditing  department  at 
a  minute's  notice,  but  unless  something  unusual  appears  in  the  statement 
they  seldom  see  the  original  report. 

One  of  the  most  useful  and  enlightening  reports  is  the  annual  sum- 
mary of  earnings  and  expenses  which  is  made  out  for  each  branch  (Form 
7),  showing  at  a  glance  the  degree  of  success  with  which  the  branch  is 
being  conducted,  and  indicating  where  economics  should  be  instituted. 
When  this  report  reaches  the  auditing  department,  the  percentage  of  each 
expense  item  is  figured  out,  in  comparison  with  the  amount  of  sales  for  the 
month,  and  also  a  comparison  of  the  profits  with  the  sales.  The  respec- 
tive standing^  of  the  various  branches  is  thus  obtained  and  a  table  made  up, 
but  numbers  beig  entered  instead  of  the  name  of  the  branches.  A  copy 
of  this  table  is  mailed  to  each  branch  with  a  note  stating  which  number 
on  the  table  represents  their  office.  A  keen  but  friendly  rivalry  is  thus 
maintained,  each  branch  aiming  to  be  number  one  on  the  list. 

One  of  the  most  essential  features  in  regard  to  these  reports  is  the 
promptness  with  which  they  are  submitted  to  the  general  office.  The  delay 
of  one  branch  in  forwarding  its  reports  necessitates  an  incomplete  state- 
ment being  presented  to  the  general  manager  and  retards  the  work  of  the 
auditing  department,  so  that  punctuality  is  as  important  as  accuracy  in 
rendering  them,  and  the  book-keeper  of  the  branch  house  who  can  be 

472 


J09 


American  Business  and  Accounting  Encyclopedia 


Bra. 


depended  on  in  these  particulars  may  expect  commendation  from  the  man- 
agement, and  rapid  promotion  to  more  responsible  duties. 

(309)     BRASS  FOUNDRY  COST  RECORDS. 

Systematic  cost  accounting  in  a  brass  foundry  should  have  for  its 
object  three  definite  divisions,  as  follows : 

1st.     To  exercise  a  controlling  interest  over  the  output. 

2nd.    To  tend  to  produce  a  maximum  output  from  minimum  costs  ci 

production. 

3rd.    To  compute  the  final  costs  on  actual  expense  incurred. 

When  the  brass  foundry  of  a  large  concern  manufacturing  such  articles 
as  cash  registers,  musical  instruments,  pipe  organs,  etc.,  receives  an  oraer 
(Form  A)  from  the  order  department  to  make  a  specified  number  of  cast- 
ings as  per  pattern  furnished,  the  first  thing  to  be  considered  is  the  time 
allowed  for  the  completion  of  the  work,  second  the  quantity  of  castings 
required  and  third  the  amount  of  labor  necessary  for  turning  out  the 
finished  product  on  schedule  time. 

On  the  completion  of  the  order  and  the  turning  out  of  the  finished 


HdC      g-l-c7 


ORDER  ON 'BRASS  FOWDRV* 
.srnFmuF  -  &-fe-c7 

RLWARKS       -  ,     ,    I       I   I  £       +  I         -It 

'*  " ^|^^Rf/i^ir>j    jnily    A'h„f,;es    of  not  IfaA  T>Hn 


DtLIVLRlES   TO  STORE.  ROOM 


Diib  Qijn^jlity 


V/..«K«- 


^ 


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1.4 


0<tf 


SisB. 


U'. 


1^ 


Rftyrkt 


Dolt  !iit«p<f 


De.LWE.RlLS  TO  STORE  ROOM 


Wei&Hf 


iiZ 


^eryfiirk^ 


Dote 


Q>»'^tity 


U«<Ki- 


iiin 


Rfi-V».<« 


Tk,.    orcf^r.   Vx   r,15rT,Jte-»J,    M.1»^.-l  Ori,-  0»p+   •*»»- 


Form  A. 


Form  A  (re\-erse). 


product  as  far  as  the  brass  foundry  is  concerned  the  question  arises,  "what 
has  been  the  cost  of  fulfilling  the  order  as  per  specifications  furnished." 

The  final  cost  will  be  divided  among  three  groups — labor,  material 
and  expense.  Expense  as  here  stated  will  be  subdivided  between  labor 
expense  and  material  expense. 

Labor  expense  is  all  that  expense  incurred  in  the  installation  and 
maintenance  of  a  complete  tool  equipment,  in  the  provision  of  suitable 
accommodations  for  the  enactment  of  the  work  and  also  a  percentage  of 
the  general  expense  brought  forward  from  administration,  draughting", 
power,  rent,  tools,  depreciation,  insurance  and  taxes. 

Material  expense  is  that  expense  which  is  incurred  in  purchasinc^ 
receiving,  inspecting,  handling  and  storing  of  raw  and  process  material 
used  in  the  brass  foundry.  All  labor  will  be  distributed  and  reported  be- 
tween productive  and  non-productive.  All  productive  labor  should  be 
charged  directly  against  the  job  number  assigned.  Non-productive  labor 
will  be  charged  to  specific  expense  orders;  thus,  time  of  furnace-tenders, 
sprue  cutters,  etc.    It  can  be  readily  seen  that  expense  of  this  nature  cannot 

473 


Bra. 


American  Business  and  Accounting  Encvcloppdia 


309 


be  directly  assessed  against  any  definite  job  and  must  subsequently  be 
charged  as  stated. 

Productive   labor   will   include   all   moulders'   and   coremakers'   time. 
Where  large  orders  are  being  handled  this  time  should  be  assessed  directly 


Brass  Foundry  Time 

-DAY-   WOR  K  —  T  IC  KET- 


Jo  O    IS  O 


Z3-46 


St  Af^  TED 


g- 9-oy 


F I  /v  IS  mCO 


6-  Ajf   07 


f  n<H  I  n  ^ 
June    /s -  07 


E.  l^ft-OY  E  £SN9_ 


rse 


rv  A  M  e 
R  AT  e 


VV.  DE.A  M 


3^*    ftf-'T  Ht^. 


I  u  r^ 


Mo  /v 


rue  s 


yveo 


TmuR 


O   '/« 


roTAL.    HOU^S 


4  7/«. 


I.  AOO^ 


y/6  as 


LA  BO^      LOAO  I  ISC, 


ri    R  &  It  c  /  f 


F  o  re  man 


Oat-e      •/yjr/o7 


Form  B. 


against  the  job,  but  where  the  work  consists  of  a  miscellaneous  assortment 
of  small  orders,  it  has  been  found  advisable  to  have  the  order  department 
issue  a  series  of  numbers  to  which  this  time  can  be  charged. 
This  will  show  a  division  as  folows : 


CASTING   RECORD 


niXT^RLifll 


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474 


309 


American  Business  and  Accounting  Encyclopedia 


Bra. 


Bench  moulders,  machine  moulders,  floor  moulders,  die  workers  and 
core  makers.  Thus  1321-R— bench  moulders,  1322-R— machine  moulders, 
etc.  The  advisability  of  this  method  of  procedure  will  be  readily  seen  when 
we  take  into  account  the  lax  system  which  would  result,  were  each  produc- 
tive laborer  working  on  several  jobs  at  the  same  time,  to  divide  his  time 
according  to  his  own  estimate.    The  time  of  the  foreman  and  his  assistant 


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Form  E   (re\erse">. 


is  prorated  on  the  basis  of  productive  laborers  in  each  i^roup.  By  charging 
the  time  of  labor  as  herein  described  and  summarizing  weekly  or  monthly 
according  to  the  amount  of  work  being  handled  and  dividing  by  the  total 
output  for  the  specified  period,  a  cost  per  pound  casting  will  be  derived 
for  each  division. 

The  time  is  turned  in  daily  to  the  cost  department  on  time  tickets  as 
shown  (Form  B)  where  they  are  assorted  and  filed  according  to  the  respec- 
tive order  numbers.  These  time  tickets  are  then  summarized  weekly  or 
monthly,  the  various  divisions  being  charged  to  the  extent  of  the  expense 
incurred. 

Owing  to  the  many  and  varied  mixtures  made  in  the  brass  foundry  it 
has  been  found  advisable  to  assign  a  code  number  and  name  to  each 
mixture.  Thus  hard  brass  No.  10,  phosphor  bronze  Xo.  33,  muntz  metal 
No.  30,  etc.  The  metal  used  in  making  up  these  various  mixtures  is  en- 
tered on  a  record  card  as  shown  (Form  C)  showing  the  name  and  number 
of  the  mixture,  input  and  output  gates  used,  and  number  of  heats  required. 


Cycked  by     N.D. 
Order   #    16745" 


STORE  ROOM    RECORD 

OF  Ei)t?red  oi^CorJ  by    13  LC 


DELIVERIES 


F"roi*y R)rfl5s  FbV)r\dry 


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Received 


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Form  F. 


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rveceiv<^a 


t^^^Re^Jjd 


475 


Bra. 


American  Business  and  Accounting  Encyclopedia 


309 


The  cards  are  forwarded  at  periodic  intervals  to  the  cost  department,  where 
they  are  priced  and  costs  extended  for  each  mixture.  All  gates,  sprUc^, 
heads  and  scrap  used  are  reported  for  information  only;  this  being  due 
to  the  fact  that  they  have  been  previously  charged  against  the  mixture  ia 
question,  but  not  being  part  of  the  finished  product  of  that  heat  are  cut  off 
and  remelted  in  the  next  heat.  The  total  weight  output  thus  determined 
from  the  cards  is  then  divided  into  the  total  labor  (taken  from  the  "R" 
numbers)  for  the  specified  period  of  time,  the  result  being  the  cost  per 

pound  output. 

Loading  and  Labor.— A  loading  for  labor  and  material  must  now  be 

added. 

Labor  loading  is  derived  from  the  units  of  expense  incurred  through 
labor,  based  on  the  expense  time  turned  in  daily  by  the  expense  employes. 
This  constitutes  all  that  expense  as  previously  enumerated  under  labor 

expense. 

^laterial  loading  is  based  on  that  expense  incurred  in  connection  with 

material  as  defined  under  material  expense. 

The  result  of  this  series  of  cost  analysis  will  be  as  follows : 
A  destination  ticket  as  shown  (Form  E)  should  accompany  all  de- 
liveries of  material  from  the  foundry  to  the  various  parts  of  the  shop. 
When  partial  deliveries  are  made  to  the  storeroom  on  orders  in  process  of 
completion,  the  quantity  received  and  the  amount  delivered  to  date  are 
posted  (Form  F)  by  the  storeroom-keeper.  The  storeroom-keeper  will  be 
held  directly  responsible  for  the  prompt  delivery  of  all  shipments  to  the 
various  departments,  the  porters  reporting  directly  to  him. 

When  final  deliveries  have  been  made  the  delivery  sheet  (Form  F) 
should  be  sent  to  the  order  department  where  by  the  perpetual  inventory 
system  a  complete  record  is  kept  of  material  ordered,  received,  deliveries 

made,  etc.  ^       ,  •  ..       j 

It  will  be  found  advisable  to  have  the  storerooms  for  the  receipt  and 
deliveries  of  material  to  the  foundry,  in  close  proximity  thereto ;  thereby 
reducing  expense  incurred  by  needless  travel  when  otherwise  located. 

Accurate  cost  accounting  in  the  brass  foundry  has  long  been  a  cause 
of  constant  worriment  to  shop  superintendents,  but  a  prolonged  study  and 
practice  of  the  foregoing  method  has  proved  a  source  of  satisfaction  to  the 
end  that  profits  have  steadily  increased  where  heretofore  systems  used 
have  proved  futile  in  attempts  at  accurate  costs  of  production. 

—(N.  C.  Ficker,  C.  E.) 

(309a)     BREWERY    ACCOUNTING. 

I  shall  deal  with  only  one  phase  of  the  accounting  of  a  modern  brew- 
ery, namely  the  trading  and  profit  and  loss  account,  for  there  is  more  to  be 
said  about  "brewery  accounting"  than  can  possibly  be  crowded  into  one 
article. 

476 


309a 


American  Business  and  Accounting  Encyclopedia 


Bre. 


With  the  science  of  brewing  still  in  process  of  development,  with 
many  clever  men  and  deep  students  devoting  their  lives  to  working  out 
the  problems  that  beset  the  practical  brewer,  we  find  the  books  of  account 
of  most  breweries  to  be  still  in  the  medieval  ages.  The  book-keeper  jogs 
along  from  week  to  week,  until  the  end  of  the  fiscal  year  is  reached :  then 
come  the  annual  inventory  and  the  closing  of  the  books. 

A  modern  system  of  book-keeping  is  one  that  will  show  the  cost  per 
unit  in  each  department.  This  is  easy  of  accomplishment  in  a  brewery, 
as  the  unit  is  always  the  same — a  barrel  of  beer.  It  is  not  necessary  to 
keep  a  separate  record  of  the  various  brewings;  as  far  as  the  practical 
purposes  of  book-keeping  are  concerned,  the  beer  is  made  in  one  kettle 
and  stored  in  one  vat. 

The  brewmaster  must  surely  keep  track  of  the  different  brewings  of 
beer,  from  the  mashtub  to  the  storage  vats,  even  to  the  racking-off  room, 
he  must  test  the  temperature  and  the  specific  gravity  of  the  product  at 
each  different  stage  of  the  fermentation;  he  must  know  just  how  his 
formulae  have  resulted;  he  must  know,  for  instance,  how  the  proportion 
he  has  used  of  German  and  of  Pacific  coast  hops  has  worked  out  and  how 
the  last  lot  of  malt  from  Milwaukee  shows  up.  But  it  is  not  necessary  for 
the  book-keeper  to  keep  any  record  of  these  'particulars — only  the  average 
cost  is  needed. 

It  will  therefore  be  seen  that  most  of  the  complications  of  "cost  ac- 
counting" are  eliminated.  It  remains  a  simple  matter  to  keep  the  accounts 
of  a  brewery  in  such  a  manner  that  the  average  cost  per  unit,  of  each  pro- 
cess can  be  determined.  By  comparing  one  month  with  another  and  one 
period  of  months  with  the  corresponding  period  in  the  previous  year, 
extravagance  or  waste  can  be  detected. 

Trading  and  Profit  and  Loss  Accounts.     In  stating  the  accounts 
of  a  brewery  in  proper  form,  the  following  principal  factors  should  be  dealt 
with  in  the  order  named: 
♦1st;. — Sales. 

2nd — Production. 
♦3rd — Distribution. 

4th — Government  Tax. 

5th — Administration. 

6th — Losses. 

7th — Interest. 

8th— Net  Profit. 

The  first  four  of  these  principal  factors  are  divided  between  the  depart- 
ments of  the  brewery — beer  and  ale  and  porter,  the  first  and  third  (*) 
between  city  trade  and  country  trade.  These  divisions  are  again  subdi- 
vided into  their  several  elementary  parts,  for  each  of  which  there  must  be 
a  seperate  ledger  account.  In  making  the  original  entries  the  expenses 
must  be  segregated  and  charged  to  their  proper  accounts. 

477 


i 


Bre. 


American'  Business  and  Accounting  Encyclopedia 


309b 


Distribution  by  Chart.  To  illustrate  the  division  above  suggested 
and  the  subdivision  into  ledger  accounts,  a  chart  is  presented.  Each 
account  is  numbered.  The  grouping  and  order  of  the  accounts  follow  the 
production  and  distribution  of  the  article  made  (beer)  and  the  develop- 
ment of  the  business.  There  are  upwards  of  ninety  accounts  in  the  whole 
series  and  some  of  these  are  capable  of  duplication  in  breweries  where  a 
country  trade  is  done  as  well  as  a  city  trade. 

In  opposition  to  such  a  plan  it  may  be  urged  that  the  multiplication 
of  ledger  accounts  makes  more  clerical  work  for  the  book-keeper.  This  is 
true  to  a  certain  extent,  but  the  value  of  the  results  afforded  by  these  extra 
accounts,  far  outweighs  the  cost  of  the  added  clerical  work. 

The  book-keeper's  duty  is  to  record  the  facts  of  a  business  and  supply 
information.  It  follows  that  a  good  book-keeper  will  be  anxious  to  record 
all  the  facts  and  supply  all  the  information  that  his  books  can  be  made 
to  contain. 

The  proper  distribution  of  the  cost  of  materials,  labor  and  expenses  to 
suitable  ledger  accounts,  representing  the  several  distinct  elements  of  cost, 
and  the  correct  grouping  of  these  elements,  will  lead  to  a  true  and  there- 
fore valuable  record  of  the  business.  Statements  prepared  from  books  so 
kept,  will  be  illuminating,  intelligible  and  instructive. 

Monthly  Statements.  The  real  object  of  keeping  books  of  account 
is  to  provide  information — not  merely  once  a  year,  at  the  annual  closing  of 
the  books — but  at  all  times.  The  end  of  each  month  is  found  to  be  a  con- 
venient  time    to   review   the   accounts   and   so   monthly   statements   are 

called  for. 

The  chief  difficulty  in  providing  a  monthly  statement,  in  any  kind  cf 
manufacturing  business,  is  the  impracticability  of  taking  a  monthly  inven- 
tory. The  so-called  "perpetual  inventory,"  which  is  simply  a  clerical 
record  of  the  coming  in  and  going  out  of  goods  and  the  consumption  of 
materials— merely  so  much  more  book-keeping— much  talked  over  and 
written  about  by  the  modern  system  expert,  is  not  needed  here.  It  is 
seldom  worth  the  labor  it  entails. 

An  actual  inventory  is  readily  taken  every  month,  without  any  ex- 
pense, in  a  brewery.  With  this  in  hand  the  preparation  of  a  monthly 
statement  of  earnings  is  really  a  pleasant  diversion,  not  a  hard  task,  for 
the  book-keeper.    It  is  only  one  step  beyond  his  monthly  trial  balance. 

The  monthly  statement  should  not  show  the  transactions  for  that 
one  month  alone,  but  should  show  the  accumulated  result  of  the  business 
from  the  first  of  the  fiscal  year  to  the  end  of  the  month  reported.  For 
example,  in  making  the  July  statement  for  a  brewery  closing  its  fiscal 
year  on  31st  December,  the  figures  should  not  be  for  the  twenty-five  work- 
ing days  of  July,  but  should  be  for  the  seven  months  ending  31st  July. 
It  follows  that  the  "August  statement"  will  contain  eight  months'  business, 
and  so  on.  . 

478 


309a 


American  Business  and  Accounting  Encyclopedia 


Bre. 


The  figures  on  each  successive  monthly  statement  will  be  more 
dependable,  as  they  will  have  a  broader  basis  of  average  to  stand  upon. 

The  next  step  is  to  make  these  monthly  statements  more  valuable, 
statistically,  by  comparing  them  with  the  like  period  in  the  previous  year. 
To  do  this  readily  the  actual  figures  for  the  same  number  of  months  of 
the  preceding  year  should  be  brought  onto  the  same  sheet,  in  parallel 
column,  line  for  line. 

An  illustration  of  such  a  monthly  statement  is  here  provided,  covering 
a  period  of  eleven  months  (Figs.  1,  2  and  3).  In  illustrating  the  working 
of  any  system  of  accounts,  the  simplest  forms  are  the  most  illuminating. 
For  this  reason  I  have  selected  the  forms  used  in  a  brewery  where  only 
lager  beer  is  brewed,  and  where  only  city  trade  is  conducted.  These  forms 
are  actually  in  use  in  two  large  breweries,  but  the  figures  are  fictitious. 

The  grouping  and  order  of  the  ledger  accounts  follow  very  closely 
the  previously  shown  chart;  naturally  the  accounts  that  represent  ale  and 
porter,  country  trade  and  bottling  department  are  absent  from  this 
illustration. 

Incidental  to  this  monthly  statement  (Figs.  Xo.  1,  Xo.  2  and  Xo.  3> 
will  be  seen  a  monthly  report  of  operations  (Fig.  Xo.  4)  whereon  are 
shown,  each  in  turn  (1)  the  net  selling  price;  (2)  the  cost  per  barrel  of 
production;  (3)  of  distribution;  and  (4)  of  administration;  also  (5)  the 
net  profit  per  barrel. 

The  value  of  these  statistics  lies  in  comparing  the  operations  of  the 
current  period,  with  the  like  period  in  the  previous  year.  This  comparison 
should  be  scrutinized  most  carefully  by  the  president  and  general  manager 
of  the  company,  or  by  the  head  of  the  firm ;  the  reason  for  each  divergence 
should  be  determined  and  such  savings  or  economies  put  in  force,  as  may 
be  suggested  by  the  figures  thus  disclosed. 

Specifications  for  Distribution  of  Charges.  It  remains  now  to 
state  categorically  how  to  distribute  the  cost  of  materials,  wages  and 
expenses  of  a  brewery  to  the  several  ledger  accounts  suggested.  The 
grouping  and  order  of  these  specifications  follow  the  chart  and  the  same 
account  numbers  are  used. 

Closing  the  Books.  It  will  be  observed  that  in  closing  the  books  of 
account  for  the  year,  it  is  designed  that  the  balances  of  several  accounts 
should  be  assembled  in  groups,  along  the  lines  shown  on  the  chart.  In 
turn  the  balance  of  each  group  will  be  transferred  to  profit  and  loss 
account. 

To  illustrate  the  method  of  closing  the  books,  four  accounts  have  been 
reproduced  on  pages  480  to  483.  The  figurs  used  are  taken  from  the 
monthly  statement,  although  these  figures  are  only  supposed  to  be  for 
eleven  months. 


479 


f 


Bre. 


American  Business  and  Accounting  Encyclopedia 


309a 


I 


Trading  and  Profit  and  Loss  Account 

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309a 


American  Business  and  Accounting  Encyclopedia 


Bre. 


Trading  and  Profit  and  Loss  Account  (Conunutj) 

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(30t&)   specifications  of  the  distribution  of  trading  and  profit  and  loss 
accounts  (showing  in  detail  how  each  account  is  handled.) 

No.  1— City  Beer  Sales.  Credit  city  beer  sales  and  the  monthly  total 
sales  of  lager  beer  to  customers  in  the  city,  posting  the  number  of  barrels 
into  the  ledger  as  well  as  the  money.  Beer  returned  to  the  brewery  must 
be  charged  back  to  this  account,  but  allowances  to  customers  for  "leakers" 
or  any  other  causes  of  complaint,  must  be  charged  to  city  beer  allowances. 
(The  object  of  keeping  this  account  is  to  determine  what  the  city  beer 
trade  has  resulted  in.)  At  the  end  of  the  year  transfer  the  total  amount 
of  city  better  sales  to  profit  and  loss  (Account  No.  90.) 

No.  2— Country  Beer  Sales.  Credit  to  country  beer  sales  the  total 
monthly  sales  of  lager  beer  to  country  customers,  also  post  into  the  ledger 
the  number  of  barrels  sold.  Beer  returned  to  the  brewery  by  country 
customers  must  be  charged  back  to  this  account,  but  allowances  to  cus- 
tomers for  "leakers"  or  on  any  other  causes  of  complaint,  must  be  charged 
to  country  beer  allowances.  (The  object  of  keeping  this  account  separate 
is  to  learn  what  the  country  beer  trade  has  resulted  in.)  At  the  end  of  the 
year  transfer  the  total  amount  of  beer  sales  to  profit  and  loss  (Account 

No.  90). 

Xo.  3— Agency  Beer  Shipments.     Charge  the  ledger  account  of  each 

agency  and  credit  agency  beer  shipments  with  each  car  load  or  consign- 
ment of  beer  shipped.  For  the  purposes  of  accoimting  these  goods  are 
treated  as  sold  when  they  leave  the  brewery.  Subsequent  entries,  record- 
ing the  actual  sales  are  made  at  the  agency.  Beer  remaining  unsold  at 
end  of  period  is  taken  to  account  as  stock  on  hand.  At  the  end  of  the 
year  transfer  the  total  of  agency  beer  shipments  to  credit  of  profit  and  loss 
(Account  No.  90). 

No.  4 — City  Beer  Allowances.  Charge  to  city  beer  allowances  all 
rebates  and  allowances  to  city  beer  trade  on  each  month's  collections  of 
lager  beer;  also  allowances  (often  erroneously  called  "returns")  made  to 
customers  for  "spoiled  beer,"  "leakers"  or  on  other  causes  of  complaint. 
The  postings  w^ill  be  made  from  the  total  of  the  column  in  the  cash  book 
for  this  account,  also  on  occasions  from  the  journal.  At  the  end  of  the 
year  transfer  the  total  amount  to  profit  and  loss  (Account  No.  90).  (The 
object  of  keeping  this  account  separate  is  to  be  able  to  determine  the  exact 
net  selling  price  of  beer  delivered  to  the  city  trade.)     See  city  beer  sales 

account. 

No.  5 — Country  Beer  Allowances.  Charge  to  country  beer  allow- 
ances all  rebates  and  allowances  to  country  trade  on  each  month's  collec- 
tions of  lager  beer ;  also  allowances  made  to  country  customers  for  "spoiled 
beer,"  "leakers"  or  on  other  causes  of  complaint.  The  postings  will  be 
made  from  the  total  of  the  column  in  the  cash  book  for  this  account.  At 
the  end  of  the  year  transfer  the  total  amount  to  profit  and  loss  (Account 
No.  90).     (The  object  of  keeping  this  account  separate  is  to  be  able  to 

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determine  the  exact  net  selling  price  of  beer  delivered  to  the  country 
trade.) 

No.  6 — Ale  and  Porter  Sales..   City  ale  and  porter  sales. 

Country  ale  and  porter  sales. 

Agency  ale  and  porter  shipments. 

Read  paragraphs  No.  1,  No.  2  and  No.  3,  substituting  the  words  ale 
and  porter  for  the  word  beer. 

No.  7 — Ale  and  Porter  Allowances.    City  ale  and  porter  allowances. 

Country  ale  and  porter  allowances. 

Read  paragraphs  No.  4  and  No.  5,  substituting  the  words  ale  and 
porter  for  the  words  lager  beer. 

No.  8 — Malt  Account.  Charge  to  this  account  all  invoices  for  malt 
purchased,  (posting  from  the  journal)  also  charge  freight,  hauling  from 
ra,il,  (if  any)  ;  cost  of  hauling,  storing,  etc.,  (posting  from  the  cash  book). 

Credit  to  this  account  cash  received  with  respect  to  cash  sales  of  malt, 
and  of  screenings,  etc. 

At  the  end  of  each  month  credit  this  account  and  charge  ale  anJ 
porter  brewing  (Account  No.  16)  with  the  cost  (at  a  price  sufficient  to 
include  freight  and  hauling)  of  malt  used  in  making  ale  and  porter. 

At  the  close  of  the  year,  credit  the  stock  of  malt  on  hand  at  the  then 
market  price  (if  not  higher  than  the  cost  price)  adding  freight  and  hauling, 
then  transfer  the  balance  of  the  account  to  beer  brewing  (Account  No.  26). 

No.  9 — Hops  Account.  Charge  to  this  account  invoices  for  hops 
received  at  the  brewery  (posting  from  the  journal)  ;  also  all  amounts  paid 
for  freight  and  hauling  hops,  (posting  direct  from  the  cash  book).  In 
large  breweries  it  will  be  advisable  to  have  separate  accounts  for  German 
hops.  Pacific  coast  hops,  etc.,  on  account  of  the  great  difference  in  the 
value. 

At  the  end  of  each  month  credit  this  account  and  charge  ale  and 
porter  brewing  (Account  No.  16)  with  the  cost  (at  a  price  sufficient  to 
include  freight  and  hauling)  of  hops  used  in  making  ale  and  porter. 

At  the  close  of  the  year  credit  the  stock  of  hops  on  hand  at  the  then 
maket  price  (if  not  higher  than  the  cost  price)  adding  freight  and  hauling 
then  transfer  the  balance  of  the  account  to  beer  brewing  (Account  No.  26). 

No.  10 — Corn  Account.*  Charge  to  this  account  all  invoices  for  corn, 
grits,  frumentum  or  other  substitute  for  malt,  received  at  the  brewery 
(posting  from  the  journal)  also  all  amounts  paid  for  freight  and  hauling 
grits,  etc.,  (posting  from  the  cash  book). 

At  the  close  of  the  year  credit  this  account  with  the  stock  of  com, 
grits,  etc.,  on  hand,  then  transfer  the  balance  of  the  account  to  beer  brew- 
ing (Account  No.  26). 

No.  11 — Rice  Account.*  Charge  to  this  account  all  invoices  for  rice 
received  at  the  brewery  (posting  from  the  journal)  also  all  amounts  paid 
for  freight  and  hauling  rice  (posting  from  the  cash  book). 

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At  the  close  of  the  year  credit  the  stock  of  rice  on  hand,  at  the  then 
market  price  (if  not  higher  than  cost)  and  then  transfer  the  balance  of  the 
account  to  beer  brewing  (Account  No.  29). 

No.  12— Sugar  Account.*  Charge  to  this  account  all  invoices  for  sugar 
received  at  the  brewery  (posting  from  the  journal)  also  all  amounts  paid 
for  freight  and  hauling  (posting  from  the  cash  book). 

At  the  close  of  the  year  credit  the  stock  of  sugar  on  hand,  at  the  then 
market  price  (if  not  higher  than  cost)  and  then  transfer  the  balance  of 
the  account  to  beer  brewing  (Account  No.  26). 

No.  13--SUNDRY  Brewing  ^Taterials  (Beer).  This  account  should 
be  charged  with  all  invoices  for  materials  used  in  brewing  beer,  for  which 
no  account  exists  elsewhere,  such  as  isinglass,  beer  color  and  any  chemical 
compounds.  (Freight  and  charges,  if  any,  on  such  materials,  should  be 
charged  to  this  account.)  Sundry  brewing  materials  used  for  ale  and 
porter  brewing  will  be  charged  direct  to  Account  No.  16. 

Bring  down  the  value  of  stock  of  sundry  materials,  on  hand,  as  per 
inventory  and  carry  the  balance  to  beer  brewing  account  (Account  No.  26). 
No.  14— Brewery  Supplies.  Charge  to  this  account  all  invoices  for 
sundry  supplies  used  in  the  brewery  proper,  for  which  no  account  exists 
elsewhere,  such  as  ammonia  (for  the  refrigerating  machme),  pitch, 
candles,  brooms,  etc.  Do  not  charge  engine  room  supplies  here  (see 
Account  No.  81)  nor  materials  or  supplies  for  repairs  or  mamtenance  (see 

Account  No.  27  or  No.  29). 

At  the  end  of  the  year  bring  down  the  value  of  stock  of  supplies  on 
hand  and  transfer  the  balance  to  beer  brewing  (Account  No.  26),  and  to 
ale  and  porter  brewing  (Account  No.  16)  proportionately  upon  the  number 
of  barrels  of  each  brewed. 

No.  15— Sales  of  Grain.  Credit  to  this  account  all  money  received  for 
the  sales  of  grains,  (posting  direct  from  the  cash  book),  if  paid  for  at  the 
time,  or  from  journal  if  an  account  is  kept  with  the  party  buying  grains. 

At  the  end  of  the  year  transfer  the  amount  received  to  the  credit  of 
beer  brewing  (Account  No.  26).  In  a  brewery  where  ale  and  porter  are 
also  brewed  a  proportion  of  the  credit  for  sales  of  grains  should  be  given 
to  ale  and  porter  brewing  (Account  No.  16)  unless  the  arrangement  of  the 
brewery  permits  the  handling  of  the  grains  separately. 

Xo.  16 "Ale  and  Porter  Brewing  Account."  This  account  is  de- 
signed to  show  the  cost  of  brewing  the  company's  total  output  of  ale, 
porter  and  stout  for  the  fiscal  year.  The  account  may  be  subdivided,  so 
as  to  have  a  separate  account  for  each,  but  this  seldom  becomes  advisable, 
except  in  breweries  making  a  specialty  of  brewing  ales,  porter  and  stout. 

The  account  is  built  up  by  monthly  charges  for  the  cost  of  materials 
used  as  told  in  the  individual  material  accounts,  also  for  proportion  of 
wages  (see  Accounts  No.  17,  No.  18,  No.  19  and  No.^  20)  also  for  fuel, 
water,  supplies  and  expenses  (see  Accounts  No.  21,  No.  22,  No.  23,  and 

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No.  24).  The  cost  of  sundry  brewing  materials,  specially  purchased  for 
use  in  brewing  ale,  porter  and  stout  will  be  charged  direct  to  this  account. 

When  all  the  postings  have  been  made  to  ale  and  porter  brewing,  the 
total  debit  balance,  divided  by  the  number  of  barrels  brewed,  will  show 
the  cost  of  materials  and  labor  per  l^arrel.  In  plants  where  ale  and  porter 
are  brewed  in  a  separate  building  or  department  from  the  beer  brewery, 
this  account  will  give  place  to  a  series  of  material  and  labor  accounts 
specially  kept  for  ale  and  porter  brewing. 

The  balance  of  ale  and  porter  brewing  account  when  the  books  are 
closed  for  the  year  must  be  transferred  to  profit  and  loss  (Account  No. 

90). 

No.  17 — Brewmaster*s  Salary.  It  is  desirable  to  have  a  separate 
account  for  the  brewmasters  salary,  which  will  include  also  wages  of 
assistant  brewmaster. 

At  the  end  of  the  year  divide  the  total  charge  between  beer  brewing 
(Account  No.  26)  and  ale  and  porter  brewing  (Account  No.  16)  in  pro- 
portion to  the  number  of  barrels  of  each  brewed  during  the  year. 

No.  18 — Brewery  Wages.  Charge  to  this  account  wages  paid  to  men 
engaged  in  making  and  tending  beer,  kettlemen,  cellarmen  and  others 
(posting  weekly  amounts  direct  from  entry  for  pay  roll  entry  in  the  cash 
book).  This  does  not  include  men  employed  in  the  washhouse,  racking- 
room  or  platform. 

Where  the  breweries  for  beer  and  for  ale  and  porter  are  separate,  it 
will  be  easy  to  keep  the  wages  distinct  and  in  such  cases  there  will  be 
separate  accounts. 

At  the  end  of  the  year  divide  the  total  between  beer  brewing  (Account 
No.  26)  and  ale  and  porter  brewing  (Account  No.  16)  in  proportion  to 
the  number  of  barrels  of  each  brewed. 

No.  19 — Engineers  and  Firemen.  Charge  to  this  account  wages 
paid  to  engineers,  firemen  and  others  in  the  engine  room  (posting  weekly 
amounts  direct  from  the  pay  roll  entry  in  the  cash  book ). 

At  the  end  of  the  fiscal  year  divide  the  total  amount  between  beer 
brewing  (Account  No.  26)  and  ale  and  porter  brewing  (Account  No.  16) 
respectively,  in  proportion  to  the  number  of  barrels  of  each  brewed. 

No.  20 — Washhouse  and  Platform  Wages.  Charge  to  this  account 
all  wages  paid  to  men  employed  in  washing  kegs,  racking  oflF.  loading  cars, 
helping  drivers  to  load  wagons  and  other  general  work  (posting  weekly 
amounts  direct  from  the  pay  roll  entry  to  the  cash  book). 

At  the  end  of  the  year  divide  the  total  between  beer  brewing  (Ac- 
count No.  26),  and  ale  and  porter  brewing  (Account  No.  16)  in  propor- 
tion to  the  number  of  barrels  sold,  (that  means  delivered). 

No.  21 — Fuel  Account.  Charge  to  this  account  all  invoices  for  fuel 
coal  received  at  the  brewery  (posting  from  the  journal),  also  all  freight 
on  same,  hauling  from  rail  and  labor  unloading  if  outside  labor  is  em- 

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ployed,  (posting  direct  from  cash  book).     If  any  blacksmith  coal  is  used 
it  must  be  charged  to  maintenance  account. 

At  the  end  of  the  year  bring  down  as  a  balance  the  value  (at  cost  plus 
freight  and  hauling)  of  coal  on  hand,  and  then  divide  the  balance  of  the 
account  between  beer  brewing  (Account  No.  26)  and  ale  and  porter  brew- 
ing (Account  No.  16),  in  proportion  to  the  number  of  barrels  of  each 
brewed ;  unless  a  specific  basis  is  obtainable. 

No.  22— Water  Account.  Charge  to  this  account  water  rates  paid 
(posting  direct  from  the  cash  book).  At  the  end  of  the  year,  care  should 
be  taken  to  include  in  this  account  the  water  rates  accrued  but  not  paid. 
When  the  true  total  for  the  year  has  been  found,  divide  the  amount  be- 
tween beer  brewing  (Account  No.  26)  and  ale  and  porter  brewing  (Ac- 
count No.  16),  in  proportion  to  the  number  of  barrels  of  each  brewed, 
unless  a  specific  division  is  obtainable. 

No.  23 — Engine  Room  Supplies.  Charge  to  this  account  all  amounts 
paid  for  oil,  waste,  boiler  compound  or  other  supplies  purchased  for  use  in 
the  engine  room  or  the  boiler  house.  At  the  end  of  the  year  bring  down 
as  a  balance  the  value  of  stock  of  these  supplies  on  hand.  Do  not  charge 
to  this  account  any  supplies  used  for  repairs  to  engines,  boilers,  etc.,  (for 
which  see  Account  No.  29).  The  balance  of  the  account  should  then  be 
divided  between  beer  brewing  (Account  No.  26)  and  ale  and  porter  brew- 
ing (Account  No.  16)  in  proportion  to  the  number  of  barrels  of  each 
brewed. 

No.  24 — Brewing  Expenses.  Charge  to  this  account  all  expenses  in- 
curred in  connection  with  brewing,  such  as  annual  fee  to  Dr.  Wyatt  for 
his  advice  in  brewing  matters,  traveling  expenses  of  the  brewmaster  on 
investigating  trips,  examinations  of  yeast  and  of  beer  in  process  of  brew- 
ing; also  miscellaneous  expenses  incurred  in  connection  with  the  product 
of  malt  liquors. 

The  total  brewing  expenses  during  the  year  must  be  divided  between 
beer  brewing  (Account  No.  26)  and  ale  and  porter  brewing  (Account  No. 
16)  in  proportion  to  the  number  of  barrels  of  each  brewed. 

No.  25 — Beer  Consumed  on  the  Premises.  It  is  desirable  to  conduct 
a  ledger  account  for  "beer  consumed  on  the  premises,"  (called  in  German 
breweries  "Steinirwirth")  in  order  to  determine  how  much  this  expense 
comes  to  in  the  course  of  the  year.  The  beer  should  be  charged  at  the  in- 
ventory price,  generally  $3  a  barrel. 

No.  26 — Beer  Brewing  Account.  This  account  is  designed  to  show 
the  cost  of  brewing  the  company's  total  output  of  beer  for  the  fiscal  year. 
The  balance  of  the  following  account  is  transferred  to  the  credit  of  beer 
brewing  account  when  the  books  are  being  closed  for  the  year,  to-wit, — 
sales  of  grains  (Account  No.  15). 

The  balances  of  the  following  accounts  are  transferred  to  the  debit 
of  beer  brewing  account  when  the  books  are  being  closed  for  the  year, 

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to  wit, — malt,  hops,  corn,  rice,  sugar,  sundry  brewing  materials,  brewery 
supplies,  fuel,  brewmasters  salary,  brewery  wages,  engineers  and  firemen, 
brewing  expenses,  water,  washhouse  and  platform  wages,  engine  room 
supplies. 

The  balance  of  beer  brewing  when  all  entries  are  made  and  posted 
and  the  books  are  closed  for  the  year  must  be  transferred  to  profit  and 
loss   (Account  No.  90). 


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Beer  brewing  account  must  remain  closed  during  the  progress  of  the 
year's  business;  it  is  to  be  used  merely  to  group  together  and  record  the 
totals  of  all  contributing  accounts  in  one  ledger  account,  for  convenience 
of  future  reference. 

When  all  the  costings  have  been  made  to  beer  brewing  account  the 
total  debit  balance,  divided  by  the  total  number  of  barrels  brewed,  will 
show  the  average  cost  of  materials  and  labor  per  barrel  of  beer  brewed. 

No.  27 — Maintenance  Account.  The  object  of  this  account  is  to 
group  together  the  several  items  of  repairs  in  order  to  show  in  one  account 
the  cost  of  maintaining  the  brewery  property.  The  balances  of  the  fol- 
lowing accounts  are  transferred  to  the  debit  of  maintenance  account  when 
the  books  are  closed  for  the  year, — repairs  to  buildings,  machinery,  kegs, 
casks  and  vats,  yard,  coopers'  wages  and  mechanics'  wages.  (Repairs  to 
outside  properties  or  to  saloon  fixtures  do  not  belong  here.) 

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At  the  end  of  the  year  transfer  the  balance  of  maintenance  account  to 
profit  and  loss  (Account  No.  90). 

No.  28— Repairs  to  Buildings.  To  this  account  should  be  charged 
the  cost  of  all  repairs  to  the  brewery  buildings  (but  not  to  outside  proper- 
ties), should  include  the  cost  of  bricks,  sand,  cement,  lumber,  paints,  lime, 
putty,  glass,  tin  (for  roof),  and  other  building  materials  used  in  the  main- 
tenance of  the  brewery  property;  also  wages  paid  carpenters,  masons, 
bricklayers,  plumbers,  plasterers,  painters,  tinsmiths  and  other  mechanics 
while  engaged  in  repairing  buildings,  sheds,  platforms  and  the  like ;  pro- 
vided a  "pay  roll  distribution"  is  procurable.  Otherwise  these  wages  may 
be  charged  to  mechanics'  wages  (Account  No.  33).  At  the  end  of  the 
year  transfer  the  total  amount  to  maintenance   (Account  No.  27). 

No.  29— Machinery  Repairs.  Charge  to  this  account  the  cost  of  all 
repairs  to  machinery,  brewing  utensils  and  equipment,  also  to  engines, 
boilers  and  ice  machines ;  also  all  steam  fittings,  water  fittings,  machinists' 
supplies  and  other  materials  purchased  for  use  in  repairing  the  engines. 
ice  plant  or  machinery;  also  fittings,  valves  and  other  hardware  attached 
to  and  made  part  of  the  various  machines  and  brewing  apparatus;  also 
wages  of  machinists,  boilermakers,  steamfitters,  and  other  mechanics  while 
emploved  upon  this  work  if  a  "pay  roll  distribution"  is  procurable.  Ex- 
amples—Cost of  phosphor  bronze  castings  for  pumps,  babbitt  metal  for 
bearings,  steel  for  hop  hooks,  rubber  floats  for  filter,  rubber  wire  cloth  for 
filters,  lampwick  for  packing. 

At  the  end  of  the  year  transfer  the  balance  to  maintenance  (Account 

No.  27). 

No.  30— Repairs  to  Yards.  Charge  to  this  account  all  repairs  to  the 
yard,  walls  or  fences  (not  buildings )  ;  stone,  brick,  sand  or  cement  used 
for  repaying  yards,  also  repairs  to  railroad  tracks,  renewals  of  rails,  ties, 

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or  track  fastenings,  also  pavers',  masons'  or  carpenters'  wages  while  en- 
gaged in  the  above  work. 

At  the  end  of  the  year  transfer  the  balance  to  maintenance  (Account 
No.  27). 

No.  31 — Repairs  to  Kegs.  To  this  account  charge  all  money  paid  for 
repairing  kegs,  cutting  them  to  smaller  sizes,  etc.,  as  also  materials  used 
for  repairing  kegs,  such  as  bushes,  shooks,  staves,  hoops  and  coopers'  sup- 
plies, coopers'  tools,  repairing  coopers'  tools,  except  where  purchased  for 
repairing  casks  and  vats ;  also  wages  of  coopers  while  repairing  kegs  and 
cutting  smaller,  provided  a  distribution  of  the  pay  roll  is  procurable ;  other- 
wise charge  wages  to  coopers'  wages  (Account  No.  34). 

Close  the  balance  of  this  account  at  the  end  of  the  year  to  maintenance 
(Account  No.  27). 

No.  32 — Repairs  to  Casks  and  Vats.  Charge  to  this  account  all 
money  paid  for  repairing  and  renovating  chip  casks,  beer  vats,  fermenting 
vats  and  other  stationary  brewery  cooperage;  also  coopers'  or  other  me- 
chanics' wages  while  employed  on  this  work,  provided  a  distribution  of 
the  pay  roll  is  procurable,  otherwise  charge  wages  to  coopers'  wages 
(Account  No.  34)  ;  a!so  all  materials  used  for  this  purpose,  such  as 
hoops  and  staves  for  above,  hard  shell  enamel  for  wood,  tools  purchased 
for  coopers,  repairing  storage  casks,  ropes  and  tackle  purchased  for  hauling 
out  storage  casks. 

At  the  end  of  the  year  transfer  the  balance  of  the  account  to  mainte- 
nance (Account  No.  27). 

No.  33 — Mechanics'  Wages.  Where  it  is  possible  to  keep  a  record 
of  what  work  the  mechanics  are  doing  so  that  a  proper  distribution  of  the 
pay  roll  may  be  made,  their  wages  should  be  charged  specifically  to  repairs 
to  buildings,  repairs  to  machinery  or  other  maintenance  accounts  (as  de- 
scribed in  No.  28,  No.  29  and  No.  30).  Every  eflfort  should  be  made  to 
secure  such  a  pay  roll  distribution.  Where  such  a  record  cannot  be  kept, 
all  wages  paid  to  carpenters,  painters,  plumbers,  steamfitters  and  mechan- 
ics other  than  coopers,  should  be  charged  to  mechanics'  wages.  At  the 
end  of  the  year  transfer  the  total  amount  paid  to  maintenance  (Account 
No.  27). 

No.  3^1 — Coopers'  Wages.  Where  it  is  possible  to  keep  a  record  of  the 
work  the  coopers  are  doing,  their  wages  should  be  charged,  specifically,  to 
repairs  to  casks  and  vats  or  to  repairs  to  kegs,  according  to  the  work  they 
do,  (as  described  in  No.  31  and  No.  2>2^.  Where  no  such  record  can  be 
kept,  charge  all  coopers'  wages  to  this  account.  At  the  end  of  the  year 
transfer  the  balance  to  maintenance  (Account  Xo.  IT), 

No.  35 — Depreciation  of  Plant.  Depreciation  of  plant  and  machin- 
ery may  be  either  written  oflf  the  asset  accounts,  at  the  end  of  each  year, 
and  the  amount  charged  to  depreciation  account,  or  it  may  be  carried  to 
the  credit  of  depreciation  reserve  account. 

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The  object  of  this  account  is  to  group  together  the  several'  items  of 
depreciation  on  buildings,  machinery,  casks  and  vats,  etc.,  in  one  account. 
After  so  doing  the  total  amount  will  be  transferred  to  profit  and  loss  (Ac- 
count No.  90)  at  the  end  of  the  year. 

No.  36 — Inventory  Adjustment.  It  becomes  necessary  to  make  an 
adjustment  in  respect  of  the  varying  quantity  of  beer  and  of  ale  and  porter, 
in  the  storage  cellars.  Profit  and  loss  (Account  No.  90)  is  charged  with  the 
beer  on  hand  (in  the  cellars),  at  the  beginning  of  the  period  and  is  credited 
with  that  on  hand  at  the  end  of  the  period.  The  same  price  is  used  for 
both  factors,  and  should  be  as  nearly  as  possible  the  actual  cost  of  pro- 
duction, which  should  include  maintenance  and  depreciation  of  plant  and 
a  fair  share  of  administration  expenses. 

This  adjustment  of  inventory  has  its  logical  place  on  this  chart  after 
the  cost  of  production. 

No.  37 — Team  Delivery  Account.  The  object  of  this  account  is  to 
group  together  the  various  charges  entering  into  the  cost  of  delivering  beer 
by  the  company's  teams;  these  are, — feed,  stablemen's  wages,  drivers* 
wages,  stable  expenses,  shoeing,  repairs  to  wagons  and  repairs  to  harness. 


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The  total  amount  divided  by  the  number  of  barrels  delivered  by  the  com- 
pany's teams  will  show  the  cost  per  barrel  for  delivering. 

At  the  end  of  the  year  transfer  the  total  amount  expended  to  profit 
and  loss  (Account  No.  90). 

No,  38 — Feed  Account.  Charge  to  this  account  all  horse  feed,  (hay, 
corn,  oats,  bran  and  similar),  also  straw  used  for  bedding.  (It  is  not 
necessary  to  carry  a  separate  account  for  straw  or  bedding.) 

At  the  end  of  the  year  bring  down  as  a  balance  the  value  of  hay,  oats 

492 


and  other  feed  on  hand  and  transfer  balance  of  the  account  to  team  deli- 
very (Account  No.  37^. 

No.  39 — Shoeing  Account.  Charge  this  account  with  the  cost  of  all 
horse-shoeing,  including  incidental  shoeing  paid  for  by  the  drivers.  At 
the  end  of  the  year  transfer  the  total  to  team  delivery  (Account  No.  37). 

No.  40 — Stable  Expenses.  All  stable  supplies  and  expenses  are  charge- 
able to  this  account,  such  as  brooms,  buckets,  brushes,  condiments,  med- 
icines, veterinary  surgeon's  fees,  bandages  and  all  supplies  for  use  in  the 
stable  other  than  feed.  Also  rent  of  the  stable  if  the  company  does  not  own 
the  building. 

At  the  end  of  the  year  transfer  to  team  delivery  (Account  No,  37). 

No,  41 — Stable  Wages.  Charge  to  this  account  all  hostlers',  grooms' 
and  stablemen's  wages,  also  the  wages  of  the  stable  boss. 

At  the  end  of  the  year  transfer  the  total  to  team  delivery  (Account 
No.  37). 

No.  42 — Drivers*  Wages  Account.  Charge  to  this  account  all  wagon 
drivers'  wages,  but  the  hostlers'  and  stablemen's  wages  and  the  salary  of 
stable  boss  must  be  charged  to  stable  wages  account.  The  wages  of  bot- 
tled beer  wagon  drivers  will  be  charged  to  the  bottling  department. 

At  the  end  of  the  year  transfer  total  to  team  delivery  (Account  No. 
37). 

No.  43 — Repairs  to  Wagons.  All  wagon  repairs  are  chargeable  to 
this  account.  The  materials  will  include:  wheels,  springs,  shafts,  poles, 
varnishes,  lettering,  except  where  absolutely  new  wagons  are  purchased, 
whiffle  trees,  wagon  seats  and  other  gear;  all  carriage  and  wagon  builders' 
bills ;  also  wages  of  wheelwright,  if  any  be  employed  by  the  company. 

At  the  end  of  the  year  transfer  total  to  team  delivery  (Account  No. 
37). 

No.  44 — Repairs  to  Harness.  All  harness  repairs  are  chargeable  to  this 
account.  The  materials  will  include:  horse  collars  and  harness  to  replace 
old,  leather  for  harness  repairs,  mountings  for  harness  repairs,  and  all  sup- 
plies for  harness  repairing;  also  all  harness  makers'  bills,  except  where 
actual  new  harness  is  purchased ;  also  wages  of  harness  makers,  if  any  are 
employed  by  the  brewery. 

At  the  end  of  the  year  transfer  the  balance  of  the  account  to  team 
delivery  (Account  No.  37). 

No.  45 — Country  Delivery  (or  "Shipping.")  The  balances  of  the  fol- 
lowing accounts  are  transferred  to  debit  of  country  delivering  account, 
when  the  books  are  being  closed  for  the  year,  to-wit, — freight  on  beer, 
freight  on  empties. 

In  a  brewery  where  the  beer  has  to  be  hauled  to  the  railway  depot  by 
the  company's  teams,  a  charge  should  be  made  to  country  delivery  ac- 
count and  the  amount  credited  to  team  delivery  account. ,  It  will  generally 
be  enough  to  do  this  annually.    The  amount  should  be  computed  on  the 

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total  number  of  barrels  of  beer  sold  to  out-of-town  customers,  and  the  rate 
should  be  one-half  the  average  cost  of  team  delivery  (per  barrel),  it  being 
computed  that  one  team  and  driver  could  take  twenty  barrels  of  beer  to 
the  depot  and  load  them  into  a  car  in  less  time  than  he  could  deliver  half 
that  number,  in  two  or  three  halves  at  each  saloon.  The  balance  of 
tountry  delivery  account,  divided  by  the  number  of  barrels  of  beer  sold 
'to  country  customers  in  the  year,  will  give  the  average  cost  per  barrel 
of  out-of-town  delivery  for  the  year. 

Freight  on  beer  shipped  to  agencies  and  on  empty  packages  returnet! 
from  agencies  must  be  charged  to  agency  expense  and  not  to  country 
delivery  (or  shipping). 

At  the  end  of  the  year  transfer  the  balance  to  profit  and  loss  (Account 
No.  90). 

^o  46— Freight  on  Beer.  Charge  to  this  account  freight  on  beer  lo 
country  customers,  not  served  by  the  company's  teams,  but  not  freight  on 
beer  shipped  to  agencies,  which  must  stand  their  own  freight  charges. 

At  the  end  of  the  year  transfer  the  balance  to  shipping  (Account  No. 

No.  47 — Freight  on  Empties.  Charge  to  this  account  freight  paid  on 
beer  kegs  returned  from  country  customers,  not  served  by  the  company's 
own  teams,  but  not  freight  on  empty  packages  from  agencies. 

At  the  end  of  the  year  transfer  the  balance  to  shipping  (Account  No. 

45). 

No.  48— Collecting  Account.  The  balances  of  the  following  accounts 
are  transferred  to  the  debit  of  collecting  account,  at  the  end  of  the  year,— 
collectors'  salaries,  collectors'  spending  money,  "office  spending  money." 
This  account  remains  closed  during  the  year.     Its  only  object  is  to  group 


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together  the  several  accounts  above  mentioned  and  to  show  how  much 
per  barrel  the  total  expense  of  collection  have  amounted  to. 

At  the  end  of  the  year  transfer  in  one  sum  to  the  debit  of  profit  and 
loss  (Account  No.  90). 

Xo.  49— Collectors'  Salaries.    Charge  to  this  account  only  the  wages 

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paid  to  collectors;  do  not  charge  traveling  expenses.  If  any  officer  of  the 
company  acts  as  collector,  his  salary  or  a  portion  of  it  should  be  charged 
to  this  account. 

At  the  end  of  the  year  transfer  the  total  to  collecting  (Account  No.  48). 

No.  50 — Collectors*  Spending  Money.*  Charge  here  all  money  expen- 
ded by  collectors  over  the  bars  of  customers,  when  making  collections  or 
when  calling  on  the  trade.  Do  not  charge  to  this  account  any  donations, 
presents  to  customers,  presents  to  bartenders  or  the  like,  for  which  see 
donations  (Account  No.  54). 

At  the  end  of  the  year  transfer  the  balance  to  collecting   (Account 

No.  48). 

No.  51 — Office  Spending  Money.*  Charge  here  all  money  expended 
by  cashier,  office  employes  or  others  than  collectors,  or  money  given  to 
customers  who  pay  their  bills  at  the  company's  office ;  also  money  similarly 
spent  by  any  officer  or  member  of  the  firm. 

At  the  end  of  the  year  transfer  balance  to  collecting  (Account  No.  -18). 

No.  52 — Agency  Expenses.  There  should  be  one  account  for  the  ex- 
penses of  each  agency ;  it  will  not  be  found  necessary  to  subdivide  the 
expenses  in  a  medium  sized  brewery,  because  all  the  expenses  really  be- 
long to  country  delivery,  so  far  as  the  main  plant  is  concerned.  Allowances 
and  returns  must  be  charged  to  agency  allowances. 

In  the  agency  expense  accounts  the  charges  will  be  for  freight,  ice, 
rent,  feed,  telephoning,  lighting,  agent's  salary,  drivers'  wages,  collecting 
expenses,  agent's  traveling  expenses.  At  the  end  of  the  year  this  account 
should  be  charged  with  depreciation  on  agency  equipment  (horses,  wagons, 
ice-boxes  and  furniture). 

♦These   accounts  may  be   subdivided  into   city   and   country   where   a    shipping 
trade  is  done. 


At  the  end  of  the  year  the  amounts  to  the  debit  of  each  agency  ex- 
pense account  will  be  divided  by  the  number  of  barrels  that  particular 
agency  has  sold ;  the  figures  resulting  will  show  the  cost  per  barrel  of  dis- 
posing of  beer  through  each  agency. 

When  closing  the  books  transfer  the  balance  to  profit  and  loss  (Ac- 
count No.  90). 

No.  53 — Expenses  of  Holding  the  Trade  Account.  Charge  to  this 
account  any  miscellaneous  expenses  of  holding  the  beer  trade  which  are 
not  provided  for,  specifically,  in  other  accounts.  At  the  end  of  the  year 
transfer  to  this  account  the  balances  of  the  following  accounts :  Donations 
and  presents,  work  done  for  customers,  advertising  and  Christmas  presents. 

In  closing  the  books,  at  the  end  of  the  year,  transfer  the  balance  in  one 
sum  to  profit  and  loss  (Account  No.  90). 

No.  5-4 — Donations  and  Presents.  Charge  to  this  account  donations, 
presents  to  customers,  presents  to  bartenders  and  all  miscellaneous  ex- 

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penses  of  holding  the  trade,  cost  of  all  picnics  and  festivals,  that  may  be 
given  by  the  company. 

At  the  end  of  the  year  transfer  the  total  amount  at  debit  to  expenses 
of  holding  trade  (Account  No.  53). 

No.  55 — Work  Done  for  Customers.  Charge  to  this  account  the  cost 
of  all  work  done  for  customers,  in  lieu  of  giving  them  cash  donations,  such 
as  repairs  and  improvements  to  saloons  (not  owned  by  brewing  company) 
ice-boxes,  pumps,  bar  fixtures,  mending  windows,  painting,  etc.,  where  the 
fixtures  are  not  owned  by  the  company.  It  is  preferable  to  carry  these  in 
a  separate  account  as  above  named  rather  than  to  charge  them  all  to  dona- 
tions or  to  collecting  expenses. 

At  the  end  of  the  year  transfer  the  total  amount  to  expenses  of  holding 
trade  (Account  No.  53). 

No.  56 — Advertising  Account.  Charge  this  account  with  all  news- 
paper or  space  advertising,  posters,  show-cards,  calendars,  paper  Bock 
Beer  signs,  advertising  cards,  programs  and  the  like,  but  do  not  charge 
here  the  cost  of  permanent  beer  signs.  This  account  should  not  include 
any  items  paid  for  charity,  for  which  see  charity  account,  which  is  a  general 
expense  (Account  No.  79). 

At  the  end  of  the  year  transfer  the  balance  to  expenses  of  holding  trade 
(Account  No.  53). 

No.  57 — Christmas  Presents.  Charge  to  this  account  all  special  al- 
lowances to  customers  made  in  the  form  of  beer  given  away  and  called 
Christmas  presents  or  Christmas  cards.  Also  Christmas  gifts  to  bartenders 
in  any  form.  But  bonafide,  voluntary  Christmas  presents  to  employes  of 
the  company,  must  not  be  charged  here,  but  rather  to  the  account  to  which 
the  regular  wages  of  such  employes  are  charged  or  to  general  expense 
account. 

At  the  end  of  the  year  transfer  the  balance  to  expenses  of  holding  trade 
(Account  No.  53). 

No.  58 — Saloon  Fixtures  Expense.     Charge  to  this  account  the  cost 

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of  maintaining  and  repairing  saloon  fixtures  that  are  owned  by  the  com- 
pany, but  not  those  that  are  owned  by  others. 

At  the  end  of  the  year  transfer  to  profit  and  loss  (Account  No.  90). 

No.  59 — Maintenance  of  Beer  Signs.  Charge  to  this  account  the  cost 
of  repairing  and  replacing  permanent  beer  signs — wood,  glass,  iron  or  elec- 
tric— but  do  not  charge  paper  Bock  Beer  signs  or  calendars  for  which  see 
advertising,  (Account  No.  56).  In  a  conservatively  governed  plant  it  is 
customary  to  charge  off  the  entire  cost  of  permanent  signs  at  the  time  of 
payment.  This  line  of  expense  has  got  nothing  to  do  with  maintenance  of 
plant. 

At  the  end  of  the  year  transfer  the  balance  of  this  account  to  profit 
and  loss  (Account  No.  90). 

No.  60 — Electricity  for  Signs.  All  expenses  of  operating  illumin- 
ated signs,  whether  paid  for  direct  by  the  brewing  company,  or  allowed 
to  customers  as  a  special  concession.    This  expense  is  really  for  advertising. 

At  the  end  of  the  year  transfer  the  balance  to  profit  and  loss  (Account 
No.  90). 

No.  61 — Depreciation  of  Equipment.  The  depreciation  or  loss 
through  wear  and  tear  of  horses,  wagons,  harness  and  agency  equipment 
is  an  expense  that  attaches  to  delivery  (classified  in  this  article  as  dis- 
tribution) and  it  must  not  be  confused  with  depreciation  of  plant  which  is 
a  manufacturing  charge,  (classified  as  production). 

Of  all  the  above  named  properties  a  detailed  inventory  should  be 
taken  at  the  close  of  each  year  and  the  shrinkage  in  the  account  should 
be  written  off  to  depreciation  of  equipment. 

At  the  end  of  the  year  transfer  the  balance  of  this  account  to  profit 
and  loss  (Account  No.  90). 

No.  62 — Beer  Stamps.  Charge  to  this  account  all  revenue  stamps 
purchased.  Credit  revenue  stamps  used  for  ale  and  porter  (see  Account 
No.  6Z).  At  end  of  the  year  bring  down  as  a  balance  the  cost  of  revenue 
stamps  on  hand,  and  carry  the  balance  of  the  account  to  profit  and  loss 
(Account  No.  90). 

No,  63 — Ale  and  Porter  Stamps.  Make  a  monthly  entry  in  the  jour- 
nal, charging  ale  and  porter  stamps  and  crediting  beer  stamps  with  the  cost 
of  revenue  stamps  used  for  ale  and  porter  (going  by  the  recorded  number 
of  barrels  sold). 

No.  6A — Taxes  Account.  Charge  to  this  account,  city,  state,  school 
and  other  taxes  on  the  brewery  property,  also  franchise  tax  or  personal 
property  tax,  in  fact  all  taxes  except  stamps.  But  taxes  on  houses, 
saloons  or  other  properties,  not  part  of  the  brewery,  must  be  charged  to 
taxes  and  insurance  on  outside  properties. 

At  the  end  of  the  year  transfer  the  balance  of  this  account  to  adminis- 
tration (Account  No   80). 

No.  65 — Licence  Account.    Charge  to  this  account  the  cost  of  securing 

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brewer's  license  for  the  company,  also  cost  of  license  for  saloons  conducted 
by  the  company.  Money  advanced  to  secure  licenses  for  customers  must  be 
charged  up  to  them  as  loans. 

At  the  end  of  the  year  transfer  the  balance  of  this  account  to  adminis- 
tration (Account  No.  80). 

No.  66 — Brewers*  Associations.  Charge  to  this  account  all  subscrip- 
tions or  assessments  paid  to  voluntary  associations  of  brewers — national, 
state  and  city — but  not  assessments  to  Bottlers'  Associations. 

At  the  end  of  the  year  transfer  the  balance  of  this  account  to  adminis- 
tration (Account  No.  80). 

Xo.  67 — Insurance  Account.  All  premiums  on  insurance  policies  of 
every  description  will  be  charged  to  this  account,  fire,  boiler,  casualty  and 
any  other  premiums. 

At  the  end  of  the  year  bring  down  the  unexpired  portions  of  all  prem- 
iums paid  and  transfer  the  balance  of  the  account  to  administration  (Ac- 
count No.  80). 

No.  68 — Officers*  Sal.aries.  Charge  this  account  with  the  salaries  of 
officers— the  president,  secretary,  treasurer  and  general  manager,  unless 
either  of  these  may  act  as  brewmaster,  book-keeper  or  collector.  (Brew- 
master's  salary  will  be  charged  to  "brewmaster's  salary  account,"  book- 
keeper's salary  to  office  salaries  and  collector's  salary  to  collectors'  wages.) 

At  the  end  of  the  year  transfer  the  total  amount  to  administration  (Ac- 
count No.  80). 

No.  69— Directors'  Fees.  As  the  title  suggests,  this  account  is  to 
carry  the  payments  to  directors  for  their  attendance  at  meetings  of  the 
board.  Salaried  officers,  who  may  happen  to  be  on  the  board,  should  not 
be  paid  directors'  fees. 

At  the  end  of  the  year  transfer  the  balance  to  administration  (Account 

No.  80). 

No.  70— Salaries  of  Book-keepers  and  Clerks.  Charge  all  clerical 
salaries  to  this  account  (book-keepers,  clerks,  stenographers),  post  direct 
from  the  entry  in  the  cash  book. 

At  the  end  of  the  \^ar  transfer  the  balance  of  this  account  to  adminis- 
tration (Account  No.  80). 

No.  71— Miscellaneous  Wages.  Charge  to  this  account  any  wages 
other  than  those  provided  for  by  other  accounts,  such  as  watchman,  janitor, 
porter,  carriage  drivers  (if  any) ;  but  not  painters,  carpenters,  coopers  or 
mechanics. 

At  the  end  of  the  year  transfer  the  total  amount  to  administration 

(Account  No.  80). 

No.  72 — Printing  and  Stationery.  Charge  to  this  account  such  items 
as  letter-heads,  bill-heads,  statements,  envelopes,  printed  forms,  writing  pa- 
per, blank  books,  pens,  pencils,  mk,  bands,  files,  stationery,  but  not  beer 
labels,  bottle  labels,  calendars,  beer  signs,  or  the  like. 

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At  the  end  of  the  year  transfer  the  balance  of  the  account  to  administra- 
tion (Account  No.  80). 

No.  yZ — Legal  Expenses  Account.  Charge  this  account  with  all  law 
costs  and  attorneys'  fees,  legal  expenses  and  cost  of  recording  deeds,  mort- 
gages, etc.,  taking  judgment  and  similar  expenses.  Close  at  the  end  of  the 
year  by  transferring  balance  to  administration  (Account  No.  80). 

No.  74 — ^Table  Expenses.  Charge  here  all  provisions,  supplies,  wines 
and  mineral  waters  for  use  in  the  dining  room  at  the  brewery,  if  one  is 
maintained  for  officers  and  employes;  also  wages  of  the  steward,  cook, 
waiter  or  others  employed  for  this  purpose. 

At  the  end  of  the  year  transfer  to  administration  (Account  No.  80). 

No.  75 — Postage,  Telegrams  and  Telephone.  To  this  account  charge 
all  postage  stamps  purchased,  cost  of  all  telephone  service  and  tolls,  also 
telegrams. 

At  the  end  of  the  year  transfer  amount  at  debit  to  administration  (Ac- 
count No.  80). 

No.  76 — Office  Expenses.  Charge  to  this  account  all  items,  such  as 
cleaning  office,  lighting  office,  ice  for  office  use,  dials  for  watchman's  clock, 
office  supplies,  subscriptions  to  newspapers,  brewers'  magazines,  adver- 
tising meetings  of  shareholders,  matches  and  such  petty  office  expenses  as 
are  not  provided  for  elsewhere.  Salaries  must  not  be  charged  to  this 
account. 

Be  careful  not  to  charge  items  to  this  account  that  can  properly  be 
distributed  to  other  expense  accounts.  Office  Expense  Account  is  often 
made  a  "dumping  ground"  for  miscellaneous  expenses  that  are  hard  to 
locate,  or  where  information  is  not  to  hand.  This  should  be  carefully 
avoided ;  look  well  for  some  other  account  to  which  the  item  should  be 
properly  chargeable. 

At  the  end  of  the  year  transfer  the  balance  of  the  account  to  admin- 
istration (Account  No.  80). 

No.  77 — Miscellaneous  General  Expenses.  Charge  to  this  account 
any  expenses  of  a  general  nature,  that  cannot,  appropriately,  be  charged  co 
any  other  account  in  this  distribution.  This  account  is  often  made  a 
"dumping  ground"  for  miscellaneous  charges  that  are  hard  to  locate.  This 
should  be  carefully  avoided. 

At  the  end  of  the  year  transfer  the  balance  of  the  account  to  admin- 
istration (Account  No.  80). 

No.  78 — Officers'  Traveling  Expenses.  Charge  this  account  with 
the  traveling  expenses  of  the  president,  secretary  or  treasurer,  or  any  of 
the  officials  when  away  on  business.  If  either  of  the  officers  acts  as  collec- 
tor, his  expenses,  while  engaged,  should  be  charged  to  collecting  expeuoC 
account. 

At  the  end  of  the  year  transfer  the  total  amount  of  this  account  to 
administration   (Account  No.  80). 

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No.  79 — Charity  Account.  Charge  to  this  account  money  paid  for 
charities,  church  fairs,  hospitals  and  the  like  (posting  direct  from  cash 
book). 

This  account  should  only  be  used  for  money  given,  voluntarily,  in  aid 
of  charities,  and  should  not  include  the  cost  of  advertising  cards  in  pro- 
grams or  the  like,  nor  money  given  away  to  stimulate  trade  or  to  hold 
customers,  for  which  see  Donations  and  Presents  (Account  No.  54). 

At  the  end  of  the  year  transfer  the  balance  of  the  account  to  debit  of 
administration  (Account  No.  80). 


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No.  80 — Administration  Account.  The  object  of  this  account  is  to 
group  together  the  various  expenses  of  administration  when  closing  the 
books  at  the  end  of  the  year. 

All  the  accounts  enumerated  in  this  distribution  from  Taxes,  No.  64, 
to  Charity  Account,  No.  79,  are  to  be  closed  into  administration  account. 
At  the  end  of  the  year  transfer  the  balance  of  administration  account  to 
profit  and  loss  (Account  No.  90). 

No.  81 — Provision  for  Bad  Debts.  Bad  debts  are  inevitable  in  a 
brewery.  The  charge  will  amount  to  an  average  of  from  ten  to  fifteen 
cents  per  barrel  sold,  according  to  the  class  of  trade  catered  to.    A  pro- 

600 


vision  should  be  made  on  the  books  each  month,  credit  being  given  to 
bad  debts  reserve  account. 

At  the  end  of  the  year  transfer  the  balance  of  the  account  to  profit 
and  loss  (Account  No.  90). 

No.  82 — Sundry  Losses.  Charge  to  this  account  all  losses  other  than 
bad  debts  or  uncollectible  loans ;  such  losses,  for  example,  as  damages 
through  accidents  to  teams,  accidents  to  employes,  dead  horses,  demolished 
wagons,  or  similar. 

At  the  end  of  the  year  transfer  the  balance  to  profit  and  loss  (Account 
No.  90). 

No.  83 — Interest  Account  This  account  is  for  interest  paid  to  banks 
on  loans,  interest  on  bank  overdrafts,  interest  on  bills  payable,  interest 
charged  on  temporary  advances  not  secured  by  mortgages,  discounts  (really 
interest)  on  customers'  notes  discounted  by  banks. 

Also,  (on  the  credit  side),  interest  received  from  customers  on  loans, 
which  it  will  be  time  enough  to  credit  when  the  collection  is  made. 

Mortgage  interest  is  not  to  be  posted  here.  At  the  end  of  the  year 
transfer  the  balance  to  profit  and  loss  (Account  No.  90). 

No.  84 — Cash  Discount.  Credit  to  this  account  all  cash  discounts 
received  in  respect  of  the  prompt  payment  of  invoices  for  materials 
and  supplies  purchased.  Discounts  allowed  to  beer  customers  are  of  the 
nature  of  allowances,  for  which  see  beer  allowances  (Accounts  No.  4  and 
No.  5). 

At  the  end  of  the  year  transfer  the  balance  to  the  credit  of  profit  and 
loss  (Account  No.  90). 

No.  85 — Rents  of  Outside  Properties.  Credit  to  this  account  all 
money  collected  with  respect  to  rents  of  houses,  aloons,  beer  gardens, 
pleasure  resorts  or  the  like,  owned  or  leased  by  the  company  (posting 
direct  from  cash  book). 

At  the  end  of  the  year  transfer  the  balance  of  the  account  to  the  credit 
of  profit  and  loss  (Account  No.  90). 

No.  86 — Maintenance  of  Outside  Properties.  To  this  account  should 
be  charged  all  outlay  in  repairing  houses,  saloon  properties,  beer  gardens, 
pleasure  resorts  or  the  like,  owned  or  leased  by  the  company. 

At  the.  end  of  the  year  transfer  the  total  amount  to  debit  of  profit  and 
loss  (Account  No.  90). 

No.  87 — ^Taxes  and  Insurance  on  Outside  Properties.  Charge  to 
this  account  all  taxes  and  insurance  premiums  upon  houses,  saloons,  beer 
gardens,  pleasure  resorts  or  the  like  (posting  direct  from  the  cash  book). 

At  the  end  of  the  year  transfer  the  balance  to  profit  and  loss  (Account 
No.  90). 

No.  88 — Interest  on  Bonds.  Charge  this  account  with  the  interest 
paid  on  any  bonds,  which  are  secured  by  mortgage  on  the  plant,  interest 
received  on  mortgage  will  ^o  to  another  account.     The  balance  at  the 

501 


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end  of  the  fiscal  year  should  be  written  off  to  profit  and  loss  (Account  No. 

90). 

No.  89— Dividend  Account.    Credit  this  account  and  charge  surplus 

account  with  the  amount  of  dividends  declared  by  the  directors,  giving  each 

dividend  a  number  and  stating  the  date  of  the  directors'  meeting.     All 

cash  paid  to  shareholders,  with  respect  to  dividends,  will  be  charged  lo 

this  account. 

No.  90 — Profit  and  Loss  Account.  This  account  remains  closed 
throughout  the  year.  It  is  used  to  group  together  the  balances  of  the  ac- 
counts named  in  this  distribution.  — George  Wilkinson,  C.  P.  A. 

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(310)     BRICK  MANUFACTURING  BUSINESS  ACCOUNTING. 

It  is  gradually  becoming  clearer  to  the  many,  that  old  style  methods 
cannot  survive  in  the  face  of  present  competition.  Only  the  systematic 
who  know  where  they  are,  at  all  times,  can  hope  to  hold  their  own  in  the 
conflict  of  close  prices  now  going  on  around  us.  Success  in  manufacture 
does  not  lie  in  the  final  result  of  the  work  so  much  as  that  which  goes  to 
make  up  the  result ;  that  is  the  cost  at  the  different  stages  and  processes  of 
a  manufactured  article's  development. 

A  cost  system  in  operation  means  a  tight  rein  on  business  at  all  times. 
Should  competition  and  low  prices  cause  worry,  the  figures  are  there  to 
guide  one  to  the  spot  where  the  process  is  too  costly.  Oftentimes  an  adjust- 
ment of  the  cost  in  one  or  more  departments  means  the  difference  between 
profit  and  loss. 

Before  introducing  the  system  of  cost  accounts,  it  would  perhaps  be 
as  well  to  mention  the  books  required  for  this  class  of  business  and  at  the 
same  time,  touch  upon  the  method  of  keeping  some  of  the  most  important. 


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American  Business  and  Accounting  Encyclopedia 


310 


Cash  Book. — An  important  book  and  one  that  requires  careful  atten- 
tion. Form  1  is  a  good  method  of  ruling  for  a  cash  book,  and  could  be 
varied,  if  necessary. 

Enter  cash  received  from  all  sources  in  the  cash  book  at  the  time  of 
each  transaction,  in  the  columns  marked  Personal  or  General,  as  the  case 
may  be.  Deposit  all  cash  so  entered  in  the  bank.  The  debit  side  of  the 
cash  book  will  represent  the  deposit  or  credit  of  the  pass  book,  taking  into 
account  the  cash  on  hand  (if  any)  after  banking  hours. 

Pay  all  disbursements  by  check,  the  credit  side  of  the  cash  book  will 
represent  the  debit  side  of  the  pass  book.  The  difference  between  the 
debit  and  credit  side  of  the  cash  book  will  represent  the  state  of  the  bank 
account  J  taking  into  consideration  the  cash  on  hand  (if  any)  after  banking 
hours. 

If  this  system  is  strictly  adhered  to,  there  will  be  no  trouble  balancing 
the  cash  and  ascertaining  how  the  bank  account  stands. 

For  discount  on  bills,  checks,  drafts,  etc.,  enter  the  face  value  on  the 
debit  side  of  the  cash  book  and  request  the  bankers  to  put  through  a  debit 
slip  for  the  charges  or  discount.  Enter  this  sum  on  the  credit  side  of  the 
cash  book,  the  debit  slip  taking  the  place  of  a  check. 

It  will  be  seen  that  a  special  column  is  ruled  on  the  left-hand  side  of 
the  cash  book  to  be  used  in  cases  where  discount  is  allowed  off  the  invoice 
value  of  the  goods.  The  discount  is  entered  in  this  column  at  the  same 
time  as  the  payment  is  entered  and  posted  to  the  credit  of  the  personal 
account  at  the  same  time  as  the  cash  is  credited.  The  sum  total  of  the  dis- 
count column  is  posted  to  the  debit  of  Merchandise  Discounts  at  the  end  of 
the  month. 

For  current  expenses  issue  a  check  monthly.  Charge  this  check  in  the 
general  cash  book  to  petty  cash  account  to  be  posted  to  that  account  in  the 
general  ledger ;  also  enter  the  amount  with  the  folio  of  the  general  cash  book 
in  the  petty  cash  book. 

Petty  Cash  Book.  In  the  petty  cash  book,  ruled  with  the  necessary 
columns,  enter  the  amount  received  on  the  debit  side  with  the  folio  of  the 
general  cash  book.  Vouchers  numbered  consecutively  and  entered  accord- 
ing to  number  in  the  petty  cash  book  should  be  signed  for  all  expenditure, 
stating  distinctly  the  nature  of  each  disbursement ;  each  disbursement  being 
numbered  in  the  petty  cash  book  to  correspond  with  the  petty  cash  voucher. 

The  vouchers,  if  found  correct,  are  to  be  passed  by  the  manager  and 
initialed  by  him  at  the  end  of  each  month. 

Credit  the  sum  total  of  the  various  disbursement  columns  in  the  petty 
cash  book  to  petty  cash  account  in  the  general  ledger.  Debit  the  total  of 
each  disbursement  column  in  the  petty  cash  book  to  a  corresponding 
account  in  the  general  ledger.  The  balance  of  the  petty  cash  account  in 
the  general  ledger  should  correspond  with  the  petty  cash  book  balance. 

At  the  end  of  each  month  the  amount  on  hand  should  be  brought  for- 

504 


310 


American  Business  and  Accounting  Encyclopedia 


Bri. 


ward  to  the  succeeding  month  and  be  augmented  by  an  amount  sufficient 
to  increase  it  to  the  amount  on  hand  at  the  commencement,  thereby  having 
on  hand  at  the  beginning  of  each  month  a  stated  cash  balance. 

Form  2  is  a  ruling  for  the  petty  cash  book. 

Additional  credit  columns  may  be  added  in  order  to  save  posting.  A 
"sundries"  column  should  be  provided,  of  which  an  analysis  is  made  at 
the  end  of  each  month,  and  the  totals  posted. 

Sales  Book.  A  specimen  of  the  sales  book  r  jling  is  given  below.  The 
Dbject  of  the  quantity  and  value  columns  is  to  keep  a  separate  record  of 
the  quantities  of  brick,  block  and  tile  sold  in  order  to  credit  the  stock 


5aks  DooK 


blocK 


Tile 


Arv^  2' 


2V 


>5" 


I.* 


AfM- 
4= 


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QoTv 


Ar\f. 


Form  3. 

accounts,  at  stock  cost,  and  debit  Sales  Cost  account  with  the  quantities 
by  means  of  a  journal  entry ;  also  to  credit  sales  account. 

Cash  Sales.  Enter  all  cash  sales  in  the  sales  book  in  a  similar  manner 
to  the  credit  sales  and  post  the  same  to  the  debit  of  a  Sundry  Cash 
Sales  account  (writing  the  names  of  each  purchaser)  in  the  personal  ledger. 
Enter  the  cash  paid  by  each  purchaser  separately  in  the  cash  book  and 
credit  the  Sundry  Cash  Sales  account. 

A  counterfoil  receipt  book  should  be  kept  and  a  receipt  given  for  all 
cash  sales.  This  counterfoil  receipt  book  should  be  checked  with  the  cash 
book  and  the  Sundry  Cash  Sales  account  should  agree. 

Bill  Book.  It  will  be  necessary  to  keep  a  bills  receivable  and  payable 
book.  Enter  all  bills  receivable  in  this  book;  which  post  to  the  credit  of 
the  respective  personal  accounts  and  to  the  debit  of  bills  receivable.  If 
discounted,  enter  the  face  value  in  the  cash  book  with  number,  etc.,  and 
post  to  the  credit  of  bills  receivable  account,  requesting  the  bank  to  charge 
the  bank  account  with  the  discount  by  means  of  a  debit  slip.  Enter  this 
debit  slip  in  the  cash  book  in  the  same  way  as  if  a  check  were  issued.  If  a 
bill  is  returned  unpaid  issue  a  check  for  it  and  charge  the  amount  to  the 
proper  account  in  the  personal  ledger. 

Bills  Payable.     Enter  all  bills  payable  issued  in  the  bill  book  and 

505 


I  II 


Bri.  American  Business  and  Accounting  Encyclopedia  310 

post  to  the  debit  of  the  Personal  Account  Payable  crediting  bills  payable. 

Accommodation  Paper.  It  may  be  necessary  to  open  an  Accommoda- 
tion Paper  account  in  the  ledger.  In  a  case  of  this  kind  it  would  be  advis- 
able to  use  a  separate  part  of  the  bill  book  for  this  class  of  paper;  postmg 
from  the  bill  book  to  the  credit  of  Accommodation  Paper  account  (entering 
particulars)  and  the  debit  of  the  party,  firm  or  bank  to  whom  it  is  given. 

When  discounting  enter  face  value  in  cash  book  on  the  debit  side 
having  the  usual  debit  slip  charged  through  the  bank  account  for  the  dis- 
count. Post  the  amount  thus  entered  to  the  credit  of  the  party  or  bank 
discounting  the  paper.  Accommodation  Paper  account  will  show  the 
liability  and  when  the  amount  is  repaid  charge  to  Accommodation  Paper 
account,  thus  closing  the  account. 

Distribution  Journal  for  Goods  Purchased.  Issue  an  order  for  all 
goods  purchased.  Check  ofif  all  goods  received  with  the  stub  of  the  order 
book  and  invoice,  and  if  found  correct  have  invoice  and  stub  properly 
initialed-  at  the  same  time  marking  on  the  face  of  the  invoice  the  distribu- 
tion or  the  account  to  which  the  goods  are  chargeable.  Number  the 
invoices  consecutively  and  enter  them  in  the  distribution  journal,  each 
entry  also  being  numbered  to  correspond  with  the  invoice  number;  credit 
the  respective  personal  accounts  payable  and  charge  the  several  stock 
or  other  accounts  as  the  case  may  be. 

A  stock  book  containing  separate  accounts  for  the  various  supplies 
purchased  should  be  kept  properly  written  up  from  the  distribution 
journal  Charge  all  freight  and  other  charges  in  connection  with  the  stock 
to  the  respective  stock  accounts  in  the  general  ledger  and  also  to  a  corres- 
ponding account  in  the  stock  book.  In  case  of  freight  charges  debit  the 
proper  stock  account  in  both  the  general  ledger  and  stock  book  and  credit 
the  transportation  company's  account  in  the  personal  ledger. 

In  every  case  the  debit  side  of  the  various  stock  accounts  must  agree 
with  the  debit  side  of  the  same  account  in  the  stock  book. 

In  addition  to  the  invoices  for  supplies  purchased  the  distribution 


l)i!)tn  ddTioj)  J  our  90 1 

bfltt 

INan\e 

1 

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Cr 
Invoice 
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DrStociN        1 
Wood  (^oudht*  1 

^r.  StocK      1 
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Dr  Sundry      1 
5ttppln>  Oou»ht   1 

be        1 

DrT 

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— ^ 

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1 

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— 

310 


American  Business  and  Accounting  Encyclopedia 


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journal  is  ruled  for  the  diffusion  of  all  other  purchases  in  connection  with 
the  business. 

At  the  end  of  each  month  or  fixed  period  inventories  of  the  various 
stocks  on  hand  should  be  taken  separately ;  the  inventories  of  the  various 
stocks  on  hand  being  placed  to  the  credit  of  the  respective  stock  accounts 
in  both  the  general  ledger  and  stock  book  and  the  difference  between  the 
debit  and  credit  sides  of  each  stock  account  is  charged  to  the  debit  of  the 
various  manufacturing  accounts  and  credited  to  the  respective  stock 
accounts  by  means  of  an  entry  through  the  transfer  journal.  The  inven- 
tory balances  are  brought  down  to  the  debit  of  the  various  stock  accounts 
in  the  general  ledger  and  the  stock  book  which  should  agree. 

The  transfer  journal  is  used  for  all  journal  entries  in  connection  with 
the  business. 

If  a  store-keeper  is  employed,  it  would  be  his  duty  to  keep  an  accurate 
account  of  all  the  stores  used  daily,  crediting  the  various  stock  accounts 
and  debiting  the  various  manufacturing  accounts. 

Stock  Book  of  Clay  Manufactured  and  in  Process — Clay  Ac- 
count. An  account  is  opened  in  this  book  for  the  purpose  of  recording  all 
clay  drawn  in  and  used.  It  will  be  found  by  examining  the  ruling  pro- 
vided for  this  account  that  provision  is  made  for  the  quantity  of  clay 
drawn  in,  on  the  one  side  and  the  quantity  used  is  credited  on  the  other 
and  charged  either  to  green  brick,  green  block  or  green  tile  account  as  the 
case  may  be. 


Doily  Record  ojCllny5Tot^ Stored                      iJililyRccrc)  oj  Ci.iy  iTo^isLScd 

b»lT€ 

Nodi  CI^Y  iTored 

ToTd!  No. 
CflitjdOy 

b'»rrihiitior)CffClJyStctnyiCd                  M.imij^T.I* 

M.iK.'ij^l^''.;^ 

MiK.^»(>lOvN 

1  •• 

^ 

3' 

^ 

A." 

5' 

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. 

1 

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1 

3 

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l» 

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7 

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6 

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10 

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«     Oi)  hor)d 

Form  4. 


Form  5. 

It  will  be  seen  that  columns  are  provided  to  show,  the  quantity  of 
green  brick,  block  or  tile  produced  from  the  quantity  of  clay  so  charged. 
Green  brick,  block  or  tile  accounts  are  credited  with  the  quantities  taken 
from  the  respective  green  stock  accounts  to  the  kilns ;  the  kilns  being 
charged  with  the  quantities  at  cost.  The  kiln  accounts  show  the  quantities 
of  green  stock  set  in  the  kilns  and  the  output  of  the  kilns,  and  are  also 
charged  with  the  additional  expense  in  burning  the  various  products.    The 


506 


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American  Business  and  Accounting  Encyclopedia 


310 


quantities  produced  as  a  result  of  the  burning  divided  into  the  debit  side 
of  the  kiln  accounts  will  give  the  prime  cost. 

Ledgers.  Personal  ledger  contains  all  personal  accounts  receivable 
and  payable  and  can  be  balanced  independently  of  the  general  ledger  by 
means  of  separate  debtor  and  creditor  adjustment  accounts. 

All  other  accounts  are  kept  in  the  general  ledger  commencing  with  the 
cost  accounts ;  to  commence  at  the  foundation  the  first  of  which  is — 

Clay  Stock  Account. — Charge  wages  from  pay  roll,  storing  clay,  to 
this  account.  Enter  number  of  yards  stored.  The  value  and  life  of  the 
clay-bed  should  be  ascertained.  The  value  of  the  clay  used  therefrom 
should  be  computed  upon  this  basis ;  the  value  of  the  clay  so  used  being 
debited  to  "clay  stock"  and  credited  to  real  estate.  Credit  number  of  yards 
taken  from  stock  for  the  purpose  of  manufacturing,  and  charge  same  to 
proper  account.  This  account,  if  properly  kept,  will  show  the  number  of 
yards  and  cost  of  the  clay  in  stock. 

Brick  Manufactured  Green. — Charge  to  this  account  clay  taken  from 
stock  at  clay  stock  price ;  enter  number  of  yards  in  description  column  of 
ledger  and  credit  "clay  stock."  Charge  wages  from  pay  roll  and  supplies 
from  stock  sheet.    Charge  all  other  expenses  in  connection  with  this  account 


C  reel)  5tocK  AccourvJ". 

M 

C>ri(KMfld< 

OlocKMade 

TilcMndc-CCreen')  1 

Date 

CnrmOfi'cK 
TatttB  fe 

TdKnTo 
KilDS 

Gre«oTileT(«K«ot»Kilo4.       | 

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10 

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— 

Form  6. 

from  the  cash  books,  etc.;  also  percentage  of  engine  room  account  and 
repairs.  Ascertain  the  number  of  brick  manufactured  and  cost  per  thou- 
sand. Credit  this  account  with  the  brick  supplied  to  the  kilns  and  charge 
the  kiln  account  at  cost. 

Block  Manufactured  Green.  Charge  this  account  with  the  stock 
value  of  clay  used,  entering  number  of  yards  in  ledger.  Charge  with 
wages  from  pay  roll  and  supplies  from  stock  sheet.  Charge  all  other 
expenses  in  connection  with  this  account  from  the  cash  books,  etc.;  also 
percentage  of  engine  room  account  and  repairs.  Ascertain  the  number  of 
blocks  manufactured  and  cost  per  thousand  and  credit  this  account  with 
the  block  supplied  to  the  kilns,  at  cost  price  per  thousand ;  debit  the  kilns 

at  cost  price. 

508 


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American  Business  and  Accounting  Encyclopedia 


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Tile  Manufactured  Green.  Charge  this  account  with  the  stock 
value  of  clay  used  entering  number  of  yards  in  ledger.  Charge  with  wages 
from  pay  roll  and  supplies  from  stock  sheets.  Charge  with  all  other 
expenses  in  connection  with  this  account  from  the  cash  books,  etc. ;  also 
percentage  of  engine  room  account  and  repairs.  Ascertain  the  number  of 
tile  manufactured,  entering  the  sizes  of  tile  in  ledger  in  proper  columns, 
and  average  cost  of  each  size;  credit  this  account  with  the  tile  supplied 
to  the  kilns  according  to  size  at  cost,  and  charge  the  kiln  account  at  cost. 

Burnt  Brick  Kiln  Account.  Charge  to  this  account  brick  taken 
from  green  stock  at  cost;  entering  quantity  in  column  headed  "green  stock 
quantity"  in  ledger. 

Charge  cost  of  burning  from  pay  roll  and  stock  sheet.  Charge  other 
expenses  from  cash  books,  etc.,  in  connection  with  the  burning  of  brick 
and  divide  output  into  sura  total  at  the  debit  of  this  account  to  arrive  at 
the  cost  per  thousand  burnt.  Enter  to  credit  output  of  kiln  and  debit 
burnt  brick  stock  account,  entering  in  column  quantity. 

Burnt  Brick  Stock  Account.  This  account  is  charged  with  stock 
from  kilns  at  cost  and  quantity  is  entered  in  column  provided  in  ledger 
account. 

All  burnt  brick  sold  must  be  credited  to  this  account  through  the 
journal  at  cost,  entering  quantity  sold  on  credit  side  of  the  accoimt,  and  the 
brick  sales  cost  account  is  debited  with  the  amount. 

Brick  Sales  Cost  Account.  This  account  is  charged  with  all  brick 
sold  at  cost  and  burnt  brick  stock  account  is  credited.  The  quantit}^  is 
obtained  by  ascertaining  from  the  sales  book  the  number  of  bricks  sold 


DAILY        TIME       CARO 


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P,RI. 


American  Blsiness  and  Accounting  Encyclopedia 


310 


for  the  month.  The  cost  per  thousand  to  be  ascertained  from  the  burnt 
brick  stock  account. 

Burnt  Block  Kiln  Account.  Charge  to  this  account  block  taken 
from  green  stock  at  cost ;  entering  quantity  in  proper  column  in  ledger. 

Charge  cost  of  burning  from  pay  roll  and  stock  sheet.  Charge  other 
expenses  from  cash  books,  etc,,  in  connection  with  the  burning  of  block 
and  divide  output  into  the  sum  total  at  the  debit  of  this  account,  to  arrive 
at  cost  per  thousand  burnt.  Enter  to  credit  output  of  kiln  and  debit  burnt 
block  stock  account,  entering  in  column  quantity. 

Burnt  Block  Stock  Account.  This  account  is  charged  with  stock 
from  kilns  at  cost  and  quantity  is  entered  in  column  provided  in  ledger 

account. 

All  burnt  block  sold  must  be  credited  to  this  account  through  the 
journal,  at  cost,  entering  quantity  sold  on  credit  side  of  the  account,  and 
the  block  sales  cost  account  is  debited  with  the  amount. 

Block  Sales  Cost  Account.  This  account  is  charged  with  all  block 
sold  at  cost  and  burnt  block  stock  account  is  credited.  The  quantity  is 
obtained  by  ascertaining  from  the  sales  book  the  number  of  block  sold 
for  the  month ;  the  cost  per  thousand  to  be  ascertained  from  burnt  block 
stock  account. 

Burnt  Tile  Kiln  Account.  Charge  to  this  account  tile  taken  from 
green  stock  at  cost,  entering  quantity  in  proper  column  in  ledger. 

Charge  cost  of  burning  from  pay  roll  and  stock  sheet.  Charge  other 
expenses  from  cash  books,  etc.,  in  connection  with  the  burning  of  tile  and 
divide  output  into  sum  total  at  the  debit  of  this  account  to  arrive  at  cost 
per  thousand  burnt.  Enter  to  credit  output  of  kiln  and  debit  burnt  tile 
stock  account,  entering  in  column  quantity,  averaging  cost  of  various  sizes. 

Burnt  Tile  Stock  account  is  charged  with  stock  from  kilns  at  cost  and 
quantity  is  entered  in  column  provided  in  ledger  account.  All  burnt  tile 
sold  must  be  credited  to  this  account  through  the  journal  at  cost,  entering 
quantity  sold  on  credit  side  of  the  account  and  the  tile  sales  cost  account 
is  debited  with  the  amount,  entering  various  sizes  in  proper  columns. 

Tile  Sales  Cost  account  is  charged  with  all  tile  sold  at  cost  and  burnt 
tile  stock  account  is  credited :  the  quantity  is  obtained  by  ascertaining  from 
the  sales  book  the  number  of  tile  sold  for  the  month ;  the  cost  per  thousand 
to  be  ascertained  from  burnt  tile  stock  account,  entering  various  sizes  in 
proper  columns. 

Distribute  repairs  to  plant  and  machinery  and  repairs  to  buildings 
accounts  on  a  percentage  basis  over  the  brick,  tile  and  blocks;  crediting 
these  accounts,  debiting  the  brick,  tile  and  block  burnt  accounts. 

Charge  engine  room  account  with  wages  from  pay  roll  and  supplies 
from  stock  sheets  and  other  expenses  from  cash  books,  etc.  Credit  sum 
total  at  the  end  of  month  and  charge  same  on  a  percentage  basis  to  green 
brick,  tile  and  block  manufacturing  accounts. 


.) . 


Bo. 


American  Business  and  Accounting  Encvcloi'edia 


29^ 


\f)ht\€  Ci  Krlnj-  TflKen 

nopN 

Kilf) 

A 

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CCOD9t 

■^'lOi   OuTp^JT^^Klll;>-J^ar^)T5to^.^T^Ke^»  out  ot^'lt^s. 

CrrtoOritHitr      |C^rtB^^lotn 

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rJv^-routK?'i|»i|     '5a^f^t-TileT,^^*^e^»Tl^;ll)♦l       1 

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1   ^ 

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7 

7 

7 

1      7 

7 

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6 

6 

6 

6 

& 

Form  8. 


Selling  Expenses.  Charge  to  general  selling  expenses — brick — ac- 
count all  expenses  other  than  loading  cars  and  loading  teams  in  connection 
with  the  selling  of  brick. 

Charge  cost  of  loading  on  cars — brick — account  with  all  expenses  hi 
connection  with  loading  of  brick  on  cars. 

Charge  cost  of  teaming — brick — account  with  all  expenses  in  connec- 
tion with  the  teaming  of  brick. 

Charge  to  general  selling  expenses — tile — account  all  expenses  other 
than  loading  cars  and  teams  in  connection  with  the  selling  of  tile. 

Charge  cost  of  loading  on  cars — tile — account  with  all  expenses  in 
connection  with  loading  tile  on  cars. 

Charge  to  cost  of  teaming — tile — account  all  expenses  in  connection 
with  the  teaming  of  tile. 

Charge  to  general  selling  expenses — block — account  all  expenses  other 
than  loading  cars  and  teams,  in  connection  with  the  selling  of  block. 

Charge  to  cost  of  loading  on  cars — block — account  all  expenses  in  con- 
nection with  loading  block  on  cars. 

Charge  to  cost  of  teaming — block — account  all  expenses  in  connection 
with  teaming  of  block. 

Charge  to  salaries  earned  ace  Hint  salaries  earned  and  credit  salaries 
paid,  and  distribute  over  the  brick,  block  and  tile  green  and  burnt  cost 
accounts  on  a  percentage  basis  that  portion  chargeable  thereto;  the  bal- 
ance being  a  selling  expense. 

Charge  to  salaries  paid  account  all  salaries  paid  from  the  cash  book. 
Credit  by  journal  entry,  monthly  salaries  earned,  and  debit  salaries  earned 
account. 

Charge  to  pay  roll  account  all  wages  paid.  Credit  this  account  at  the 
end  of  each  month  with  all  wages  earned  (from  the  wages  sheet  or  book 
as  the  case  may  be)  and  debit  distribution  accounts  therefor. 

Stock  Accounts.    Charge  to  wood  stock  account  all  wood  purchased. 

511 


Bri. 


American  Business  and  Accounting  Encyclopedia      310-311 


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cost  of  freight  charges,  etc.,  in  connection  therewith;  credit  with  wood 
used  and  debit  proper  account. 

Charge  to  coal  stock  account  all  coal  purchased,  cost  of  freight  charges, 
etc.,  in  connection  therewith ;  credit  with  wood  used  and  debit  proper 
account. 

Charge  to  oil,  waste  and  sundry  supplies  account  all  oil,  waste  and 
supplies  purchased,  cost  of  freight  charges,  etc.,  in  connection  therewith, 
and  credit  with  oil,  waste  and  supplies  used,  and  debit  proper  account. 

Charge  green  brick,  green  tile  or  green  block  accounts  with  supplies 
used  as  ascertained  from  monthly  stock  sheet,  also  burnt  brick,  burnt  tile 
or  burnt  block  in  connection  therewith. 

Credit  from  the  sales  book  all  brick  sold  to  brick  sales  account. 

Credit  from  the  sales  book  all  tile  sold  to  tile  sales  account. 

Credit  from  the  sales  book  all  block  sold  to  block  sales  account. 

Credit  to  sundry  sales  account  all  sundry  sales  other  than  ^^ant  and 
machinery  or  tools  sold. 

(311)     BRICK  WORK  MEASUREMENT. 

Dimensions  of  common  bricks,  7}i  to  eight  inches  long;  4^  inches  wide; 
2y2  inches  thick.  Front  brick,  8^4  inches  long,  4^  inches  wide,  2^^  inches 
thick.  Fire  brick,  9>^  inches  long,  4^  inches  wide,  2}i  inches  thick. 
Twenty  common  bricks  to  a  cubic  foot.  Fifteen  common  bricks  to  a  foot 
of  eight-inch  wall. 

(312)     BRIDGE  BUSINESS  ACCOUNTING. 

Bridges  are  almost  always  constructed  on  contract,  so  that  an  ac* 
count  should  be  opened  with  each  contract,  to  which  should  be  charged 
cost  of  production  and  percentage  of  general  expense,  and  to  which,  on 
completion,  should  be  credited  the  amount  at  which  the  contract  was  se- 
cured, the  customer  being  debited. 

512 


312-313      American  Business  and  Accounting  Encyclopedia    Bri.-Bro. 

Each  contract  account  by  this  method  becomes  a  trading  account 
exhibiting  gross  profit. 

The  treatment  of  uncompleted  contracts  on  the  balance  sheet  has  been 
previously  considered. 

(313)     BROKERAGE. 

A  commission  charged  on  negotiating  loans  through  another  party. 

The  rate  of  commission  charged  by  regular  brokers  is,  to  a  certain 
extent,  regulated  by  an  association  of  brokers.  Such  associations  exist  in 
most  centers  of  commerce  in  connection  with  the  Stock  Exchanges  and 
Boards  of  Trade.    The  rules  of  New  York  Stock  Exchange  are  as  follows : 

Article  XLIII. — Section  1.  Commissions  shall  be  charged  and  paid 
under  all  circumstances  and  upon  all  transactions,  both  purchases  and 
sales  or  upon  contracts  for  the  receipt  or  delivery  of  securities.  Such 
commissions  shall  be  calculated  in  all  cases  upon  the  par  value  of  securities, 
and  shall  be  at  the  rates  hereinafter  named,  and  such  rates  shall  be  in  each 
case  the  lowest  commission  that  may  be  charged  by  any  member  of  the 
Exchange,  and  shall  be  absolutely  net  and  free  from  all  or  any  rebatcrtient, 
return,  discount  or  allowance  in  any  shape  or  manner  whatsoever,  or  by 
any  method  or  arrangement,  direct  or  indirect.  And  no  bonus,  percentage 
or  portion  of  the  commission  so  established  shall  be  given,  paid  or  allowed, 
directly  or  indirectly,  to  any  clerk  or  person  for  business  sought  or  pro- 
cured for  any  member  of  the  Exchange. 

Section  2.  On  all  busine'ss  for  parties  not  members  of  the  Exchange, 
including  joint  account  transactions  in  which  a  non-member  is  interested, 
transactions  for  partners  not  members  of  the  Exchange,  and  for  firms  of 
which  the  Exchange  member  or  members  are  special  partners  only,  the 
commission  charged  shall  not  be  less  than  }i  of  1  per  cent. 

Section  5.  Any  member  offering  to  do  business  for  less  than  the 
foregoing  rates  violates  this  Article,  and  is  subject  to  the  penalty  for  so 
doing. 

Section  7.  The  penalty  for  the  violation  of  this  Article  shall  be,  for 
the  first  offense,  suspension  for  a  period  of  from  one  to  five  years,  the  term 
to  be  fixed  at  the  discretion  of  a  majority  of  the  governing  committee 
present  at  a  meeting  thereof.  For  the  second  offense  the  penalty  shall  be 
expulsion  and  the  membership  of  the  party  expelled  shall  be  disposed  of 
forthwith  by  the  Committee  on  Admissions. 

"It  will  be  observed  from  Section  1  that  commissions  are  charged 
on  the  par  or  nominal  value  of  all  stocks  and  securities ;  that  is  to  say.  New 
York  Central  stock  is  worth  at  par  $100  a  share,  but  it  may  be  worth  in  the 
market  only  $90  a  share.  Now  suppose  a  man  wants  to  buy  100  shares 
of  this  stock,  the  par  value  of  which  is  $10,000,  he  puts  up  a  margin  oi 
$1,000.     His  broker  credits  him  with  $1,000  and  buys  the  stock  for  his 

513 


I 


■  ! 


r 


1    i 


Bro. 


American  Business  and  Accounting  Encyclopedia        313-314 


account  for  $9,000,  charging  his  account  with  $9,000  and  $12.50  commis- 
sion, which  is  one-eighth  of  1  per  cent  on  $10,000.     He  then  puts  up  tne 
balance  of  the  purchase  price,  $8,000,  either  out  of  his  own  funds  or  funds 
secured  from  his  banker.    His  client  then  orders  him  to  sell ;  he  does  so, 
and  then  charges  him  another  $12.50  commission  and  interest  on  the  $8,000 
he  borrowed  or  advanced  for  him  at  the  prevailing  rate  of  interest;  the 
balance  then  stands  to  the  client's  credit  unless  the  account  is  to  be  closed. 
It  often  happens  that  the  broker  makes  something  on  the  interest  charged. 
For  example,  the  prevailing  rate  of  interest  may  be  6  per  cent,  but  the 
broker  may  be  able  to  borrow  money  at  4  per  cent,  so  he  makes  the  differ- 
ence of  2  per  cent.    Of  course  in  putting  up  collateral  security  the  broker 
has  to  put  up  collateral  away  in  excess  of  the  amount  borrowed.     From 
this  it  will  be  seen  that  the  broker  has  to  have  a  large  capital  of  his  ov/n 
on  which  to  operate.    If  a  broker  buys  or  sells  stock  at  a  premium,  he  gets 
his  commission  on  the  par  value  only,  so  it  will  be  seen  that  the  rule  works 
The  broker  has  other  opportunities  of  making  money  without  taking 
the  risk  of  buying  or  selling  on  his  own  account.     For  instance,  it  often 
happens  that  one  customer  sells  and  another  buys  a  given  number  of  shares 
of  the  same  stock.    In  this  case  the  broker  neither  buys  nor  sells  a  single 
share,  but  simply  charges  to  the  account  of  the  purchasing  customer  the 
amount  that  would  be  required  to  buy  the  stock,  and  on  the  other  hand, 
he  credits  the  selling  customer  with  the  amount  which  the  shares  would 
bring  if  really  sold  on  exchange.    The  purchasing  customer's  account  then 
shows  a  debit  balance  on  which  interest  is  charged  at  the  ruling  rate.    At 
the  same  time  the  selling  customer  is  charged  a  bonus  for  the  use  of  the 
shares  of  stock  which   it  would  have  been  necessary  for  the  broker  to 
borrow  in  order  to  make  good  his  delivery  had  he  really  sold  the  shares 
on  'change.    Thus  the  broker  is  protected  from  loss  no  matter  which  way 
the  market  goes,  while  he  gets  his  commission  for  buying  and  selling,  his 
interest  on  money  supposed  to  have  been  borrowed,  and  his  bonus  on 
stock  certificates  supposed  also  to  have  been  borrowed,  when,  as  a  matter 
of  fact,  he  has  neither  bought,  sold  nor  borrowed  but  simply  made  a  few 
entries  on  his  books."— (7.  /.  Kahili.) 

(314)     BROKERAGE  BUSINESS. 

Order  and  Commission  Records.  Orders  in  the  woolen  business  are 
taken  mostlv  in  Januarv  and  July  for  goods  to  be  delivered  during  the 
ensuing  six  months :  in  fact,  oftentimes  deliveries  are  made  eight  or  nme 
months  after  date  of  original  order.  Such  being  the  case  it  is  apparent 
that  in  a  woolen  goods  brokerage  business  (where  commissions  are  re- 
ceived from  the  mills  only  as  the  goods  are  delivered)  it  is  a  matter  of 
some  difficultv  to  keep  track  of  orders  as  to  whether  they  have  been  filled 
or  not  and  whether  all  commissions  due  have  been  paid.     The  system 

514 


314 


American  Business  and  Accounting  Encyclopedia 


Bro. 


outlined  herein  was  installed  by  the  writer  with  a  brokerage  firm  who 
handle  the  accounts  of  between  20  and  30  mills,  and  after  an  extended 
trial  has  been  found  to  work  admirably,  being  much  simpler  and  more 
effective,  while  requiring  much  less  labor  than  the  cumbersome  system 
previously  in  use. 

The  chief  feature  of  this  system  lies  in  the  order  blank,  copy  of  which 
is  given  herewith.  It  is  preferable  that  this  blank  be  about  Sj/Sxll  inche>, 
so  that  the  carbon  copy  of  same  will  conform  to  a  standard  size  binder.  It 
will  be  noted  that  the  space  for  the  written  details  of  the  order  occupies  the 
upper  portion  of  the  sheet  (the  lower  portion  may  be  utilized  for  printed 
instructions,  advertising,  etc.),  the  object  of  this  being  to  reserve  the 
lower  portion  of  the  carbon  copy  for  keeping  track  of  the  deliveries,  etc. 
For  the  carbon  copy,  a  plain  sheet  is  used,  punched  for  sectional  post 
binder,  ruled  as  shown  herewith  with  columns  for  date  of  shipment,  styles, 
amount  of  invoice  and  date  commission  is  paid.  All  orders  as  taken  by  the 
salesmen  are  sent  in  to  the  house,  who  then  forwards  them  to  the  respective 
mills,  using  the  order  blank  with  carbon  copy  beforementioned.  The  car- 
bon copies  are  then  filed  in  a  "sectional  post  binder,"  which  has  divisions 
indexed  for  the  different  mills,  all  the  orders  for  each   mill  being  filed 


O  R  DE^F=». 

Johm    Doe.  63  Companv 

Looi^vtHe.Ky.   January  15^  \<koS 
Me>br>        fbonnybtoof^  yVoolen  Milli  Co. 

Ce^Tlervei):  PIm>«  e9TerTf)cJollowif)^  order  NewYorK^  N.Y 


^tvle 


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bclivery.  Rei»\arKi.  etc . 


Safl\fi/e  fy it cei  to  ht  delivered  Marrlj:  balantt 


Apriloiyd  May-   ^f^d  i-  if)«ti  reftr^i^tt. 


io/^lylei  at  orf<e. 


SotdT*        E%<tliior  CloTtji/yd  t^f(-  ^■.  Chicago,  III. 


515 


Bro. 


American  Business  and  Accounting  Encyclopedia      314-315 


alphabetically  as  regards  the  parties  from  whom  the  order  was  taken. 
It  frequently  happens  that  the  same  parties  will  place  a  number  of  different 
orders  during  the  course  of  a  season,  and  all  such  orders  for  any  one  mill 
will  thus  be  together  in  the  binder. 

As  the  goods  are  delivered,  it  is  customary  for  the  mill  to  send  to  the 
brokerage  house  a  copy  of  the  invoice  from  which  (upon  the  carbon  copy 
of  the  original  order)  a  record  is  made  of  the  date,  number  of  pieces  of 
each  style  and  amount  of  invoice.  When  the  mill  remits  commissions,  the 
date  is  entered  in  the  column  provided  for  that  purpose. 

By  the  use  of  this  system  the  brokerage  house  can  determine  at  any 
time  the  amount  unfilled  on  any  order,  and  whether  commission  has  been 
received  upon  all  goods  delivered.  If  all  goods  have  not  been  delivered 
within  the  time  of  delivery  specified  in  the  original  order,  the  mill  can  then 
be  written  to  for  information  as  to  why  the  order  has  not  been  filled — it 
frequently  happening  that  the  goods  have  been  delivered  but  the  mill 
through  oversight  has  neglected  to  send  duplicate  bill  or  credit  the 
commission. — (Alex.  J,  Conen.) 


M6 


\ 


I  i 


CONTENTS  OF  VOL.  U 


Back  Orders,  184. 

Bad  Debts,  185. 

Bad  Debts  Reserve,  186. 

Bakers'    Business    Accounting   Methods, 

187. 
BALANCE,  188. 
Balance  Account,  189. 
Balance  Ledger,  190. 
Balance  Sheet,  191. 

Continental  and  American  Form  of  Bal- 
ance Sheet,  192. 
English    Registered    Company    Form   of 

Balance  Sheet,  193. 
Form  of  Double  Account  Balance  Sheet, 

194. 
General  Balance  Sheet,  195. 
The  Balande  Sheet  and  the  Statement  of 

Assets  and  Liabilities,  196. 
Working  Balance  Sheet,  197. 
Municipal  Balance  Sheet,  198. 
Bank  Balance  Sheet,  199. 
Combination    Working     Balance     Sheet 

and  Comparative  Statement,  200. 
Balance  Sheet  of  a  Building  and  Loan 

Society,  201. 
Balance  Sheet  of  a  Steam  Railroad,  202. 
Form    of    Annual     Balance    Sheet    for 

Hotel,  203. 
Balance  Sheet,  204. 

Balance  System  (Improved)  of  Cost  Ac- 
counting, 205. 
BANK  ACCOUNTING,  206. 
The  Rand,  207. 
The  Eager,  208. 
The  Boston,  209. 
The  New  York  Ltedger,  210. 


Certificates  of  Deposit  Registers,  211. 

Certified  Check  Register,  212. 

Cashier's  Check  Register,  213. 

Dividend  Check  Register,  214. 

The  Discount  Register,  215. 

Discount  and  Collection  Tickler,  216. 

The  Collection  Register,  217. 

Cash  and  Remittance  Letters,  218. 

The  Liability  Ledger,  219. 

The  Use  of  Card  Ledgers  in  a  Country 
Savings  Bank,  220. 

How  to  Keep  a  Depositors'  Account  ra 
a  Savings  Bank,  22i. 

Figuring  Inferest  and  Balacices,  222. 

The  Accounts  of  an  Investment  Banker, 
223. 

Bank  Pass  Book,  224. 

Comparative  Bank  Statements,  225. 

Bills  Receivable — Record  of,  226. 

Clearing  House  Settlements,  227. 

Expiration    of   Insurance   on   Collateral, 
228. 

Correspondents*  Accounts,   229. 

Credit  Department,  230. 

Credit  Reports,  231. 

Customers'  Signatures,  232. 

Drafts,  Certificates  of  Deposit  and  Due 

Bills,  233. 
Financial    Statements — Construction    o^ 

234. 
Interest  on  Savings  Deposits,  235. 
Handling  of  Money,  236. 
Pass  Books,  Method  of  Handling,  237. 
Posting  Work  Daily,  238. 
Reconciliation  of  Statements,  239. 
Rediscounts,  240. 


!/ 


Securities — Access  to,  241. 

Special  Examinations,  242. 

Stock  Transfers,  243. 

Vacations,   244. 

Liability  Register,  245. 

Insurance  Expirations,  246. 

Monthly  Balances,  247. 

Prospective  Customers,  248. 

Bear,  249. 

Bearer,  250. 

Benevolent  Societies,  251. 

Betterments  and  Additions,  252. 

BILL,  253. 

Bill  Book,  254. 

Bill   Clerk,  255. 

Bill  of  Credit,  256. 

Bills  Discounted,  257. 

Bill  of  Exchange,  258. 

Bill  of  Lading,  259. 

Billing  Improvements,  260. 

Billing  and  Journalizing  for  Department 

Store  Billing,  262.  ' 
A    Question    About    Department    Store 

Billing,  262. 
Typewriter  Billing  Has  Helped  Business 

Building,  263. 
Bills  Payable,  264. 
B-'ls  Payable  Register,  265. 
Bills   Receivable,  266. 

Bills    Receivable    Register    and    Ledger, 

267. 
Bills  Receivable  Suspense  Account,  228. 
Bill  of  Sale,  269. 
Blank  Indorsement,  270. 
Blanket  Mortgage,  271. 
Blotter,  272. 

BOND  OR  DEBENTURE,  273. 
Coupon  Bonds,  274. 
Coupons,  275. 
Deferred  Bonds,  276. 
Debentui^es,  277. 
Debentures — Accounts   and   Records   of, 

278. 
Debentures  Sold  at  a  Discount,  279. 
Indorsed  Bonds,  280. 


Guaranteed  Bond,  281. 

Income  Bonds,  282. 

Mortgage  Bond,  283. 

Municipal  Bonds,  284. 

Registered  Bond,  285. 

Bonus,  286. 

Book  Account,  287. 

Book  Debt,  288. 

BOOKKEEPER,  289. 

Book  keteping,  290. 

The  Eagle  Printing  Company,  291. 

Bookkeeping  Literature,  292. 

BOOT   AND   SHOE    BUSINESS   AC- 
COUNTING, 293. 

Accounting  System  in  the  Shoe  Manu- 
facturing Business,  294. 

Customer's  Check  in  the  Shoe  Repairing 

Business,  295. 
Accounting  for  the  Retail  Shoe  Business, 
297. 

Costs  of  Shoe  Manufacturing,  297. 
System    of    Comparative    Records    and 

Their    Adaptation,    298. 
Boston  Bank  Ledger,  299. 
Bought  Invoice  Book,  300, 
Bottling    Works  —  Accounting   System 

for,  301. 

BRANCH  HOUSE  ACCOUNTING, 
302. 

Supply  and  Expense  Departments  of 
Branch  Banking,  303. 

Methods  for  the  Supervision  of  Branch 
Houses,  304. 

Brass  Foundry  Cost  Records,  309. 

Brewery  Accounting,  309a. 

Specifications  of  the  Distribution  of 
Trading  and  Profit  and  Loss  Ac- 
counts, 309b. 

Brick  Manufacturing  Business  Account- 
ing, 310. 

Brick  Work  Measurement,  311. 

Bridge  Business  Accounting,  313. 

Brokerage,  313. 

Brokerage  Business,  314. 


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(315)     BROKERAGE   BOOK-KEEPING. 

The  problem  of  book-keeping  in  the  future  contract  brokerage  business 
requires  a  system  of  its  own  because  of  the  peculiar  nature  of  the  business. 
It  is  not  like  any  other  business  where  something  is  bought  and  sold  for  cash 
or  on  credit.  It  is  simply  dealing  in  future  contracts  that  have  no  immediate 
value,  unless  the  market  price  should  fluctuate  one  way  or  the  other,  during 
the  time  that  the  contract  remains  open.  The  brokers,  in  buying  and 
selling  future  contracts  for  their  customers,  simply  agree  to  receive  or 
deliver,  a  certain  amount  of  the  commodity,  when  necessary,  at  a  price  agreed 
upon,  on  an  understood  date ;  according  to  the  rules  of  the  various  exchanges 
where  the  contract  w^as  made. 

The  commodity  markets  are  always  more  or  less  active,  and  the  values 
of  the  open  contracts  are  constantly  changing.     It  is  to  take  care  of  that 
value  and  not  the  value  of  the  commodity,  that  the  book-keeper  is  most 
concerned  with.     It  is  a  peculiar,  precarious  value;  that  requests  a  peculiar 
system  of  book-keeping,  which  none  but  the  very  best  of  book-keepers  can 
hope  to  take  care  of.     It  really  requires  a  double  set  of  double  entry  books; 
one  set  for  the  customers'  accounts,  and  the  other  set  for  the  other  brokers* 
accounts.     They  both  start  oflf  together  and  keep  getting  wider  and  wider 
apart  and  more  and  more  complicated,  until  the  option  runs  out  and  every 
contract  is  closed  out  or  settled.    Then  the  books  should  show^  that  the  dif- 
ference between  the  amounts  received  and  paid  to  the  other  brokers  is  the 
same  as  the  amounts  charged  and  credited  to  the  customers  less  the  commis- 
sions.    To   do   that    requires   constant   care   and   every   possible   safeguard 
that   can   be   resorted    to   because   the   amounts   received   and   paid   to   the 
other  brokers  are  not  the  amounts  charged  and  credited  to  the  customers. 
One  represents  the  settlements  made  to  cover  the  fluctuations  of  the  markets, 
and  the  other  is  the  actual  profit  or  loss  secured.    They  are  entirely  diflferent 
from  each  other,  as  to  individual  amounts,  and  must  be  kept  separate  and 
distinct;  but  in  the  aggregate  the  difference  between  both  sides  of  each  set 
must  be  the  same. 

It  is  absolutely  necessary  in  the  future  contract  brokerage  business,  to 
keep  everything  done  in  each  option  entirely  separate  and  distinct  from  every 
other  option,  if  not,  serious  trouble  is  sure  to  ensue. 

The  following  is  an  illustration  of  how  the  books  are  kept  in  one  of  the 
big  progressive  international  brokerage  houses  in  New  York  City.  The 
cotton,  grain  and  coffee  brokerage  accounts  are  handled  practically  the  same; 
and  while  this  system  was  taken  from  the  cotton  department,  it  will  be 
found  after  a  little  thought  to  be  admirably  adapted  to  all  three,  as  it  contains 
several  ingenious  labor  saving  methods. 

The  books  required  are,  an  order  book,  two  option  sheets  fr  each  option, 
a  contract  ledger  for  the  other  brokers'  accounts,  and  one  for  the  customers' 
accounts,  a  cash  settlement  book,  a  cash  book,  an  ordinary  journal,  and  a 
general  ledger. 


517 


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N 

( 

OPTION     5HEET5 

f   Onfir.r* 

1 

\-        1          r 

KlPwVnrK, 

iQo 

-      - 1 

No  of 

Fc-  Attcunt  of 

! 

PriCP  i 

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PoioTS  not  * 

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Urk^lLrot    |P-"     P«'0'3  0.t» 

■^ — i 



' 

! 

1          1 

1          1 

1 

1          1 

1 

1 

Write  up  a  separate  sheet  for  each  option  for  the  customers*  account 
from  the  order  book  and  extend  the  amounts,  in  points,  not  dollars;  viz.: 
the  price  times  the  number  of  contracts.  Write  up  another  separate  option 
sheet  the  same  way,  for  the  other  brokers'  contract  accounts,  from  the  signed 
contracts  as  they  come  over  from  the  exchange ;  but  use  the  broker's  name 
instead  of  the  customer's  name.  Both  sheets  should  agree  in  the  total  num- 
ber of  contracts  and  total  number  of  points.  Then  they  are  ready  to  be 
posted  to  their  respective  accounts.  If  every  item  is  posted  correctly  and 
the  totals  crossed  and  posted  to  a  separate  account  for  each  option,  a  trial 
balance  can  be  taken  off  with  very  little  work  whenever  it  is  wanted. 


Ir 

^  AffO)) 

f5ROKER5  OPEN    CONTRACT   LEDGER 

nt  With 

'  /  ■    — 

Cbteboufhl 

Pncfii.u^-t 

R.f)^  Nonei    DfltcboU    Pr,ce5ol</|R.n^  Nonei 

Coil)P<n,d 

CA5<)'?»c*'»«rf 

. 

As  it  is  necessary  to  maintain  the  identity  of  each  contract  all  through 
the  contract  ledger,  it  is  necessary  to  write  the  price  once  for  each  contract 
bought  or  sold.  For  instance;  if  the  option  sheet  shows  that  ten  contracts 
have  been  bought  at  one  price  for  the  same  account,  that  price  must  be 
written  in  the  ledgers  ten  times,  using  ten  lines.  Because,  they  may  be 
settled  in  several  lots,  at  several  prices  and  at  different  times.  If  the  highest 
prices  are  entered  first,  it  will  be  found  that  they  settle  against  each  other 
and  leave  only  the  last  few  entries  made,  as  the  only  contracts  still  open, 

518 


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which  is  a  decided  advantage  over  all  other  methods,  because  it  is  possible 
to  tell  at  a  glance  just  how  each  account  stands  on  open  contracts. 

The  brokers'  contract  ledgers  are  ruled  quite  different  from  the  cus- 
tomers' contract  ledgers,  see  illustration,  because  the  cash  settlements  be- 
tween brokers  should  be  carried  alongside  of  the  prices  to  show  which 
contracts  have  been  settled  for.  It  is  therefore  convenient  to  carry  only  one 
option  on  a  page,  while  each  broker  requires  an  account  for  every  open  option. 
The  customers'  contract  ledger  is  merely  a  record  of  when  all  the  contracts 
were  bought  and  sold  and  which  contract  was  settled  against  the  other. 
It  does  not  show  any  money  and  it  is  therefore  quite  handy  to  have  six 
accounts  on  each  side  of  the  page,  which  means  one  account  for  each  month 
or  option.  Loose  leaf  ledgers  cannot  be  too  strongly  recommended  for  this 
work  because  it  means  many  inactive  accounts  and  requires  plenty  of  room. 


STATEMENT  OF  PURCHASED  AND   5ALE5 
Pirtlps  nf                                     Cottor^  bv 
fnr  Af  fr)j)qr  of    M 

D^te     lialei 

r,        1    Boufhi- 

6old 
Po.nti 

Pco^s  1      4 

Coin 

Cor\o\>»<o9 

NerLoii 

Ner  Profit 

1 

1 

« 

1 

1 

1       1 

When  contracts  are  closed  out,  for  customer,  a  statement  of  purchase 
and  sale,  as  per  illustration,  should  be  rendered.  They  should  be  made  up 
in  a  book  for  each  option,  five  to  a  page  and  perforated;  with  every  other 
page  made  permanent  and  ruled  to  carry  the  figures  made  by  a  carbon  sheet 
placed  under  each  statement.  That  saves  all  the  work  of  rewriting  the 
transactions  and  gives  original  figures  all  through ;  avoiding  great  possibilities 
for  making  errors.  The  money  columns  should  be  footed  and  carried  forward 
to  the  end  of  the  month.  Then  the  total  of  the  loss  column  should  be 
credited  and  the  total  of  the  profit  column  should  be  debited  to  that  option 
account  in  the  general  ledger,  and  the  total  of  the  commission  column 
credited  to  the  commission  account.  To  prove  the  footings  in  the  five 
columns  of  this  book,  add  the  loss,  commission  and  net  profit  together;  they 
should  equal  the  sum  total  of  the  gain  and  net  loss  columns.  The  net  loss 
or  net  profit  on  each  statement  should  be  charged  or  credited  to  the  cus- 
tomer's account  in  the  general  ledger,  then  check  the  transactions  with  the 
customer's  contract  account  and  the  margin  cards.  The  margin  clerk  should 
then  erase  those  transactions.  It  is  simply  impossible  for  an  error  to  escape 
in  this  way. 

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j             CiJ5T0MER5  CONTRACT  LEDGER             1 

r^oucHT 

iOLD                                         1 

e      !1    n..c. 

e 

Pr.ct 

So.d  At 

DoTe 

r^ 

n 

1 

GENERAL   LEDGER 

NflHf  of  Acct 

S.V 

El 

D»b.f 

D*r> 

iiM..rOic^ 

Fol. 

C'rt.t 



Nothing  should  appear  in  the  general  ledger  but  actual  money  transac- 
tions. Each  customer  should  have  an  account  showing  the  number  of  con- 
tracts, the  name  of  the  option,  the  number  of  the  statement  of  purchase  and 
sale,  the  amount  made  or  lost  and  the  money  paid  or  received.  Each  option 
should  have  a  separate  account  showing  the  total  settlements  made  during 
the  month,  between  the  brokers,  on  each  option,  which  is  the  total  of  the 
cash  settlement  book.  And  the  total  amount  charged  and  credited  to  the 
customers  during  the  month  less  commission,  which  is  the  total  of  the  loss 
and  gain  columns  in  the  statement  books.  All  the  option  accounts  should 
balance  as  the  option  runs  out  or  when  every  contract  is  settled.  Serious 
difficulty  may  be  encountered  in  doing  so,  unless  all  the  options  are  balanced 
at  least  once  a  month  by  closing  out  on  paper  all  the  open  contracts  for  the 
customers  and  the  brokers,  and  making  them  agree  with  all  the  cash  settle- 
ments that  have  passed  through  the  books. 

Margin  cards  are  very  simple  and  only  require  to  be  ruled  with  a  column 
for  the  date  of  each  transaction,  the  number  of  open  contracts,  and  their 
prices ;  for  each  option.  At  the  top  have  a  space  for  the  name  of  the  account, 
the  ledger  balance  and  the  net  credit  or  margin  balance.  The  margin  clerk 
is  the  one  to  determine  for  the  customers  which  contract  to  settle  against 
the  other,  as  he  should  have  a  complete  record  on  his  cards,  written  from 
the  option  sheets,  of  all  the  open  contracts  for  each  account.  In  doing  so 
he  should  write  them  on  slips  of  paper  so  the  statements  of  purchase  and 
sale  can  be  made  out  correctly  from  them.  All  of  that  work  should  be  done 
in  pencil  because  a  permanent  record  is  not  required  and  frequent  changes 
are  necessary. 

The  cash  settlement  book  referred  to  is  a  permanent  record  of  all 
the  settlements  made  between  the  brokers  through  the  clearing  house.  It 
is  ruled  with  a  column  for  the  name  of  the  broker,  number  of  contracts 
and  a  column  for  each  month's  option.  The  total  of  each  column  for  each 
day  should  be  written  in  a  summary  in  the  back  of  the  book,  using  a  page 
for  each  month's  business.  And  in  the  column  for  the  broker's  name  write 
the  date  of  each  day's  set  of  totals.  The  totals  of  the  summary  columns 
should  be  posted  at  the  end  of  each  month  to  the  proper  option  account  in 
the  general  ledger. 

The  cash  book  should  be  ruled  with  a  column  for  the  date,  the  name 
of  the  account,  the  total  of  the  day's  clearing  house  settlements,  the  clear- 

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ing  house  margins,  the  broker's  margins,  and  the  last  column  for  the  various 
amounts  received  and  paid  for  all  other  accounts.  Both  sides  should  be 
ruled  the  same  and  it  will  balance  just  like  an  ordinary  cash  book.  It  saves 
an  immense  amount  of  work  because  only  the  items  in  the  last  column  need 
be  posted  as  they  occur,  and  only  the  totals  of  the  other  columns  once  a 

month. 

This  system  was  designed  to  control  the  transactions  of  one  of  the  very 
largest  houses,  doing  an  immense  amount  of  business  in  all  the  markets  of 
the  world ;  and  was  found  to  be  absolutely  reliable  in  every  way  and  to  have 
saved  an  immense  amount  of  work. — H.  G.  Butler. 

(316)     "interest  by  a  wall  street  expert." 

Stock  Exchange  houses  render  statements  of  accounts  at  least  once  a 
month,  so  the  customers  can  see  for  themselves  just  what  has  been  charged 
and  credited  to  them  during  the  month  and  expect  every  one  of  them  to  be 
verified.  If  no  comment  is  made  upon  them  or  if  no  changes  are  requested 
to  be  made,  the  brokers  take  it  for  granted  that  they  are  correct,  but  that 
is  not  always  the  case.  A  great  many  customers  simply  glance  at  their 
statements  and  never  think  of  checking  them.  They  depend  entirely  upon 
the  broker  to  see  that  they  are  correct.  But  when  brokers  never  depend 
upon  each  other,  it  would  seem  important  that  the  customers  should  check 
every  item  the  same  as  the  brokers  do.  No  matter  how  careful  the  book- 
keepers are,  serious  errors  are  bound  to  occur,  and  if  they  are  not  found  by 
the  customer  they  may  never  be  adjusted.  When  brokers  receive  a  state- 
ment from  another  house,  their  book-keepers  check  every  detail  and  see 
that  all  errors  are  adjusted  without  delay. 

All  the  reports,  the  notices  of  debits  or  credits,  and  the  dividend  notices, 
should  be  filed  and  checked  with  the  statement  when  it  is  received  and  the 
extension  of  each  item  verified.  Then  check  the  interest  on  each  item.  A 
great  many  dislike  to  figure  interest  because  they  look  upon  it  as  a  hardship, 
but  if  they  devote  a  little  time  and  thought  to  the  explanation  herewith, 
interest  will  lose  all  of  its  terrors,  and  when  they  discover  a  few  of  the  errors 
that  are  constantly  occurring  they  will  look  upon  it  as  a  very  pleasant  pas- 
time and  are  quite  sure  to  find  it  a  very  profitable  one. 

Interest  is  usually  figured  from  the  date  of  each  transaction  to  the  last 
days  of  the  month,  on  both  debit  and  credit  sides  at  six  per  cent.  But  not 
matter  how  the  time  is  figured,  the  following  method  will  take  care  of  it. 
It  is  all  figured  at  six  per  cent  because  it  is  the  easiest  rate  to  figure,  and  in 
a  busy  house  there  is  so  much  to  figure,  it  cannot  all  be  done  in  one  day  or 
several  days.  And  it  is  impossible  to  determine  in  advance  what  rate  to 
charge  the  customers  because  the  brokers  cannot  tell  themselves  how  much 
money  has  cost  them  until  about  the  last  day  of  the  month.  Then  the  dif- 
ference between  the  interest  on  both  sides  of  the  statements  is  adjusted  by 
dividing  the  amount  by  six  which  reduces  it  all  to  one  per  cent  and  multiply- 
ing by  the  rate  determined  upon. 

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The  rule  of  this  method  is  to  simply  divide  the  number  of  days  by  six, 
the  rate,  multiply  the  result  by  the  principal  and  point  off  three  places  from 
the  right.    Cents  in  the  principal  are  never  used  when  brokers  figure  interest. 
This  rule  is  a  modification  of  the  one  laid  down  in  the  school  books,  but  as 
comparisons  are  odious  we  will  avoid  them.     The  why  and  the  wherefore 
can  be  safely  taken  for  granted  because  it  is  impossible  to  prove  that  it  is 
wrong.    The  author  figures  as  much  if  not  more  interest  than  anybody  else 
in  Wall  Street,  and  after  years  of  diligent  search  he  cannot  find  a  better 
method.     Let  us  try  a  few  examples  by  way  of  illustration.     The  author 
seldom   uses   all   the   figures   used  here   because  he  is  compelled   by  sheer 
necessity  to  figure  most  of  his  interest  mentally  and  anybody  else  can  do  it 
the    same    way    after    very    little    practice.      Take    $42,726    for    30    days. 
30^6=5,  5X42726=213630;  result  ^213.63.    Take  the  same  amount  for  six 
days:    6^6=1   1X42726=$42.726.     Don't  figure  it.     Simply  point  off  three 
places.     Could  anything  be  easier?     Take  three   days,  3   is  one-half  of  6, 
half   of   the   principal,   42726   is   21.363,   point   oflF   three   places.      Figuring 
examples  like  these  are  unnecessary  even  to  a  novice.    Every  other  number 
of  days  will  look  just  as  easy  after  a  little  practice.     But  in  some  there  is  a 
fraction,  1/6  or  1/3,  which  may  cause  some  people  to  use  a  pencil,  but  don't 
let  it  bother  anybody.   Just  think  of  what  a  simple  proposition  this  method 
makes  of  most  of  your  interest  and  how  to  control  the  fraction  will  dawn 
upon  you  naturally.     Study  the  following  for  a  little  while  and  the  fraction 
will  be  as  easy  as  the  rest.    The  figures  7—13—19—25—31  for  the  number 
of  days  will  give  1/6  more  than  a  whole  number.     Multiply  by  the  whole 
number  and  add   1/6  of  the  principal  to  it.     Example,  42726  for   19  days. 
19-^6=3  1/6.     3X42726=128178.     1/6  of  42726=7121.  both  together  give 
135299.    Do  it  this  way : 

42726 
3.6 


7121 
12817S 


135299  result  $135.30 

The  figures  8—14 — 20—26  give  1/3  more  than  a  whole  number.  Figure 
the  same  way,  only  instead  of  dividing  the  principal  by  6  for  1/6,  divide  it 
by  3  for  1/3  and  add  it  to  the  result  of  multiplying  the  principal  by  the  whole 
number. 

Here  is  the  only  difficult  part  of  the  method  to  explain.  That  is,  if  there 
is  anything  difficult  about  it.  When  you  have  the  following  number  of 
days,  10—16—22—28,  if  you  divide  by  6  you  have  the  fraction  2/3.  That 
looks  difficult;  but  it  isn't.  When  the  number  of  days  are  11— 17— 23—29 
you  get  the  fraction  5/6.  That  looks  more  difficult;  but  it  isn't.  Here's  how. 
16-^6=2  2/3,  but  instead  of  doing  that  add  2  days  or  1/3  of  6  to  16,  which 
gives  18.  18--6=3.  Multiply  the  principal  by  3  and  subtract  the  1/3  which 
you  added,  point  off  three  places,  and  you  have  the  result.    Do  it  like  this: 

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42726 
3.3 


Br. 


128178 
14242 


113.936  result  $113.94 

When  the  fraction  is  5/6,  add  one  day  or  1/6,  multiply  the  principal  by 
the  whole  number  you  get  and  subtract  1/6  of  the  principal. 

The  old  adage  reads,  "Practice  makes  perfect,"  but  very  little  practice 
with  the  foregoing  means  magic.  Many  men  marvel  at  a  fresh  bank  clerk 
approximating  interest.  They  can  do  it  mentally  and  get  so  near  the  correct 
figures  that  some  people  think  they  are  wonderful.  Don't  wonder  any  more. 
Practice  this  method,  master  its  possibilities  and  you  can  go  them  one  better 

by   figuring   interest   exactly   in   your   head   without   the   slightest   effort 

(H.  G.  Butler.) 

(317)  STOCK  brokerage  book-keeping. 
In  the  stock  brokerage  business  where  everything  is  done  instantly,  the 
books  must  be  kept  in  such  shape  that  all  desired  information  can  be  obtained 
almost  at  a  glance.  Values  fluctuate  too  fast  and  are  too  important  to  allow 
any  time  to  figure  an  account  during  market  hours.  The  book-keepers  never 
know  in  advance  what  they  may  be  called  upon  to  do,  because  the  amount 
of  work  they  will  have  to  execute  depends  entirely  upon  the  activity  of  the 
stock  market,  and  they  must  be  prepared  at  all  times  for  any  emergency.  All 
the  work  of  each  day's  business  must  be  done,  and  the  books  balanced  and 
made  ready  for  the  next  day  before  they  leave  at  night,  which  very  often 
means  midnight. 

In  an  office  where  they  handle  a  very  large  volume  of  business,  the 
system  of  book-keeping  must  be  simple,  because,  there  is  no  time  for  any- 
thing else.  It  must  be  concise  because  the  information  desired  must  be  easily 
obtained.  It  must  be  elastic,  because,  the  volume  of  business  is  liable  at 
any  time  to  be  greater  than  it  ever  was;  and  at  times  it  will  fall  away  to 
almost  nothing.  And  at  the  same  time  it  must  offer  every  possible  safe- 
guard against  errors. 

The  method  herein  described  has  been  installed  in  several  of  the  big 
progressive  Wall  Street  houses,  and  experience  has  proved  it  to  be  all  that 
is  to  be  desired. 

The  books  required  are  eight  in  number,  and  are  named  as  follows: 
Order  book,  purchase  and  sales  book,  clearing  house  blotter,  ex-clearing 
house  blotter,  ledger,  stock  record,  margin  book,  and  trial  balance. 

Order  Book  (Form  1).— Enter  the  orders  as  they  are  received  by  writing 
in  the  number  of  shares,  the  name  of  the  stock,  the  price  and  the  customer's 
name,  while  telephoning  the  order  over  to  the  exchange.  When  the  order  is 
executed  and  reported  back  from  the  exchange,  write  it  on  plain  perforated 
pad  with  a  carbon  sheet  under  first  sheet  to  make  two  copies.  Give  the 
original  to  the  customer,  fill  out  the  other  columns  of  the  order  book  from 

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Order  Book.                                 SFL\ 

buy"  5\de  ruled  tl^e  s^rve. 

Broker 

Qufl^tity 

Article 

Price 

AtcOLirjt   of 

Qunptity 

Prices 

Rervnrks. 

the  copy,  and  pass  it  to  the  purchase  and  sales  clerk.  In  the  order  book 
you  will  then  have  a  complete  record  of  every  order  received,  showing  which 
were  not  executed,  who  they  were  bought  and  sold  for,  and  the  names  of 
the  brokers  they  were  bought  from  or  sold  to.  This  book  also  ought  to 
show  all  cancellations  and  changes  in  the  price  limit  or  conditions,  which 
should  be  done  in  the  price  column  next  to  the  customer's  name. 


PDRCHA5E  £o  5ALE5  BOOK. 

"5nk5*5»dt  ruled  i^c  ^nrvc 

!  Ofw\)or\  pvrc[)OSc6 

5j)circ5 

bescriptior) 

Price 

Tirve 

For  WJ703C  Acc't 

"Received 

' 

Purchase  and  Sales  (Form  2). — In  this  book  enter  all  orders  after 
they  are  executed  from  the  copy  memo  made  by  the  order  clerk.  In  some 
houses,  particularly  a  busy  one,  it  is  better  to  have  a  separate  book  for 
clearing  house  stocks  and  one  for  ex-clearing  house  stocks,  to  facilitate  the 
work;  because  all  comparison  and  clearing  house  tickets  should  be  made 
out  from  this  book  after  the  entries  have  been  checked  with  the  reports  made 
out  by  the  broker  that  executed  them.  The  notices  of  purchase  and  sale 
which  are  mailed  to  the  customer  should  be  made  out  from  this  book,  and 
checked  back,  but  if  typewritten  notices  are  preferred  it  will  be  found  more 
convenient  to  make  them  out  from  the  copy  of  the  order  clerk's  memorandum 
and  checked  with  the  purchase  and  sales  book. 

This  book  is  a  permanent  record  of  all  orders  that  have  been  executed. 

524 


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i 


.*■>».* 


'V 


•^M 


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.Stock  Blottcr. 

Fol.o 

DELIVER'" 

5t)<irti 

5tock 

Pr\n 

Anoupt 

Corv'9 

Il^fr 

^n•>( 

TotnlAnuu^t 

or    Credit 

Actoupt 

MuntKra 

Rftfivc'i 

idt  /Ifir  (len 

iti 

r  ulfd  f  1  e  innc. 

wiftJout 

T«lK    <olt>r    O. 

•T 

Clearing  House  Blotter  (Form  3). — The  clearing  house  blotter  should 
be  written  up  from  purchase  and  sales  book.  The  first  money  column  shows 
the  amount  that  was  paid  or  received  for  each  transaction  and  each  item 
should  be  compared  with  the  amount  on  the  clearing  house  tickets.  When 
all  the  clearing  house  tickets  have  been  exchanged  and  checked  and  the 
stock  balances  to  receive  or  deliver  have  been  extended  the  totals  should 
agree  with  the  totals  on  the  clearing  house  sheet,  and  the  difference  is  the 
clearing  house  balance.  Write  the  amount  on  the  proper  side,  and  both  sides 
should  agree. 

When  the  clearing  house  sheet  is  closed  extend  the  commissions,  interest 
and  tax  in  their  proper  columns,  and  put  the  net  amount  in  the  debit  or 
credit  column,  the  last  column  on  each  side.  Enter  the  totals  of  the  com- 
mission columns  in  the  credit  column  and  credit  to  commission  account. 
Do  the  same  with  the  tax  column  and  credit  tax  account  with  it.  Enter 
the  difference  between  the  interest  columns  on  whichever  side  it  belongs  and 
charge  or  credit  it  to  interest  account.  Extend  the  clearing  house  balance 
in  the  last  column.  Add  up  the  debit  and  credit  columns  and  they  should 
agree.  When  it  does  agree,  the  clearing  house  blotter  is  ready  to  be  posted 
in  the  ledger.  Every  item  should  be  posted  as  it  appears  in  the  blotter 
except  the  clearing  house  balance,  and  the  balance  of  stocks  to  receive  or 
deliver.    They  should  not  be  posted  as  they  take  care  of  themselves. 

Ex-Clearing  House  Blotter  (Form  3). — Enter  bank  balance  on  credit 
side  last  column. 

Write  the  ex-clearing  house  blotter  from  the  purchase  and  sales  book, 
and  fill  in  all  the  columns.  When  the  names  are  received  from  the  clearin*^ 
house  on  stock  balances  to  receive  and  deliver,  v^rrite  item  in  and  extend 
the  amounts  to  the  last  column.  Stocks  borrowed  should  be  entered  on  the 
received  side,  and  the  amount  in  the  last  column  and  charged  to  stocks 
borrowed  account.  Stocks  loaned  should  be  entered  t?he  same  way  on  the 
delivery  side  and  credited  to  stocks  loaned  account,  and  when  they  are 
returned  do  just  the  opposite,  but  enter  the  interest  in  the  interest  column 

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and  the  amount  without  the  interest  in  the  last  column.  Money  loaned  should 
be  entered  on  the  receiving  side  and  charged  to  cash  loans  account.  Money 
borrowed  should  be  entered  on  the  delivery  side  and  credited  to  the  same 
account.  When  the  loans  are  paid,  treat  them  the  same  as  stocks  returned 
was,  but,  of  course,  enter  them  as  cash  loans.  Enter  money  received  from 
customers  or  stock  delivered  to  customers  on  the  delivery  side  usino-  the 
last  column  for  this  amount  and  credit  the  customer's  account  with  it. 
When  money  is  paid  to  a  customer  or  stocks  are  received  from  a  customer, 
enter  it  on  the  received  side  and  charge  his  account  with  it.  Make  a  large 
check  mark  along  side  of  each  amount  as  it  is  paid  for,  so  as  to  know  which 
amounts  to  use  when  figuring  how  you  stand  on  money. 

At  the  close  of  business  enter  the  totals  of  the  commission,  interest  and 
tax  accounts  the  same  as  was  done  in  the  clearing  house  blotter  and  the 
bank  balance  the  check  book  shows  on  the  received  side,  and  the  last  column 
of  both  sides  should  agree.  Everything  is  then  ready  to  be  posted  to  its 
proper  account  except  the  clearing  house  stock  balances  which  take  care  of 
themselves. 

In  a  progressive  stock  exchange  house  the  journal  and  cash  book  have 
long  since  gone  to  join  the  old-fashioned  words  To  and  By,  because  they  are 
entirely  and  absolutely  unnecessary  if  the  ex-blotter  is  used  as  it  should  be. 
A  blotter  can  be  made  to  do  all  the  work  of  a  journal  or  cash  book  and  more, 
by  simply  journalizing  all  the  miscellaneous  transactions  through  the  ex- 
clearing  house  blotter.  The  blotter  should  and  will  balance  itself  without 
any  trouble  whatsoever.  Journals  and  cash  books  are  only  used  to  accomplish 
what  the  blotter  has  already  done.  All  that  is  necessary  is  to  put  everything 
through  the  blotter,  add  it  up  and  see  that  both  sides  agree.  Posting  from 
ongmai  entries  is  undoubtedly  the  simplest,  safest  and  quickest  way,  and 
the  less  books  you  have  to  post  from  the  better.  You  avoid  rewriting  every 
transaction  and  the  possibility  of  making  errors. 

Ledger  (Form  4). -The  old-fashioned  commercial  ledger  with  its  two 
columns  was  first  used  i.i  Wall  Street  because  none  better  was  then  known, 
and  It  is  being  used  in  a  great  many  houses  today  for  the  same  reason.    The 


? 


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four-column  ledger  is  so  much  better  that  there  is  no  room  for  comparison. 
One  was  made  for  a  warehouse  merchant  or  manufacturer,  the  other  was 
devised  for  a  stock  broker  or  a  banker,  and  it  exactly  fills  a  longfelt  want. 

The  illustration  shown  herein  almost  explains  itself,  still  a  few  words 
may  be  devoted  to  it  as  it  may  save  some  the  necessity  of  a  margin  book.  To 
begin  with  it  is  much  better  to  keep  long  and  short  accounts  separate,  because 
it  is  the  simplest  way.  Never  write  debit  and  credit  entries  on  the  same  line, 
as  it  may  cause  confusion.  It  is  not  necessary  to  carry  the  interest  columns 
in  the  ledger,  but  they  must  be  on  the  monthly  statements  as  it  does  away 
with  more  than  half  of  the  interest  figuring  made  necessary  by  the  old- 
fashioned  ledger,  because  it  is  only  necessary  to  figure  interest  on  the  daily 
balance  and  not  on  each  debit  or  credit  item.  Write  the  monthly  statements 
up  every  day  and  extend  the  balances  only  when  changes  occur.  Keep  the 
sales  of  stocks  checked  against  the  purchases  by  making  a  check  mark  in 
pencil  beside  the  number  of  shares,  so  you  can  tell  which  stocks  are  still  on 
hand  in  each  account,  and  if  you  keep  the  balance  of  each  stock  still  open 
in  the  margin  on  the  same  line  with  the  last  entry  on  the  debit  side  for 
that  stock  and  rub  out  the  previous  balance,  with  every  other  entry  checked, 
you  can  tell  at  a  glance  how  many  shares  of  each  stock  the  account  has  open. 
And  as  you  have  the  money  balances  extended  you  can  figure  the  margin  on 
the  account  without  any  loss  of  time  and  if  the  business  is  not  very  large, 
a  margin  book  or  a  margin  clerk  is  not  absolutely  necessary.  Keep  the 
columns  for  the  number  of  shares  added  and  the  difference  will  prove  whether 
your  stock  balances  are  correct  or  not.  If  the  stocks  are  checked  correctly 
in  this  manner  there  is  absolutely  no  necessity  for  an  open  trades  book, 
and  it  is  by  far  the  simplest,  quickest  and  best  way  to  keep  the  stock  balances. 

When  the  accounts  are  kept  this  way  it  shows  all  the  information 
required  at  a  glance,  but  with  the  old-fashioned  ledger  it  would  require  some 
tedious  figuring. 

Personal  and  miscellaneous  accounts  do  hot  require  daily  balances.  For 
those  accounts,  the  pages  should  be  ruled  the  old-fashioned  way,  with  two 
accounts  to  a  page  one  along  side  the  other. 

Stock  Record  Book  (Form  5). — The  stock  record  book  is  kept  in  order 
to  tell  how  many  shares  of  each  stock  the  house  is  carrying  or  was  carrying 
at  any  given  time,  for  whose  account  the  house  was  carrying  them,  and 
where  they  were  kept.  For  instance,  if  stock  is  bought  for  an  account  the 
man's  name  and  the  number  of  shares  should  appear  on  the  left-hand  side 
of  the  book.  The  other  side  should  show  whether  it  was  put  in  a  loan, 
loaned  to  another  broker  or  kept  in  the  safe  deposit  vault.  The  book  is  ruled 
with  a  column  for  names  and  one  for  every  day  in  the  month,  for  active 
accounts;  and  less  columns  for  small  accounts.  The  name  of  the  stock 
should  be  written  at  the  head  of  the  page.  The  best  way  to  conduct  it  is 
to  use  a  large  plain  piece  of  paper.  Keep  each  stock  separate,  and  when  a 
transaction  is  made  write  it  in  pencil  and  take  every  item  off  the  blotters. 

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riAMLOr  5T0CK                 5T0CK  RECORb 

t)tbit  side  ruled  t^e  5<nr\c. 

for  Active  Actoupts 

1 

~ 

For  l9n(tivc  Accounts 

4<<oor)t5. 

When  you  make  every  stock  balance  for  that  day,  make  your  changes  in 
the  book  by  bringing  your  balances  forward  to  the  next  column  and  put  the 
date  at  the  top.  When  you  make  all  the  changes,  see  that  the  last  column 
used  adds  up  the  same  on  both  sides  of  the  book. 

Margin  Book  (Form  6).— The  margin  book  should  be  written  with  a 
pencil  on  heavy  paper,  because  frequent  erasures  are  necessary.  The  best 
way  is  to  use  a  loose  leaf  holder  with  index  pages.  Make  all  changes  from 
the  purchase  and  sales  book,  and  when  anything  is  done  for  a  short  account, 
mark  it  so  in  the  purchase  and  sales  book.  Then  write  the  number  of  shares 
name  of  the  stock  and  the  price.  When  the  market  changes  or  whenever  the 
occasion  requires,  figure  from  the  prices  in  the  margin  book  to  the  present 
market,  change  the  equity,  rub  out  the  old  prices  and  put  in  new  ones 
Always  watch  the  ex-blotters  for  any  cash  items,  and  as  often  as  possible 
check  your  stocks  with  the  ledger  account  and  extend  the  values  at  the 
market  price  and  subtract  the  ledger  balance  to  prove  that  the  equity  in  the 
margin  book  is  correct. 

Daily  Trial  Balance.— If  the  business  is  very  large,  the  trial  balance 
should  be  taken  off  every  day.  To  do  so  use  sheets  of  paper  ruled  with  four 
money  columns  and  room  for  names.  Take  the  items  from  the  blotters  Use 
the  first  two  columns  for  the  debit  and  credit  items,  keeping  all  the  items  for 
each  account  together.  When  you  have  taken  everything  off  extend  the 
balance  to  the  other  columns,  put  in  the  cash  balances,  and  both  sides  should 
add  up  the  same  which  gives  a  trial  balance  on  the  day's  business. 


Im« 

__l|Xo/VG 

^    i-^^^  ^  T" 

1 



1 

EOi/tTV 

Mf9. 

1 

1 

—^ 

EOUfTV 

1 

528 


Use  a  trial  balance  book  with  short  leaves  so  it  will  not  be  necessary  to 
v/rite  all  the  names  each  time.  Extend  the  balances  in  the  trial  balance  book 
as  you  go  along  from  day  to  day,  and  see  that  they  add  up  the  same.  When- 
ever it  is  convenient  check  the  balances  in  the  trial  balance  book  with  the 
ledger,  then  you  are  absolutely  certain  that  the  ledger  is  correct. — H.  G. 
Butler, . 


(318) 
See  Contractors. 


BUILDERS'  ACCOUNTING. 


(319)     BUILDING  ACCOUNT. 

An  asset  account.  The  relation  to  this  account  of  dilapidations,  de- 
preciations, maintenance,  repairs,  renewals,  etc.,  will  be  considered  under 
the  head  of  "Depreciation." 

(320)     BUILDING  AND  LOAN  ASSOCIATIONS. 

(Organization  and  accounting.) 

A  Standard  Plan  of  Oragnization. — Care  should  be  taken  in  the 
organization  of  a  building  and  loan  association  to  follow  the  statutes  of  the 
state  where  organized  and  to  so  formulate  the  by-laws  and  contracts  of  the 
association  as  to  fully  cover  the  plans  proposed  for  doing  business.  The 
plan  for  doing  business  should  in  all  particulars  strictly  accord  with  the 
state  laws.  Accordingly  no  step  should  be  taken  without  competent  legal 
advice. 

The  management  of  a  building  and  loan  association  is  usually  composed 
as  follows :  Board  of  directors,  president,  vice-president,  secretary,  treasurer, 
attorney  and  various  committees,  such  as  auditing,  executive  and  loan. 

The  board  of  directors  should  pass  upon  all  matters  of  business,  approve 
all  loans  and  direct  the  policies  of  the  association.  It  is  customary,  however, 
to  delegate  some  of  the  functions  of  the  board  of  directors  to  appropriate 
committees,  the  action  taken  in  committee  being  reported  to  and  passed 
upon  by  the  board. 

The  president  should  preside  at  all  meetings  of  the  directors  and  may  be 
ex-ofiicio  a  member  of  various  committees,  should  sign  all  contracts  in  behalf 
of  the  association,  make  all  releases  as  to  mortgages,  and  sign  all  warrants 
drawn  upon  the  treasurer  and  all  vouchers  authorizing  cross  or  journal 
entries.     The  vice  president  should  act  in  the  absence  of  the  president. 

The  secretary  should  preserve  a  record  of  the  proceedings  of  all  meetings 
of  directors  and  stockholders,  have  charge  of  all  books  and  records  of  the 
association,  have  charge  of  the  corporation  seal  and  attest  the  same  when 
affixed  to  any  document,  should  sign  all  vouchers  and  warrants,  and  in 
general  attend  to  the  active  promotion  of  the  business.  Some  associations 
also  make  the  secretary  custodian  of  all  securities,  while  in  other  cases  the 
treasurer  assumes  this  duty.  It  is  preferable  that  all  papers  and  securities 
be  in  the  vault  of  the  association  and  unless  the  secretary  occupies  the  same 
office  with  the  association  it  is  preferable  that  the  secretary  have  charge. 

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The  treasurer  has  charge  of  the  funds  of  the  association,  receiving  them 
as  turned  over  by  the  secretary  and  paying  them  out  upon  the  warrant  of 
the  association  signed  by  the  president  and  secretary.  In  many  cases, 
however,  the  treasurer  is  a  banker  and  the  secretary  deposits  the  funds  to 
the  credit  of  the  treasurer  in  the  bank,  and  the  bank  pays  warrants  when 
presented.  The  treasurer  should  at  the  end  of  each  month  report  as  to  funds 
received,  warrants  paid,  and  balances  on  hand.  Where  the  office  of  the 
IZTrZT  r  T  conveniently  situated,  it  is  often  troublesome  to  present 
^^arrants  to  him  for  signature  but  it  would  be  an  additional  safeguard  to 
have  warrants  countersigned  by  the  treasurer  before  being  payable  The 
custom  followed  by  some  associations  of  issuing  a  warrant  to  be  taken  up 
by  the  treasurer's  check  is  objectionable. 

_  The  attorney  should  pass  upon  all  titles,  loan  papers  and  contracts,  giv- 
ing his  written  opinions,  and  should  counsel  in  all  legal  proceedings 

The  organization  of  the  office  force  depends  upon  the  size  of  the  asso- 
ciation, and  as  a  general  rule  the  secretary  with  the  assistance  of  a  steno- 
grapher and  a  book-keeper  is  able  to  take  care  of  the  business. 

ACCOUNTING  METHOD. 

The  books  required  for  a  building  and  loan  association  are  as  follows- 
Cash  journal,  general  ledger,  stockholders'  ledger,  stock  and  transfer  register, 
loan  record  and  minute  book.     In  addition  to  these  general  books  there  may 

re^istTl'.!  pTf  ^''^/''°/1^  "'  ^"""^"^  advantageous,  such  as  insurance 
register,  real  estate  and  rental  register,  paid  up  stock  record  or  ledger,  balance 
books  and  special  indexes. 

^  The  cash  book  submitted  herewith  is  a  combination  cash  book  and 
journal  in  columnar  form  and  is  divided  into  two  books,  viz.:  Receiving 
book.  Form  1,  and  disbursing  book,  Form  2.  These  forms  could  be  bound 
into  one  book,  but  having  the  two  books  is  more  convenient  as  the  receiving 
book  may  be  placed  conveniently  for  entering  receipts  without  interfering 
with  the  use  of  the  disbursement  section ;  in  addition  to  this,  the  receipts  of 
a  building  and  loan  association  generally  occupy  several  times  the  space 
required  for  recording  disbursements.  The  arrangement  of  the  cash  columns 
IS  such  that  at  all  times  the  balances  in  the  drawer  and  in  the  bank  may  be 
shown.  The  journal  columns  provide  for  showing  totals  of  all  entries  other 
than  cash,  and  furnish  an  automatic  check  on  the  balancing  of  journal  entries 
and  at  the  same  time  enable  the  independent  balancing  of  each  sheet  of  the 
cash  journal  or  journals. 

The  forms  submitted  are  intended  for  use  with  tabular  form  of  stock- 
holders' ledger  (Form  6)  and  may  be  changed  by  providing  columns  for 
other  accounts,  or  by  dropping  some  of  the  columns  not  often  used  and  using 
the  Sundry  column  instead.  In  Form  1,  receipts,  the  principal  function 
of  the  columns,  "Dues,"  "Interest,"  "Premium"  and  "Fines,"  is  to  provide 
for  entering  weekly  charges;  these  could  be  entered  in  "Sundry"  column, 
and  space  saved,  though  their  use  assembles  the  total  of  the  monthly  charges 
r.nd  necessitates  only  one  posting  per  month  for  each  account. 


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The  forms  show  illustrations  of  the  method  of  entering  several  transac 
tions    to-w,t:     Form  2  shows  the  entry  of  a  new  loan,  thfs  method  always 
showing  total  of  loans  in  force  in  loan  account,  while  in  bo;rowers'  accoun 
Je  balance  due  to  borrowers  on  account  of  loans  „6t  fully  closed   s  shown 
Form  3  shows  the  entry  of  repayment  of  a  loan,  the  pledged  stock  beTn^ 
canceled  and  apphed  in  part  payment;  Form  4  shows  ent'y  of^he  wi  hdrawa! 
or  cancellation  of  stock;  Form  5  shows  entry  of  weekly  charges   niustrat7ni 
how  dues,  interest,  premium  and  fines  receive  credit  for  the^ZTTT^ 
from  stockholders  and  stockholders'  account  is  cha  ged  there^^h    .^W 
stockholders'  account,  being  credited  with  payments  received    ,T  u 

the  amount  due  from  stockholders  on  accounro7payme„  !  F^rm  I '''  °"' 
sows  entry  of  a  weekly  payment ;  and  Form  1,  disTurseLrrshoreTr:; 
of  partial  payment  to  a  borrower  on  account  of  his  loan.  ^ 

In  case  the  individual  form  of  stockholders'  ledger  (Form  H^  U  ,  .  ^ 
and  only  payments  of  dues,  interest,  premium  and  fines  as  mid.  ' 

to  the  general  ledger,  the  columns  "Stockholders"'  can  be  dropped  a'nd""' 
ments  distributed  in  proper  columns.  aropped,  and  pay- 

No  disbursement  should  be  made  except  by  warrant  or  vr>.,-i,        • 
by  the  president  and  secretary  of  the  association,  Tnd   if  so  desired  "  "^"' 
signed  by  the  treasurer.     For  this  purpose  Fo™  s'is  subSd,'  ir^a 

532 


voucher  check.  Vouchers  should  be  bound  in  books,  being^  perforated  so  as 
to  be  easily  detached ;  each  voucher  should  be  accompanied  by  a  duplicate 
form  havinj^  the  same  number,  so  that  by  using  a  carbon  an  exact  copy  of 
the  written  portions  of  the  vouchers  may  be  made,  avoiding  the  necessity  of 
a  stub,  and  at  the  same  time  avoiding  the  possibilities  of  errors  which  often 
occur  when  a  stub  is  used.  The  duplicate  form  should  remain  in  the  book, 
providing  a  permanent  record  and  a  posting  medium  for  entry  upon  the  cash 
journal.  Petty  expenditures  should  be  taken  care  of  either  by  a  petty  cash 
system,  or  by  means  of  debit  slips  which  are  to  be  reported  to  the  board  for 
allowance  and  voucher  at  the  end  of  each  month. 

Many  book-keepers  take  issue  when  such  a  thing  is  suggested,  but  no 
journal  entry  should  be  made  excepting  upon  a  voucher  signed  by  the  presi- 
dent and  secretary,  showing  date  and  authority  for  the  same.  These  vouchers 
should  also  be  bound  and  should  form  a  permanent  record  of  the  office.  In 
this  connnection  Form  4  is  submitted.  This  form  has  been  filled  out  to 
illustrate  the  procedure  in  case  of  repayment  of  a  loan,  the  stock  being 
canceled  and  applied  in  part  payment,  see  Entry  3  on  cash  journals. 

Deposit  slips  should  be  bound  with  duplicates,  and  carbon  copies  made 
of  each  deposit.  Each  item  deposited  should  be  identified  so  that  deposits 
may  be  checked  with  receipts  as  entered  on  the  cash  journal,  and  the  dupli- 
cate slip  should  be  kept  in  the  office  as  a  permanent  record. 

The  general  ledger  may  be  any  form  of  double  entry  ledger,  and  should 
be  sectionalized  so  that  assets,  liabilities,  loss  and  gains  will  be  found  each 
in  its  separate  section.  By  doing  this  a  preliminary  statement  of  conditions 
can  be  taken  direct  from  the  trial  balance  by  footing  each  section  separately 
and  finding  the  difference  between  assets  and  liabilities,  which  will  agree 
with  the  difference  between  losses  and  gains  and  will  show  the  surplus 
or  net  gain  of  the  association  if  prospering  or  vice  versa.  All  accounts  of 
assets  and  liabilities  should  be  balanced  at  the  end  of  each  fiscal  period,  while 
accounts  of  profit  and  loss  should  be  carried  gross.  Should  it  be  desired  to 
show  the  various  totals  of  loss  and  gain  for  the  fiscal  year,  bring  down  double 
footings,  one  showing  total  for  period  and  the  other,  total  to  date.  If  it  is 
desired  to  carry  the  ordinary  form  of  loss  and  gain  account  it  can  be  done 
by  providing  a  memorandum  account,  or  by  carrying  such  an  account  on 
some  auxiliary  book,  such  as  the  balance  book. 

Accounts  with  borrowers  for  loans  in  process  of  closing  and  for  insur- 
ance,  taxes  and  other  advances  made  by  the  association,  and  with  holders 
of  paid-up  stock  may  be  carried  in  petty  ledgers,  or  may  be  carried  in  sec- 
tions m  the  back  part  of  the  general  ledger,  these  sections  not  entering  into 
the  trial  balance,  but  balancing  with  the  controlling  accounts,  "borrowers  " 
"advances  to  borrowers,"  and  "paid  up  stock." 

The  general  ledger  accounts  usually  opened  are  as  follows : 

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ASSETS. 

Cash. 

Treasurer. 

Loans  on  stock. 

Real  estate. 

Furniture  and  fixtures. 

Stockholders. 

Advances  to  borrowers. 

LOSS. 

Salary. 

Printing  and  postage. 

Rent. 

Expense. 

Interest  paid. 

Profit  distributed. 

Sundry  losses. 


LL\BILIT1ES. 

Dues. 

Paid  up  stock. 
Due  borrowers. 
Borrowed  money. 
Profit  apportioned. 


GAINS. 

Interest. 

Premium. 

Fines. 

Fees. 

Discount  on  withdrawals. 

Sundry  gains. 


The  stockholders'  ledj^er  may  be  in  tabular  form  or  mav  provide  for  an 
individual  account  with  each  shareholder. 

The  tabular  ledger.  Form  6,  has  the  advantage  of  condensing  the 
accounts,  of  separating  them  by  series  so  that  the  totals  of  each  seriec  may 
be  easily  and  quickly  found,  and  of  providing  for  proof  of  the  work  in  the 
manner  of  the  self-balancing  type  of  ledgers.  From  an  accounting  stand- 
pomt  the  general  ledger  should  disclose  the  true  condition  of  the  association 
and  m  order  that  this  may  be  done  the  totals  of  weekly  charges  accruing  to 
the  association  must  be  carried  to  the  general  ledger.  The  tabular  form  of 
ledger  provides  the  most  practical  method  for  assembling  the  total  charges 
in  form  to  be  carried  to  the  general  ledger.  From  the  proposals  submitted 
It  IS  not  certain  whether  interest  is  to  be  paid  weekly  or  once  everv  three 
months  and  the  form  submitted  provides  for  the  weekly  charges  of  interest 
If  interest  is  payable  quarterly  interest  columns  may  be  omitted  except  in 
the  first  week  of  the  quarter.  ^ 

In  the  use  of  Form  6  weekly  charges  should  be  brought  down  and  totals 
entered   upon  the   cash  journal,  charging  stockholders  and   crediting  dues 
interest,  premium  and  fines.     By  the  use  of  short  leaves  accounts  need  not 
be  transferred  oftener  than  once  every  three  or  six  months. 

of    ,'^^".^"^^;'^^"^^  /^^"^  «^  stockholders'  ledger,  Form  5,  has  the  advantage 

of  showihg  the  entire  account  of  a  stockholder  at  one  place,  and  providing 

or  taking  care  o    sundry  charges  or  advances  made  on  account  of  borrowers 

and  If    he  loose  leaf  system  of  binder  is  used  the  accounts  may  be  arranged 

iheTse  ofT"""r  'T  'Z  ''''''''''■     ^'^  d-dvantages  are^hat  without 
the  use  of  an  auxiliary  book  or  other  means  of  assembling  the  charges  for 
entry  upon  the  general  ledger  it  is  impossible  to  assembfe  them      fn  fac 
nearly  a  1  associations  using  this  form  of  ledger  do  not  carry  charges  to  the 
general  ledger,  but  credits  only,  making  up  a  statement  of  delinque^ncies  and 

tfon     Thir-'r";'  '\'rr'  '^  ^^^^^  "^^^  ^^^  -"^^^--  -^  ^he  associa. 

fZ  .1  objectionable  for  the  reasons  before  given,  also  for  the  reason 

hat  there  is  no  check  upon  the  statement  of  delinquencies  and  advances 

and  for  the  further  reason  that  the  stockholders'  account  when  carried  upon' 

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the  general  ledger  forms  a  controlling  account  for  the  stockholders'  ledger, 
serving  to  prevent  mistakes  and  to  furnish  a  check  upon  collections. 

The  tabular  form  provides  for  recording  total  of  dues,  average  invest- 
ment, profit  distributed  for  fiscal  year  and  total  profit,  which  in  the  individual 
form  a  balance  sheet  or  other  form  is  necessary  for  recording  this  information 
and  in  making  distribution  of  profit. 

The  stock  and  transfer  ledger.  Form  7,  is  used,  as  its  name  indicates,  to 
record  issues,  cancellations  and  transfers  of  stock.  On  account  of  the  size 
of  certificate  required  to  fully  set  out  the  contract,  and  in  order  to  save  writing 
so  many  certificates  as  would  be  required  if  one  were  written  for  each  share 
of  stock,  it  is  customary  to  write  one  certificate  only  for  the  full  number 
of  shares  issued  to  a  shareholder,  a  stub  being  kept  on  which  to  record  data 
in  regard  to  issue  and  cancellation  or  transfers.  The  objection  to  this  method 
is  that  many  shareholders  cancel  or  transfer  only  a  part  of  their  shares, 
which  necessitates  the  canceling  of  the  original  certificate  and  the  writing 
of  new  certificates.  The  form  submitted  provides  for  the  numbering  of  each 
share  of  stock  issued,  for  recording  the  series  number  and  the  certificate 
number  ijnder  which  the  share  is  issued,  and  upon  the  cancellation  or  transfer 
of  a  part  of  the  shares,  record  is  made  of  the  number  of  the  new  certificate 
or  certificates,  in  this  manner  always  showing  at  the  number  of  the  share  full 
particulars  in  regard  thereto.  Another  feature  is  that  the  record  of  can- 
cellation of  the  share  of  stock  immediately  follows  the  numbers  of  share, 
series  and  certificate,  so  that  without  looking  further  it  will  appear  whether 
the  share  is  still  in  force.  Space  can  be  provided  for  as  many  transfers  as 
may  seem  desirable,  using  double  lines  for  each  share  if  so  desired.  In 
connection  with  this  form  the  certificate  should  provide  for  entering  the 
share  numbers  in  addition  to  certificate  and  series  numbers  and  numbers  of 
shares. 

The  loan  record,  Form  8,  provides  for  a  full  record  of  essential  features 
of  each  loan.  A  document  envelope  should  be  provided  for  each  loan  and 
all  papers  connected  with  a  loan  filed  in  its  envelope.  The  envelope  should 
provide  for  writing  name,  number  and  other  data  upon  the  outside,  and  may 
be  filed  alphabetically  or  numerically. 

A  paid-up  stock  register  may  be  provided,  but  it  is  preferable  to  use  a 
petty  ledger  or  to  open  accounts  in  the  back  of  the  general  ledger,  for  the 
reason  that  this  method  will  provide  for  recording  in  one  place  all  the  data 
in  regard  to  each  account.  A  stub  or  duplicate  sheet  should  be  used  for  the 
purpose  of  keeping  a  record  of  issue  and  transfer  of  certificates,  and  canceled 
certificates  should  either  be  attached  to  stubs  or  bound  together  in  numerical 
order. 

An  insurance  expiration  register  is  a  convenience  and  in  large  associa- 
tions a  necessity.    Any  regulation  form  may  be  used. 

In  case  it  is  desired  to  establish  branch  offices  for  the  purpose  of  making 
collections,  blank  reports  should  be  provided  for  the  use  of  the  agent.  The 
reports  should  be  filled  out  in  the  office  of  the  association  and  sent  to  the 

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agent  so  that  he  has  only  to  record  the  collections  made  by  him.  A  con- 
venient method  is  to  provide  triplicate  forms,  tabbed  so  as  to  register,  and 
by  using  carbons  have  three  copies  made  by  the  typewriter.  Retain  one 
form  in  the  office  and  send  two  to  the  agent.  The  original  is  returned  by 
the  agent  with  his  report  of  collections  and  the  duplicate  having  been  filled 
out  in  the  same  manner  as  the  original  is  retained  by  the  agent  and  filed  in 
a  binder  for  the  purpose  of  reference.  When  the  full  payment  is  made,  it 
is  only  necessary  to  enter  the  amount  in'Taid"  column,  and  when  a  partial 
payment  is  made,  the  agent  should  write  above  the  light  line  the  exact 
distribution  of  the  payment  as  the  same  was  entered  upon  the  pass  book. 
When  original  report  is  received  in  the  home  office,  rule  out  amounts  not 
paid  and  foot  the  remaining  amounts  in  charges  columns  bringing  totals 
down  on  lines  for  'use  of  office;"  the  sum  of  these  totals  should  equal  the 
amount  paid.  Number  the  report  and  enter  collection  in  one  item  or  total 
under  name  of  agency  and  give  report  number.  Take  original  together  with 
triplicate  copy  of  report,  post  collections  upon  stockholders'  ledger,  at  the 
same  time  noting  upon  triplicate  copy  any  changes  necessary  in  order  to 
show  the  collections  due  for  the  following  week.  After  this  has  been  done 
the  triplicate  is  ready  for  the  use  of  the  typewriter  in  making  statement  for 
the  collector,  and  the  original  should  be  bound  in  a  loose  leaf  binder  in 
numerical  order  where  it  can  be  referred  to  at  any  time.    Form  9. 

This  method  saves  the  time  of  the  agent,  keeps  the  matter  of  collections 
and  charges  directly  under  control  of  the  home  office,  enables  the  agent  to 
keep  check  on  the  correctness  of  the  home  office  accounts,  saves  the  time 
required  for  copying  reports  on  cash  journal  in  extenso,  prevents  errors  likely 
to  occur  in  copying,  and  preserves  the  original  record  in  convenient  form  for 
inspection  and  reference. 

Form  10  shows  a  page  of  the  shareholder's  pass  book,  and  provides  for 
showing  due  date,  payment  made  and  date  and  receipt  of  agent  or  officer 
taking  same.  Each  page  should  provide  for  recording  one-half  year's  pay- 
ments. 

Loans  should  be  made  only  upon  written  application,  for  which  purpose 
the  association  should  provide  printed  forms.  There  are  so  many  good  forms 
in  common  use  that  it  is  hardly  necessary  to  submit  one  here,  but  the  follow- 
ing points  should  be  covered :  name  of  borrower  and  wife,  if  any,  address, 
occupation,  financial  responsibility,  amount  desired,  purpose  for  which 
desired,  description  of  real  estate  and  improvements,  valuation  placed  there- 
on by  borrower,  statement  as  to  title,  liens,  taxes  and  judgments.  Applicant 
should  make  oath  to  his  statements.  Provision  should  also  be  made  for 
report  of  appraisement  committee,  record  of  action  by  board  of  directors, 
and  record  of  attorney's  approval  of  title.  The  outside  of  application  for  filing 
should  provide  for  number,  amount  of  loan,  name  of  borrower,  date  of  approval 
and  list  of  papers  necessary,  for  checking  as  papers  are  completed  and  filed. 
It  IS  also  a  good  idea  to  have  upon  the  application  a  statement  showing 
disbursements  made  in  connection  with  the  closing  of  the  loan,  with  a  receipt 

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to  be  signed  by  the  borrower  acknowledging  full  payment  of  the  loan  as 
shown  by  the  statement.    This  sometimes  saves  trouble. 

The  title  and  all  papers  connected  with  the  loan  should  be  passed  upon 
by  the  attorney  of  the  association,  the  abstract  should  be  brought  down  to 
show  recording  of  association's  mortgage,  and  the  final  certificate  of  the 
attorney  should  be  made  as  to  title  conveyed  by  the  mortgage./..  U.  Craw- 
ford, 

(321)    building  and  loan  association  tax  records. 

In  the  records  of  building  and  loan  associations  making  loans  in  sev- 
eral states  and  covering  widespread  territory,  proper  information  on  taxes, 
paid  or  delinquent,  on  properties  under  mortgage,  is  an  item  that  requires 
careful  handling  and  accurate  accounting. 

To  answer  these  requirements  and  attain  perfection  in  compiling  such 
records,  a  convenient  system  is  found  in  the  "tax  record  cards."     Such  a 


CO»NXV 

LOAN   NO. 

PWNCR 

-TOWN 

LOT   NO. 

RLOCK 

ADDITION    AND   TOWN 

DATE. 

OLLINQ^ENT 

50LD   F0RTAXE5 

PAID 

REMARKS 

VEAR 

AMOUNT 

YEAR 

date:  solo 

AMOJ^NT 

DATL 

AMO»NT 

_J 

V 

COUNTY   6EAT 

STATEL 

YtAR 

LIST    SENT 

LIST  RETURNEO 

FEE.S 

rOR     CHECH)  NO 

REMARKS 

AMOBNT 

DATE.    PAID 

a 


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method  IS  simple  in  form  and  use.  The  face  of  the  card  carries  the  name 
of  the  owner  and  the  description  of  the  property,  the  county  and  state  in 
which  the  property  is  located,  heading  the  pasteboard.  The  number  of 
tne  loan  is  also  shown  in  a  prominent  place. 

The  back  of  the  card  provides  for  accurate  records  of  delinquent  taxes, 
showing  the  date  of  entry  on  the  card.  This  data  is  taken  from  a  tax  list, 
compiled  by  the  building  and  loan  association,  sent  out  to  the  county  treas- 
urers,  checked  up  by  them  and  returned  to  the  compiler.  This  list  for 
county  officials  is  sent  out  annually  or  semi-annually  as  required  and  is 
the  best  check  for  the  association  on  assessments  of  property  on  which  it 
has  loaned.  If  the  county  treasurer  reports  the  taxes  paid,  such  informa- 
tion may  be  entered  on  the  borrower's  record  card,  "All  Taxes  Paid  19  " 
and  date  of  such  entry.  '  ,       . . . , 

If  the  taxes  are  reported  delinquent,  full  record  is  made  on  the  back  of 
the  card,  m  the  columns  provided,  and  letters  immediately  despatched  to 
the  owner  of  the  property. 

^r.u'^J''"  T"  ""'  '^''''"  ^'^''  "^^y  ^^  ^^P*  ^"  the  same  card  without 
any  of  the  hopeless  tangle  resulting  from  more  complicated  methods  which 
are  too  often  used.  The  tax  record  for  every  piece  of  property  the  associa- 
tion holds  under  mortgage  will  always  be  up  to  date.  When  loans  are 
repaid  the  individual  card  is  destroyed  or  filed  in  dead  section. 

The  matter  of  filing  these  tax  record  cards  is  also  of  importance     The 
best  system  is  to  have  a  complete  set  of  index  cards,  each  representing  a 
county  in  a  certain  state.     This  index  card  is  divided  into  columns,   pro- 
viding for  information   and   record  of  the  association's  compiled   tax  lists, 
when    sent,   when   returned,   fees   for   checking,   the   latter   subdivided    into 
amount     and  'date  paid,"  and  a  special  column  for  valuable   "remarks." 
This     county  mdex  card"  serves  largely  as  a  recapitulation  for  the  division 
It  covers.      With   ''tax  record  cards."  "county  index  cards"  in  place  in  a 
cabinet,  a  "state"  subdivided  index  may  be  made,  making  it  the  work  of  but 
a  moment  to  turn  to  state,  county  and  description  of  property  and  full  details 
on  status  of  taxes  of  any  piece  of  property  in  which  the  association  is  inter- 
ested and  in  any  locality  covered  by  the  index.—Pa^^  Laurence. 

Loan  Records  in  DETAiL.-Where  many  loans  are  made  that  run  for 

years,   in   trust   companies,   savings   banks   and   building  and   loan   associa- 

ions,  it  often  becomes  necessary  that  a  complete  knowledge  of  the  whole 

transaction,  from  the  time  the  loan  was  made  to  the  present  date,  be  had 

and  m  many  cases  the  management  of  the  company  has  changed  since  the 

clTnZTu     .'  '  u'  "'  ''  ^^''"  ^''"''^'  '^'  P^^P^^ty  i»  question  has 

changed  hands  a  number  of  times  and  the  loan  has  been  transferred  with 
he  property.  In  such  cases  if  a  complete  and  detailed  record  of  all  transac- 
tions has  not  been  kept  and  properly  preserved,  it  is  often  very  hard  and 
sometimes  very  expensive  to  clean  the  matter  up  with  entire  Usfactlon 
to  the  borrower  and  credit  to  the  company. 

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> 


Our  system  in  brief  is  as  follows:  When  application  for  loan  is  re- 
ceived receipt  of  same  is  acknowledged  and  advice  given  as  to  when  the 
application  will  be  passed  upon  by  the  Loan  Committee,  and  a  copy  of  the 
letter  is  attached  to  the  application ;  letters  of  inquiry  are  then  sent  out, 
the  copies  of  which  are  attached  to  the  application,  as  their  replies  are 
when  received.  If  the  application  is  approved  by  the  Loan  Committee 
the  applicant  is  so  advised  and  request  for  abstract  made  and  copy  of  the 
letter  attached  to  application.  When  abstract  is  received,  receipt  of  same 
is  acknowledged  and  the  abstract  sent  to  attorney  for  examination  and« 
.eport,  copy  of  these  letters  as  well  as  attorney's  report  are  also  attached 
to  application.  It  is  well  to  state  here  that  we  make  carbon  copies  of  all 
letters,  and  each  letter  that  is  written  in  connection  with  any  loan  is  placed 
with  the  application,  and  attached  to  same  by  means  of  a  verj-  large  clip, 
sufficiently  large  to  hold  as  many  letters  as  may  be  necessary.  These  appli- 
cations, with  attached  papers,  are  filed  in  large  desk  draws  just  the  size 
of  the  application  when  laid  flat;  none  of  the  copies  are  folded.  The  aver- 
age desk  draw  will  hold  from  ten  to  a  dozen  of  these  application  papers, 
and  same  can  be  got  at  and  withdrawn  from  the  draw  very  easily.  In  this 
manner  a  desk  with  six  or  eight  draws  will  accommodate  about  as  many 
applications  for  loans  as  the  average  company  will  have  pending  at  one 
time. 

Any  member  of  the  Loan  Committee  may  drop  in  at  any  time  and 
seat  himself  at  this  desk  and  withdraw  the  applications  that  do  not  already 
bear  his  signature  of  approval,  and  have  before  him  a  full  record  and  his- 
tory of  the  application  and  applicant  without  one  word  of  advice  from 
the  management  of  the  company.  The  application  will  show  for  itself 
whether  the  loan  is  a  good  one,  and  he  may  approve  or  reject  as  may  be 
proper. 

If  everything  is  satisfactory  the  papers  are  made  out  and  mortgage, 
note,  lien  waiver,  etc.,  are  sent  out  for  signature  and  completion 
and  a  copy  of  the  letter  of  instructions  to  the  agent  regarding  this 
particular  loan  is  attached  with  the  other  papers.  Copy  of  letter  sent 
when  proceeds  of  the  loan  are  forwarded,  as  well  as  the  letter 
received  when  the  mortgage  and  other  papers  are  returned,  are  also 
attached.  If  this  closes  up  the  matter  the  abstract,  mortgage,  note 
and  insurance  policies  are  placed  in  a  filing  envelope  which  is  plainly 
marked,  showing  the  number  of  the  loan,  amount,  name  of  borrower,  town, 
county  and  state,  when  mortgage,  note,  abstract  and  insurance  policies  were 
received,  and  unpaid  taxes,  if  any  there  be;  in  fact  a  detail  of  everything 
contained  in  the  package  is  plainly  shown,  and  if  at  any  time  anything 
is  removed  from  the  package  it  is  so  marked,  giving  time  and  purpose  of 
removal  and  to  whom  sent.  (This  marking  is  shown  in  a  blank  space  by 
pencil  and  removed  when  the  paper  is  returned.)  Of  course  expiration  of 
insurance  policies  are  not   shown  as  that  is  another  matter,  and  kept   oy 

539 


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American  Business  and  Accounting  Encyclopedia 


321-322 


322 


American  Business  and  Accounting  Encyclopedia 


Bu. 


*  l!il 


special  card  system.  This  package  is  then  placed  in  the  vault  files  as 
same  may  be  referred  to  often.  The  application  with  all  papers  attached 
is  now  taken  from  the  draw  and  placed  in  a  similar  envelope  to  that  used 
for  the  other  papers,  and  so  marked  as  to  be  easily  identified  with  the 
other  package.  These  are  placed  in  fire-proof  files  or  stored  so  as  to  be 
easily  obtainable  if  necessary.  They  are  not  needed  for  reference  very 
often  but  when  they  are  needed  they  are  needed  very  badly.  Our  system  of 
filing  is  by  towns,  but  by  letter  would  be  as  good. 

If  at  any  time  after  filing  the  papers  there  should  be  any  correspond- 
ence in  regard  to  a  loan,  or  a  transfer  made,  copies  of  all  letters  in  connec- 
tion with  it  are  placed  in  the  file  with  the  application. 

Under  the  above  system  we  can  at  any  time  place  our  hands  on  all 
papers  pertaining  to  any  particular  loan,  no  matter  whether  the  loan  be 
ten  days  or  ten  years  old,  and  we  find  it  a  great  saving  of  time  and  annoy- 
ance, and  in  many  cases  of  expense.  Of  course  this  system  may  be  better 
adapted  to  business  carried  on  by  mail  but  we  also  find  it  very  desirable 
in  connection  with  our  home  business. — D.  D.  Rowe, 

(322)       MATURING   shares   IN    LOAN    ASSOCIATIONS. 

The  date  for  maturity  of  shares  in  building  and  loan  associations  is 
susceptible  of  accurate  calculation  under  exact  and  known  conditions.  The 
uncertain  and  fluctuating  position  of  this  desired  period  in  actual  practice 
is  caused  by  the  many  varying  idiosyncracies  common  to  such  organizations. 

Before  finally  closing  the  books  for  the  fiscal  term,  there  should  be  an 
accounting  made  as  to  any  interest  due  from  the  association  on  borrowed 
money  and  paid  up  stock,  and  expense  items  accrued  but  not  paid,  and 
allowance  made  for  any  losses  which  in  the  opinion  of  the  management  may 
be  met  with  in  realizing  upon  real  estate  or  delinquent  loans  or  otherwise. 

After  the  books  are  balanced  ready  for  closing,  interest  having  been 
allowed  to  holders  of  paid-up  stock,  a  profit  and  loss  account  should  be 
made  showing  the  profits  on  hand  for  distribution  to  the  instalment  stock- 
holders. The  next  step  in  preparing  for  the  distribution  of  profits  is  to 
find  the  average  investment  of  each  shareholder,  or  other  basis  upon  which 
the  distribution  is  to  be  made.  The  proposal  simply  states  that  apportion- 
ment of  profits  is  to  be  made  at  the  end  of  each  year  which,  on  account 
of  the  many  methods  or  plans  of  making  the  distribution,  leaves  much  to 
be  desired  in  the  way  of  information  as  to  what  has  been  proposed  in  this 
regard. 

We  presume  it  is  intended  that  the  profits  apportioned  shall  be  ear- 
ned to  the  credit  of  the  respective  shares  or  certificates,  though  it  is  the 
custom  of  many  associations  not  to  credit  the  profits  to  the  shareholders' 
accounts.  The  basis  upon  which  the  investment  is  to  be  calculated  varies 
greatly  between  diflferent  associations.    We  will  assume  that  the  fine  charged 

540 


for  non-payment  is  intended  to  equate  payments  and  for  that  reason  will 
apportion  profits  as  though  all  dues  had  been  paid  to  date.  It  is  the  custom 
with  many  associations  to  include  profits  credited  as  a  part  of  the  invest- 
ment and  this  would  appear  to  be  a  proper  method,  but  in  the  present 
instance  the  various  series  as  they  become  older  decrease  in  earning  power 
by  reason  of  the  reduction  in  interest  and  premium  charges,  and  it  would 
work  an  injustice  upon  the  younger  series  to  allow  the  older  series  to  share 
in  their  higher  earnings  on  a  compounding  basis.  Wherefore  the  basis  for 
distribution  will  be  the  average  dues  for  the  fiscal  year,  letting  the  profit 
credited  serve  to  equalize  the  difference  in  earning  power. 

The  method  of  finding  the  average  investment  is  as  follows:  Multiply 
the  number  of  weeks  run  by  the  payment  per  week,  deduct  from  that  result 
one-half  of  the  annual  payment,  the  balance  being  the  average.  After  find- 
ing the  average  on  one  share  in  a  series  it  is  only  necessary  to  multiply  by 
the  number  of  shares  held  to  find  the  stockholder's  basis  of  distribution. 
Find  the  total  of  the  average  investment,  divide  into  the  undivided  profit 
to  find  per  cent  of  gain,  multiply  average  for  one  share  by  per  cent  of  gain 
to  and  profit  apportioned  per  share,  multiply  profit  apportioned  per  share 
by  number  of  shares  to  find  profit  apportioned  to  the  respective  shareholders. 
To  prove  work  bring  down  totals  by  series  and  perform  operations  with 
total  shares  of  the  series.  There  will  probably  be  a  small  balance  of  undi- 
vided profit  for  the  reason  that  fractional  parts  of  a  cent  are  dropped. 

If  it  is  desired  to  include  profits  credited  in  the  average  investment  it 
is  necessary  to  add  the  amounts  thereof  to  the  average  investments  as 
found  under  the  above  rule  and  proceed  in  the  same  manner. 

After  having  proven  the  work  and  found  the  totals  of  profit  distributed, 
bring  down  the  various  credits  upon  the  stockholders'  ledger  for  the  respec- 
tive stockholders'  accounts,  journalize  and  post  totals  to  credit  of  "profit 
apportioned"  in  liability  section  and  to  the  debt  of  "profit  distributed"  in 
loss  section.  By  charging  withdrawals  of  profit  against  "profit  appor- 
tioned" account,  that  account  will  at  all  times  give  the  total  of  profit  stand- 
ing to  the  credit  of  stockholders,  while  the  account  "profits  distributed" 
will  give  the  total  of  profits  distributed  or  credited  to  stockholders.  If  it 
is  desired  to  know  the  net  profit  to  stockholders,  find  the  difference  between 
totals  of  profits  distributed  and  discount  on  withdrawals. 

If  instead  of  paying  interest  on  paid-up  stock  it  is  desired  to  credit  the 
same,  open  an  "interest  on  paid-up  stock"  account  in  the  loss  section  and 
an  account  with  paid-up  interest  in  the  liability  section,  crediting  liability 
and  debiting  loss  with  interest  earned  and  credited  and  debiting  liability 
with  interest  withdrawn.  If  interest  is  to  be  paid  annually  or  semi-annually 
charge  the  same  when  paid  direct  to  "interest  paid  out"  account  in  loss 
section.  A  convenient  method  of  handling  interest  on  paid-up  stock  is  to 
make  It  payable  at  the  end  of  the  fiscal  year,  as  by  that  method  all  accounts 
are  adjusted  to  statement  date  at  end  of  year  and  there  is  no  necessity  for 

541 


^Iv 


Bu. 


American  Business  and  Accounting  Encyclopedia 


322 


making  adjustments  for  interest  accrued  and  unpaid  as  would  be  the  case 
if  interest  is  paid  on  an  annual  or  semi-annual  basis,  dating  from  date  of 
issue. 

At  least  once  each  year  all  pass  books  should  be  called  in  by  an  audit- 
ing committee  and  checked  with  the  books  of  the  association  and  the  entire 
work  of  the  year  should  be  thoroughly  audited.  Many  associations  now 
employ  public  accountants  to  do  this  work  and  an  audit  of  this  kind  is  being 
found  much  more  satisfactory  than  that  of  the  ordinary  committee.  Even 
though  the  state  provides  for  periodical  examinations  the  yearly  audit  in 
which  all  pass  books  are  at  hand  should  not  be  neglected.— (L  U  Craw 
ford.) 

MATURING    SHARES. 

The  time  for  maturity  of  shares  in  savings  and  loan  associations  is 
susceptible  of  accurate  calculation  under  exact  and  known  conditions.  The 
value  is,  however,  sometimes  uncertain  and  fluctuating  caused  by  conditions 
peculiar  to  such  organizations.  ^^ 

What  these  are  and  how  they  affect  the  maturity  period  will  not  be  con- 
sidered, as  the  only  object  here  is  to  illustrate  how,  under  absolutely  ideal 
circumstances,  such  a  result  may  be  accomplished. 

Taking  for  example  a  $1  monthly  payment  on  a  $200  par  value  share, 
with  a  loaning  rate  of  six  per  cent  and  no  premium,  required  the  time  to 
maturity.  Under  these  conditions  the  investor  paj-^  $1  monthly  for  each 
share  taken,  and  the  borrower  pays  $2  monthly  for  each  $200  borrowed, 
that  IS,  $1  for  his  share,  payment  (for  each  borrower  in  a  loan  association 
is  also  an  investor),  and  $1  as  monthly  interest  on  his  loan  of  $200.  The 
method  employed  for  the  computation  is  assuming  a  time  for  the  maturity 
of  shares  in  the  first  series  and  proceeding  exactly  as  in  actual  loan  associa- 
tion accounting,  carrying  through  all  the  subsequent  serial  operations  to 
the  assumed  period  for  the  maturity  of  shares  in  Series  No.  1,  at  which 
time  profits  are  apportioned,  pro  rata,  to  all  shares  to  determine  whether 
time  assumed  for  the  maturity  of  the  shares  is  138  months. 

In  this  miniature  association  there  are  210,842  shares,  distributed  among 
seventeen  shareholders,  comprising  eight  series  with  three  shareholders  in 
the  first  series  and  two  each  in  the  remaining  series,  divided  into  investors 
and  borrowers,  as  explained.  The  operations  are  spread  over  a  term  of 
eleven  and  one-half  years,  but  are  so  condensed  by  averaging  that  the  ac- 
counting and  tabulations  are  kept  within  a  reasonable  and  comprehensible 
limit.  In  order  to  simplify  the  calculations,  the  time  for  instalment  pay- 
ments IS  considered  as  being  made  in  the  middle  of  the  month,  thus  making 
the  equated  time  of  the  payments  one-half  of  the  actual  time  The  arrano-e- 
ment  in  the  number  of  shares  held  by  the  shareholders  is  such  that  The 
exact  amounts  available  in  each  series  are  entirely  and  immediately  loaned 

Summary  A  shows  the  serial  development,  the  investor's  and  borrower's 
accounting,  the  total  dues  and  interest  paid,  and  the  amount  of  loans  and 


322  American  Business  and  Accounting  Encyclopedia  Bu. 

to  whom  made.  At  the  end  of  the  eleven  and  one-half  years  the  total  dues 
paid  is  a  capital  investment  of  $18,057.61  and  the  $9,856.57,  paid  as  interest 
by  borrowers  on  their  loans,  is  a  profit  to  be  apportioned  among  the  share- 
holders. 

Summary  B  shows  the  serial  and  individual  shareholder's  apportion- 
ment, the  equated  time  of  each  serial  investment  being  reduced  to  its  value 
for  one  month,  making  the  total  equated  value  of  the  actual  capital,  $18,- 
057.61,  which  has  been  paid  in  instalments  during  stated  intervals  of  eleven 
and  one-half  years,  equivalent  to  $1,494,244.41  invested  for  one  month.  This 
equated  capital  sum  divided  into  the  profit,  $9,856.57,  gives  a  monthly  rate 
of  .00658,  which,  applied  to  each  one's  share  of  their  equated  capital  invest- 
ment, determines  their  profit,  as  is  indicated  in  the  "Profit  Apportioned'* 
column.  The  total  values  of  the  shares  in  the  various  series  and  the  out- 
standing balances  on  the  borrower's  loans  are  shown  in  designated  columns, 
following  by  a  statement  of  resources  and  liabilities  at  the  end  of  the  assumed 
period. 

The  final  table  indicates  the  value  of  shares  in  the  first  series  and  shows 
that  the  instalment  shares  have  attained  their  par  value,  conclusively  prov- 
ing that  the  assumed  time  for  maturity  was  the  correct  one. 

In  order  that  there  may  be  a  satisfactory  amount  to  loan  at  the  begin- 
ning: A,  an  investor  in  50  shares,  prepays  the  entire  amount  for  138  months, 
making  $6,900,  which  is  loaned  to  B,  a  borrower  of  34.5  shares.  C,  an 
investor  at  this  time  in  six  shares,  completes  Series  No.  1. 

B's  and  Cs  monthly  payments — 

B's   dues    $34.50 

B's   interest    34.50 

Cs   dues 6.00 

=$75 

for  138  months,  equivalent  to  the  full  amount  of  $10,350,  in  69  months  (one- 
half  of  138  months,  when  it  is  assumed  that  it  is  all  paid),  is  loaned  to  D, 
a  borrower  on  51.75  shares.  E  at  this  time  invests  in  1.5  shares,  completing 
Series  No.  2. 

D's  and  E's  monthly  payments — 

D's  dues   $51  75 

D's  interest  51  75 

E's  dues   ...........'...'.'.'.".".'     1.50 

=$105 

for  69  months,  equivalent  to  $7,245  in  34>4  months  (one-half  the  remaining 
69  months)  is  loaned  to  F,  a  borrower  on  36.225  shares.  G  at  this  time 
invests  in  nine  shares,  completing  Series  No.  3. 

F's  and  G's  monthly  payments — 

F's   dues    , $36,225 

F's  interest    35  225 

G's  dues   900 

=$81.45 


542 


543 


Bu.  American  Business  and  Accounting  Encyclopedia  322-324 

for  34^  months,  equivalent  to  $2,810  in  17%  months  (one-half  the  remaining 

34y2  months),  is  loaned  to  H,  a  borrower  on  14.5  shares,  who,  with  I,  an 

investor  in  three  shares,  completes  Series  No.  4. 
H's  and  I's  monthly  payments — 

H's    dues ^14  50 

H's  interest    14  50 

I's    dues    ....!.*.*...*.*.'..*.*...     3.00 

=$32 

for  17J4  months,  equivalent  to  $552  in  8.62  months  (one-half  the  remaining 

17H  months),  is  loaned  to  J,  a  borrower  on  2.76  shares,  who,  with  K,  an 

investor  in  four  shares,  completes  Series  No.  5. 
J's  and  K's  monthly  payments — 

J's    dues    $2.76 

J's    interest    2  76 

K's  dues   *4ft 

=$5.92  " 

for  8.62  months,  equivalent  to  $51  in  4.31  months   (one-half  the  remaining 

8.62  months)   is  loaned  to  L,  a  borrower  on  .255  share,  who,  with  M,  an 

investor  in  .89  share,  forms  Series  No.  6. 
L*s  and  M's  monthly  payments — 

L's    dues $0,255 

L  s    mterest    255 

M's  dues    !!.'.*.*.*.*.'.*.!     .89 

=$1.40 

in  4.31  months,  equivalent  to  $6  in  2.15  months  (one-half  the  remaining  4.31 
months),  etc. 

The  formation  of  the  remaining  series  will  be  readily  understood  from 
the  foregoing  explanation  of  the  previous  ones  and  reference  to  Summary  A. 

(323)  loaning  and  earning  rates. 

There  is  no  connection,  mathematically,  between  loaning  and  earning 
rates.  The  interest  rate,  that  rate  which  regulates  the  charge  for  the  use  of 
money  in  an  association,  and  which  is  more  properly  designated  as  the 
loaning  rate,  is  only  used  as  an  aid  in  determining  what  instalment  sum  shall 
be  paid  by  the  borrower  as  interest,  and  that  having  been  ascertained,  it 
ceases  to  be  a  factor  in  all  subsequent  calculations. 

When  profits  have,  at  any  time,  been  apportioned,  the  method  for  com- 
puting the  rate  earned  is  by  the  use  of 

(324)  DA  vis's  earning  rate  rule. 

1.  Multiply  the  gain  per  share  by  12. 

2.  Multiply  the  cost  of  the  share  by  one-half  the  number  of  months  the 
share  has  run  plus  ^. 

3.  Divide  the  product  of  the  first  by  the  product  of  the  second  and  the 
result  will  be  the  rate  earned. 

This  rule  applies  to  payments  (as  is  usually  the  case)  made  at  the 
beginning  of  the  month.  When  they  are  made  in  the  middle  of  the  month, 
as  they  are  represented  to  have  been  made  in  the  accounting  under  con- 
sideration, the  "plus  3^"  portion  of  the  rule  should  be  omitted. 

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Bu. 


The  problem  then  presented  is,  what  rate  has  been  earned  on  one  share 
of  a  matured  value  of  $200.65,  on  which  $138  has  been  paid  in  as  many 
months.  The  application  of  the  rule  gives  this  resulting  equation:  200.65-^ 
138=62.65X12-^ ( 138X39)  =7.8-{-peT  cent. 

This  calculation  determines  not  only  the  earning  rate,  but  also  verifies 
the  correctness  of  the  assertion  previously  made  that  there  is  no  collateral 
relation  between  loaning  and  earning  rates,  for,  with  a  six  per  cent  loaning 
rate,  we  have  an  earning  rate  of  nearly  eight  per  cent,  which  is  the  simple 
interest  rate,  the  only  one  readily  calculable  or  necessary  for  practical 
requirements,  for  with  its  aid  the  time  for  maturity  may  be  accurately  fore- 
casted at  any  previous  period  to  such  maturity,  when  the  said  rate  has  been 

properly  ascertained  and  in  connection  with  suitable  earning  rate  tables. 

Ed.  C.  Davis,  author  of  the  Standard  Maturity  Tables. 

(326)     COMPUTING  PROFIT  ON  SHARES. 

The  state  of  Missouri  provides  for  the  examination  of  building  and  loan 
associations,  creating  a  bureau  to  that  end.  One  of  the  requirements  made 
by  the  bureau  was  that  the  examiners  should  calculate  the  value  of  the  shares 
of  each  association  examined  and  the  rule  adopted  by  the  bureau  was  as 
follows :  Multiply  the  number  of  shares  in  each  series  by  the  payment  upon 
each  share  to  find  the  investment  per  series;  multiply  investment  per  series 
by  the  average  time  in  months  which  the  series  had  run  to  find  the  invest^ 
mment  for  one  month  in  each  series;  divide  the  total  investment  for  on# 
month  into  the  total  profit  to  find  the  rate  of  profit ;  multiply  the  investment 
for  one  month  in  each  series  by  the  rate  to  obtain  the  profit  per  series; 
divide  the  profit  per  series  by  the  number  of  shares  in  the  series  to  obtain 
the  profit  per  share. 

Anyone  who  has  made  these  calculations  need  not  be  told  that  an 
examiner  found  rather  a  tedious  piece  of  work  ahead  of  him  when  he  reached 
the  calculation  of  values,  nor  that  this  task  came  to  be  viewed  with  much 
distaste  as  it  came  up  day  after  day,  but  for  the  benefit  of  those  who  have 
never  made  this  calculation  I  will  give  an  illustration,  using  five  series  with 
a  payment  of  $100  per  month  per  share. 


1 

2 

3 

4 
5 


1268  X  128  X  64.5  =  10468608  X  .0066654  +  $69789.39  ^ 

115  X  46  X  23.5  =  124315  X  .0066654  =    828.75  ~- 

54  X  34  X  17.5  =  32130  X  .0066654  =    214.20  -^ 

56  X  22  X  11.5  =  14168  X  .0066654  =    94.45  -i- 

65  X  10  X  5.5  =  3575  X  .0066654  =     23.83  -i- 


1268  =  $55.04 

115  =   7.20 

54  =   3.96 

56  =   1.68 


65  =    .36 

Profit  $70950.68  divided  by  10642796  the  investment  =  rate 0666654 

It  soon  appeared  that  by  multiplying  the  investment  per  share  by  the 
average  months  invested  to  find  the  investment  for  one  share  for  one  month 
and  then  multiplying  that  result  by  the  number  of  shares  to  find  the  invest- 
ment for  one  month  for  the  series,  one  would  be  able  to  multiply  the 
investment  per  share  for  one  month  by  the  rate  of  profit  thereby  obtaining 

545 


Bu. 


American  Business  and  Accounting  Encyclopedia 


326 


the  profit  per  share  at  one  operation.  The  proof  was  obtained  by  multiplying 
the  profit  per  share  by  the  number  of  shares  in  the  respective  series  and 
adding  the  products  to  obtain  the  total  profit  distributed.  Even  this  change 
did  not  do  av^ray  M^ith  enough  labor,  and  further  consideration  showed  that 
the  method  in  use  was  equivalent  to  using  an  interest  basis  of  one  per  cent 
per  month,  and  that  a  basis  of  six  per  cent  per  annum  would  give  identical 
results.  The  next  step  was  to  make  up  a  table  giving  the  simple  interest  at 
six  per  cent  per  annum  for  each  month  from  one  to  one  hundred  and  fifty 
months  upon  one  share  having  a  monthly  payment  of  one  dollar.  After  this 
was  done  the  calculation  was  performed  by  multiplying  the  number  of  shares 
in  each  series  by  the  interest  shown  by  the  table  for  the  number  of  months 
the  shares  had  run  and  then  adding  the  results  to  find  the  interest  at  6  per 
cent  on  all  the  series.  This  result  was  divided  into  the  profits  to  find  the 
per  cent,  and  the  interest  per  share  was  multiplied  by  the  rate  thus  ascer- 
tained, the  result  being  the  profit  per  share.  The  proof  of  the  calculation 
was  to  multiply  the  profit  per  share  by  the  number  of  shares  in  the  respective 
series  the  total  of  the  various  products  being  the  amount  of  profit  distributed. 
It  was  never  the  rule  to  attempt  to  run  the  decimal  out  to  a  point  where 
the  distribution  would  exactly  equal  the  profit. 

Using   the  same  figures  as  above   given,  the   calculation   would    be  as 
follows : 


Series      Shares 


1 
2 
3 
4 
5 


1268  X 

115  X 

54  X 

56  X 

65  X 


Interest 
per  Share 

$41.28  = 

5.405  = 

2.975  = 

1.265  = 

.275  = 


Interest 
per  Share 

$52343.04 
621.575 
160.65 
70.84 
17.875 


Interest 
per  Share 


$41.28 

5.405 

2.975 

1.265 

.275 


X 
X 
X 
X 
X 


Per  Cent. 
Profit 
1.333  = 
1.333  = 
1.333  = 
1.333  = 
1.333   = 


Profit  per 
Share 

$55.04 

7.20 

3.96 

1.68 

.36 


Profit  $70,950.68  divided  by  $53,213.98  =  rate 1.3333-}-. 


This  was  much  better,  in  fact  many  of  the  terrors  of  apportioning  profits 
disappeared  when  this  plan  was  adopted,  and  any  person  who  has  such 
calculations  to  make  could  not  well  employ  his  time  to  better  advantage 
than  in  preparing  an  interest  table  fitting  the  conditions  under  which  he  is 
working  with  a  view  of  using  this  method. 

However,  further  study  developed  that  the  calculations  could  be  per- 
formed by  the  use  of  logarithms  with  a  saving  of  some  time  not  to  mention 
the  saving  of  brain  fag.  To  this  end  a  table  of  logarithms  was  taken  from 
an  old  text  book  and  the  interest  table  was  reduced  to  terms  of  logarithms, 
and  the  tables  of  interest  and  of  logarithms  were  bound  in  a  small  book. 

The  calculation  as  it  was  made  under  the  ultimate  plan  was  as  follows : 
(The  same  data  is  used  for  this  as  for  other  calculations.) 


Interest  per  Series. 

Profit  per  Share 

(1) 

.124933 

(2) 

1.615740 

• 

(a) 

3.103119 

546 


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American  Business  and  Accounting  Encyclopedia 


By. 


(4)  4.718859 $52343.00 

(5)  1.740672 $55.04 

2  (1)      .124932 

(2)  .732796 

(3)  2.060698 

(4)  2.793494 621.58 

(5)  .857728 7.20 

3  (1)      .124932 

(2)  .473487 

(3)  1.732394 

(4)  2.205881 160.65 

(5)  .598419 3.96 

4  (1)      .124932 

(2)  .102091 

(3)  1.748188 

(4)  1.850279 70.84 

C5)      .227028 1.68 

5  (1)      .124932 

(2)  —1.439333 

(3)  1.812913 

(4)  1.252246 .17.87 

(5)  —1.564265 ." 35 

The  key  figures  above  are  for  the  following:  1,  logarithm  of  rate  of 
profit;  2,  logarithm  of  interest  per  share;  3,  logarithm  number  of  shares; 
4,  logarithm  of  interest  per  series;  and  5,  logarithm  of  profit  per  share. 
Adding  2  and  3  gives  interest  per  series  (4)  as  expressed  in  logarithms, 
which  must  be  reduced  to  numbers  as  shown ;  the  rate  of  profit  is  found  by 
subtracting  the  logarithm  of  the  interest  for  all  the  series  from  the  logarithm 
of  the  profit,  the  result  is  placed  at  1  for  convenience  in  calculating,  as  1 
and  2  are  added  to  obtain  5  which  represents  the  logarithm  of  the  profit  per 
share.  Of  course  in  performing  an  actual  calculation  2  and  3  are  first  found 
and  added  together,  giving  4.  and  later  1  is  placed  above  2  and  a  pencil  is 
run  through  3  and  4  and  1  and  2  are  added,  giving  5.  Such  is  the  speed 
which  can  be  obtained  by  this  method  that  I  have  distributed  profits  among 
twelve  series  and  proven  the  work  in  less  than  40  minutes. 

Whether  the  calculation  by  logarithms  will  be  of  benefit  depends  on 
whether  one  understands  the  system,  but  it  should  be  of  interest  to  those 
who  enjoy  higher  mathematics.— (A.  G.  Conen.) 

(327)     BY. 

A  word  prefixed  to  entries  on  ledger  accounts  to  indicate  that  they  are 
credits,  as  opposed  to  the  word  "to,"  which  indicates  debits. 

On  the  other  hand,  in  a  journal,  the  prefix  "to"  indicates  credits,  the 
word  "by"  not  being  used. 

These  prefixes,  however,  are  not  used  by  modern  accountants  either  in 
ledger  or  journal,  the  arrangement  of  the  debit  and  credit  columns  being 
all  that  is  necessary  to  indicate  the  description  of  entries. 

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(328)     CALL  REGISTER. 

A  record  showing  particulars  of  stock  subject  to  call;  date  of  payment 
of  call,  etc. 

(328A)     CALCULATING  MACHINES. 

From  remote  antiquity,  when  man  first  began  to  deal  in  merchandise 
and  to  barter  with  his  fellow  creatures  by  means  of  a  rude  gibberish,  he  has 
been  confronted  by  accounts.  Doubtless  the  first  trial  balance  resulted  in  a 
fracas  with  stone  hammers  between  merchant  and  customer  or  a  jaw  bone 
duel  between  employer  and  employee.  The  difficulties  encountered  in 
handling  accounts  have  ever  been  an  incentive  for  the  invention  of  some 
scheme  by  which  the  memos  of  dealings  could  be  recorded  without  carrying 
all  of  them  in  the  mind. 

For  centuries,  shells,  pebbles  and  fingers  served  as  counters  and  per- 
haps the  more  skillful  and  intelligent  dealers  in  merchandise  used  a  code  of 
stone  scratched  debits  and  credits  as  a  record  of  their  transactions.  These 
methods  were  cumbersome  and  inaccurate  .in  the  extreme  but  at  the  same 
time  furnished  the  necessity  that  mothered  the  inventions  of  subsequent 
book-keeping  systems  and  mechanical  accountants. 

The  struggles  during  the  early  history  of  man  to  render  correct  accounts 
were  two-fold  in  nature.  First  he  sought  a  system  of  symbols  to  form  a 
basis  of  his  calculations  and  second  he  was  ever  on  the  alert  to  discover  a 
way  to  manipulate  them  with  the  greatest  mental  economy. 

Try  as  he  might,  it  was  not  until  after  several  generations  had  passed 
away  that  he  ceased  to  use  fingers  and  pebbles  as  his  units.  This  crude 
system  was  somewhat  improved  about  the  time  of  Confucius  by  a  Chinese 
invention  called  the  "Swan  Pan,"  which  had  its  counterpart  several  cen- 
turies later  in  the  "Abacus"  of  the  Greeks  and  Romans. 

The  "Swan  Pan"  and  "Abacus"  consisted  of  a  square  frame  fitted  with 
cross  wires  on  which  were  strung  perforated  bits  of  bone  or  wooden  beads. 
The  calculations  were  made  by  shifting  beads  or  bones  into  various  positions 
according  to  the  nature  of  the  problem.  This  piece  of  computing  apparatus 
was  the  first  on  which  units  in  excess  of  nine  could  be  carried  to  the  next 
higher  order,  tens  in  excess  of  nine  into  hundreds  and  so  on  up  into  the 
thousands.    All  amounts  were  carried  forward  by  setting  the  beads  by  hand. 

The  Babylonians  used  a  somewhat  similar  device  for  calculating  and 
made  a  record  of  their  transactions  on  clay  tablets  inscribed  with  cuneiform 
characters.  A  wedged  shaped  instrument  was  used  for  making  the  impressions 
on  the  clay  while  comparatively  soft.  The  tablet  was  then  baked  to  an  en- 
during hardness,  and  filed  in  the  general  accounting  room  in  stone  jars  fo^ 
safe  keeping. 

The  Romans  were  the  first  to  use  a  system  of  numerals  that  could  be 
handled  with  any  degree  o^  ease  and  even  this  improved  system  did  not 
admit  of  a  mechanical  manipulation. 

It  was  not  until  after  the  Arabic  system  of  numerals  had  been  invented 
and  amounts   were   recorded  in  column  form,  units  under  units  and  tens 

548 


under  tens  that  mathematicians  and  accountants  began  to  consider  seriously 
mechanical  ways  and  means  of  handling  figures. 

Early  in  the  18th  century  Napier  produced  a  calculating  rod  that  was 
of  some  assistance  in  working  problems  and  a  little  later  Pascal  investigated 
the  principle  of  carrying  units  into  tens,  tens  into  hundreds  and  so  forth  by 
means  of  wheels  with  the  numerals  from  1  to  0  on  the  periphery.  He 
succeeded  in  constructing  a  crude  model  which  aroused  considerable  interest. 

In  the  later  half  of  the  century,  Leibntiz,  the  great  German  mathematician 
and  philosopher,  constructed  the  first  machine  that  would  perform  the 
arithmetical  functions  of  addition,  subtraction,  multiplication  and  division 
successfully.  Leibnitz's  machine  furnished  inspiration  to  a  host  of  inventors 
and  served  as  a  pattern  from  which  numerous  multiplying  and  dividing 
machines  were  constructed. 

It  was  not  until  1823  that  the  idea  of  a  recording  machine  was  con- 
ceived. Charles  Babbage,  an  Englishman,  labored  ten  years  on  the  con- 
struction of  a  very  elaborate  piece  of  mechanism  which  was  designed  not 
only  to  perform  the  arithmetical  processes  but  to  make  automatically  all 
manner  of  abstruce  astronomical  calculations  and  record  the  results  on 
metallic  plates.  This  "Difference  Engine,"  as  it  was  called  by  its  inventor, 
marked  an  era  in  the  history  of  mechanical  calculators  because  it  was  the 
first  machine  built  to  record  its  results.  The  machine  itself  was  about  the 
size  of  a  square  piano,  had  eighteen  dials  revolving  on  three  vertical  shafts 
that  were  actuated  by  an  extremely  intricate  mechanism.  This  machine, 
however,  was  not  a  success  despite  the  thousands  of  pounds  expended  to- 
ward its  perfection  and  was  finally  abandoned  by  its  inventor  and  relegated 
to  the  museum,  a  marvel  of  mechanical  workmanship  but  a  mathematical 
failure. 

Numerous  non-recording  machines  were  built  during  the  next  few  years 
following  the  fruitless  attempts  of  Babbage.  Successful  models  were  pro- 
duced in  Germany,  Austria,  Switzerland,  France,  Sweden  and  England.  All 
these  machines  were  built  principally  for  the  purpose  of  making  rapid 
multiplications  and  divisions  and  while  they  were  of  the  greatest  assistance 
to  mathematicians  in  making  various  kinds  of  calculations  they  could  not 
lend  any  material  aid  to  the  mechanical  handling  of  accounts. 

The  first  successful  adding  and  listing  machine,  which  belongs  to  the 
class  that  can  properly  be  termed  "mechanical  accountants,"  was  produced  in 
1891.  It  was  the  invention  of  William  Seward  Burroughs,  a  native  of  the 
State  of  New  York  and  an  ex-bank  clerk,  who  labored  assiduously  on-  his 
models  for  seven  years  before  a  successful  machine  was  produced. 

The  "Registering  Accountant"  as  it  was  called  at  that  time  marked  an- 
other epoch  in  the  history  of  mechanical  accounting  and  was  destined  to 
become  a  few  years  later  one  of  the  most  important  adjuncts  to  all  forms 
of  accounting,  recording  and  statistical  work. 

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328A 

It  was  the  first  machine  to  perform  successfully  the  functions  of  addition 
?ubtract.on,  multiplication,  and  division  and  to  record  all  the  items  entering 
■nto  the  processes  as  well  as  the  results  on  a  strip  of  paper. 

The  original  machine  was  used  only  for  adding  and  listing  amounts  on 
a  narrow  paper  r.bbon.  The  banks  were  quick  to  realize  the  advantages  to 
be  obtamed  by  using  a  mechanical  accountant  that  could  add  and  list  and 
shortly  after  the  first  successful  machines  were  built  many  banks  acquired 

long    however,  unfl  the  feature  of  adding  and  listing  items  on  a  narrow 
nbbon  was  found  to  be  capable  of  a  broader  application  and  the  result  was 

similar  mconstructton  to  a  typewriter  carriage  and  capable  of  accomodating 

HsLd     tI-^'''"  °"  "    "''■  ""''"^  •^^'""'"^  °f  «g"^^^  ~"'d  be  added  and 
listed,     rhis  improvement  increased  materially  the  efi5ciencv  of  the  machine 

'"banks     "  °"'       ""  "'°''  ""'"'"'"'  ^"''"'''  '"  '^'  ''*"^"''?  °f  ='«°""t' 

DUPLEX    ADDING    MACHINE. 

;,.  J''^  f°:"«?°'"g/:"-iations  of  the  adding  machine  did  not  materially  alter 
ocriltrT"'  "l     'T"  ""*  ""'"  ^'"'^'-  '=°"-^^cial  houses,  etc.  began 

Ind  i     he  same  ,•"      "  ""f  *''^  '°'''^  "'  ^  """""''  °'  ^-"P'  »*  "^-ns 
from    h  T  accumulate  a  grand  total  that  there  was  a  departure 

from  the  regular  construction. 

and  f^^"°""'^"/\^!'l'^d  for  an  extraordinary  machine  and  the  Duplex  Adding 
and  Listing  Machine  answered  the  call.     While  the  external  appearance  oi 

ddit raf  me  liT"         T  T  '"'"  '^"^  "^^  °"^'"^'  '"^''^  '^  ^as  an 
additional   mechanism   under  the   case  that   enables   an   operator  to  obtain 

Seg^rmThin:"''  '  '"''  '''"'  •°'^'  ''-'  ^^^'^  '" '  ^'^  >'-^'^'-" 

MacWnif  Z°"^'-!"^  ^""  ."^  mechanism  has  been  rightly  termed  the  Duplex 
Machine,  since  ,t  is  practically  two  machines  combined  in  one.     Thus  with 

CO  umnl  7fi"'"'  '°'"T"  ''"•"''^  '"^^'""^'  "  '=  P"-"''^  '°  '"'d  and  li  tTwo 
columns  of  figures  with  a  totalling  capacity  in  each  9  9  9  9  9  ?>  9  9  9   and 

n  o  o'n""""'"  '^'  '"^  '°'=''^  ^'"^  ^  '^'Pacitv  of  9  9  9  9  9  9  9  9  9  9 
y  9  9  9  9  can  be  obtained.  '  ^  ^  ^ 

Figure  A  shows  how  this  machine  can  be  used  for  taking  down  and 
footing  debits  and  credits.  Figure  B  shows  how  the  machine  is  uJed  for 
7^Ztl^  T  ^'"''.^^'""^  P"«  and  printing  the  totals  of  e  ch  Rgure  C 
shows  how  transit  items  are  handled,  obtaining  the  total  of  each  group  and 
at  the  same  time  accumulating  the  grand  total  of  all  the  groups  Sre  n 
shows  how  the  machine  is  used  by  department  stores  for  fecord  „g  th^e  ale" 
of  each  clerk  and  at  the  same  time  printing  the  grand  total  of  ail  saUs 
w^ch  makes  ,t  unnecessary  to  go  back  over  the  records  and  make  a  recap 
.tulation.    Figure  E  shows  how  statistical  work  can  be  done  by  this  machine, 

550 


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American  Business  and  Accounting  Encyclopedia 


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these  totals.  Figure  F  shows  two  columns  of  very  large  amounts  that  have 
given  a  total  of  each  row  of  figures  and  then  printing  the  grand  total  of 
been  added  and  listed  at  one  operation  by  this  machine. 


£ 

3/tt/rst/cs. 

G/vt'n^ 

cross  fooft'n^s  anef^n/rc^  fofa/. 

■ 

ia34       a35 

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6.54         2a55 

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11.6  5           3.4  5 

6u55       laoo 

a44                37.09* 

a45           4.56 

2  3.3  4         2a4  5 

IQOO                6  9.8  0* 

■ 

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25.00         ia44 

ia5  4                6  9.5  3* 
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fo/c/Zs. 

\              * 

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A,0  4  3>5     \ 

12.2  5 
3.35 
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31.02* 

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o^\       3.3  5 

"^        5.4  4 
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1  1.6  5 

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A 

36.43* 
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B      "^^ 

C 

l/s^/y^rco/am/Tsa/K/as^/zT^/rro  of;!f^em. 

14.34# 

1.32*      32155 

2  2  1.4  5 

14.3  5* 

1.5  4*      135  5 

3  3  3.5  5 

14.36* 

1.67*      24.44 

1.2  2  4.4  5 

1  4.37* 

1.8  6*      4  3.4  5 

3  2,225.45 

■ 

1  4.3  8* 

£25*         6.45 

4  4  355 

G 

12a44* 

34,4  4845* 

Duplex  Adding  Machinb. 

551 

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Ca.  American  Business  and  Accounting  Encyclopedia  328A 

It  is  often  very  desirable  in  the  preparation  of  certain  records  to  take 
down  all  amounts  indicated  on  a  certain  card  or  a  certain  page  at  one  time 
without  the  necessity  of  going  back  through  the  cards  as  many  times  as  there 
are  columns  of  items  to  be  transcribed.  Figure  G  gives  an  illustration  of  an 
mstance  of  this  kind. 

What  further  perfection  in  mechanical  accounting  aided  by  loose  leaf 
records,  card  systems,  adding  machines  and  other  mechanical  short  cut 
accessories  will  result  in  the  next  few  years  would  be  a  difficult  matter  to 
predict. 

^  At  the  present  stage  the  latest  development  in  adding  and  listing  mechan- 
ical accountants  is  the  motor  drive,  wide  carriage,  duplex  machine  which 
stands  almost  as  far  in  advance  of  the  first  adding  and  listing  machine  as  the 
hrst  adding  and  listing  machine  was  in  advance  of  the  ancient  Chinese  "Swan 
Pan." 


r 


Sa/es 
Skomn^  c/er/rs  sa/es  a/ri/  /b/a/ ^/es. 


a25 

3L4  5 

laso 

43  5 
a45 
3L45 


D 


Duplex  Adding  Machine. 

Recapitulates  and  makes  grand  total  at  one  operation. 

PROOF    OF    POSTINGS. 

There  is  np  safeguard  so  effective  for  preventing  errors  in  a  trial  balance 
as  a  daily  proof  of  postings.  If  the  bookkeeper  proves  his  postings  every  day 
he  can  be  assured,  that,  in  case  an  error  does  creep  into  the  trial  balance  it 
is  due  to  transcribing  wrong  amounts  to  his  balance  sheet  and  not  that  some 
mistake  had  been  made  in  posting  a  wrong  amount  to  an  account  in  the 

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Ledger  Posting  Proof 


Sales  A  to  L 


13.9  0 

43l60 

1.15 

5a90 

I21&30 

4  0  7.8  0 

43.00 

5.2  0 
6&40 
11.98 

1.50 

3.O0 

10&70 

2  4.0  0 

4  50  0 

laoo 

4  0.3  5 
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5  4.1  5 
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2  1  0. 9  0 

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9  7.10 

3230 

4080 

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3046 

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4  5.0  0 
81.0  0 

6  52  0 

3,3  2  78  6* 


Sales  U  to  Z 


7.5  0 

6  4.8  0 
3230 

3  9.75 
4640 
5  9.9  5 

17"3.8  5 
28  5 

7  9.90 
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4  7.0  0 
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2055 
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3535 

3,2  9  7.9  5'- 


tecapitulation 

3.32  78  6 
3^2  9  79  5 

€16  2  58  1* 


Proof  of  Posting. 

ledger.  It  is  much  easier  for  him  to  check  back  over  the  amounts  entered 
on  his  balance  sheet  than  to  go  back  over  his  ledger  and  compare  the  post- 
ings with  the  books  of  original  entry.  The  daily  proof  of  postings  gives  him 
an  unquestionable  assurance  that  all  the  amounts  are  correct  and  saves  him 
time  and  overwork  at  the  end  of  the  month. 

If  the  hand  method  of  reverse  proof  of  posting  is  used,  where  the 
amounts  are  transcribed  to  a  sheet  as  they  are  posted,  and  afterwards  are 
footed,  so  much  extra  work  is  involved  that  few  bookkeepers  care  to  under- 
take it  and  would  prefer  trusting  to  their  accuracy  in  transcribing. 

When  the  bookkeeper  began  casting  about  for  something  that  would 
enable  him  to  prove  his  postings  every  day  he  found  the  needed  assistance  in 
the  adding  and  listing  machine.  There  was  a  method  awaiting  to  be  dis- 
covered and  he  discovered  it. 

It  is  simple.  Whenever  a  posting  is  made  a  colored  marker  is  inserted 
so  that  it  projects  slightly  above  the  top  of  the  page.  Different  colored  mark- 
ers are  used  for  debits  and  credits.  After  all  the  postings  have  been  made,  the 
bookkeeper  turns  to  the  first  debit  marker  and  adds  and  lists  the  amount  on 
the  machine.  All  debits  are  added  and  listed  in  a  similar  manner  and  a  total 
taken.    Then  the  credits,  indicated  by  the  credit  markers,  are  added  and  listed 

553 


I 


ill 


Ca. 


Amkkicax   Business  and  Accounting  Encyclopedia 


328A 


328A 


American   Business  and  Accounting  Encyclopedia 


Ca. 


Daily  Sale*  Sheet 


Date 


tm 


O 

0 
0 
5 
5 


1  3.9  0 

4  3l60 
7.5  0 
1.1  5 

6  4.8  0 

5  e3  0 
5  0.9  0 
163  0 

3  9.7 

4  64 

0  7.8 

5  9.9 

7  3.8 
4  3.00 

as  0 

£85 
7  9.90 

6  64  0 

aoo 

4  7.0  0 

1  1.9  8 
1.5  0 
3.0  0 

55.03 
0670 

5  5.2  0 

1  aoo 

2  4.0  0 


1,7  7X9,6  •■' 


'4 


4  5.0  0 

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3a2  5 

4  03  5 

1  4.  4  q 
9  9.6  5 

2  4.00 

72 
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2  4.7  3 
4.0  0 
13.50 
94.75 

5  010 

2  as  0 

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2  4.0  0 
5  4.1  5 
502  S 

25  0 

3  5.2  0 
3  9.3  0 

1.7  5 
5  4.0  0 
8a2  0 


1,  8  3  3. 7  3  ^'■ 


SALESMEN 


123  5 
5a2  0 
63  0 
7.8  0 
9.3  8 
1.72 


3a3 
7  3.5 
3a4 


T     G     Wilson 


4  3  9.  9  5 


79  2  0 

3605 

4.  5  0 

9  6  242 

2  05  5 

4  7.  9  1 
3.2  0 

2  1  O  9  0 

5  5.1  0 
1  2  4.  0  0 

1  3.0  0 
5a5  0 
5.2  0 
9  7  10 
4  5i60 
323  0 

1.7  8  9.5  3  ^ 


Frani    R      Dale 


4  08  0 
1  1  4.  8  0 
7  3.8  0 
3a60 
9008 

4aoo 

4  0608 


C.    E     Flint 


1  4.8  0 
304  6 
5a2  5 
4  SlOO 

2  5.3  0 
1  9.2  0 
8  1.00 
6  a2  0 
1600 

3  5.3  5 

3  825  e^' 


Recapitulation 

1. 7  7  3.  9  6 

1. 8  3  3. 7  3 
4  3  9.'  9  5 

1, 7  8  9.  5  3 
4  060  8 
3  8256 

^625.8  1* 


Proof  of  Posting. 

and  the  total  taken.    The  debits  and  credit  totals  thus  obtained,  should  agree 
with  the  totals  on  the  original  books  of  entry. 

MONTHLY   STATEMENTS. 

The  wide  machine  with  15  columns  of  keys  and  the  split  and  normal 
device,  permits  of  so  many  variations  that  it  was  soon  discovered  that 
monthly  statements  could  be  prepared  by  arranging  the  machine  to  print 
abbreviations  for  months  and  dates  in  two  sections  of  the  keyboard  and 
to  add  and  list  amounts  in  a  third  section. 

Much  time  was  formerly  required  to  prepare  statements  because  all 
the  items  were  entered  by  hand  and  the  amounts  added  mentally.  The 
statement  machine,  which  is  no  more  or  less  than  an  improved  variety  of 
the  adding  and  listing  machine,  is  capable  of  printing  month,  day  of  month, 
number  of  articles,  and  amount  at  the  same  time.  To  the  book-keeper  who 
is  still  using  the  hand  method  this  seems  almost  impossible,  but  it  is  a  regu- 
lar occurrence  in  hundreds  of  houses  who  use  this  improved  form  of  mechan- 
ical accountant. 

By  using  this  machine  the  operator  can  transcribe  dates,  number  of 
items  and  amounts  from  a  ledger  at  one  operation.     It  is  not  even  neces- 

554 


Tcrrellf  Texas, 


M    '^liLJUC,^,.^^Y^^J 


ll^^4  Z *W-i 


^^^-^-^TUf/iajCjL^ 


-IN  ACCOUNT  WITH— 


TERRELL  WHOLESALE  GROCERY  COi 

MTHoIesale  Grocers. 

R^ED  FIGURES  ARE  DATES.  BLACK  ARE  AMOUNTS. 


DEBITS 


CREDITS 


Bal.  Rend. 
To  Mdse. 


3  1  6. 5  6 

2  2  4. 5  4 

3  5  3. 6  5 


5 
7 
9 
12 
14 
16 
18 
21 
24 
27 
3i 


1  0.0  0 

3  4.00 

4  3.65 

5  5. 0  3 
6.5  0 
6.0  5 

1  3  5.0  0 

4  3.05 

6  5.0  0 

7  6.2  5 

5  1.00 


jga^/^tC.^^- 1  2 


10  3  0  0. 0  0 
1.4  3 
2.13 


Balance 


5  9  6. 7  2 


9  0  0.2  8  " 

t 

9  0  0. 2  8  "- 

Amount  of  Account 
Amount  Past  Due 

-  -        $_ 

-  -        $_ 

ABOVE  WE  HAND  YOU  STATEMENT  OF  YOUR  ACCOUNT.  IF  ANY  DIFFERENCES.  NOTIFY 
us  PROMPTLY.  THIS  STATEMENT  SHOWS  THE  AMOUNT  OF  YOUR  ACCOUNT.  TIffi  AMOUrfT 
PAST  DUE.  WE  COMMEND  SAME  TO  YOUR  CONSIDERATION  AND  WEi-  EXraCT  YOUR 
PROMPT  REMITTANCE  OF  THE  PAST  DUE  AMOUNT, 

Yours  truly, 

TERRELL  WHOLESALE  GROCERY  CO. 


Statements. 


555 


i 


Ca,  American  Business  and  Accounting  Encyclopedia  328A 

sary  for  him  to  insert  a  statement  sheet.  The  statements  come  in  rolls 
so  that  they  can  be  run  off  one  after  the  other  for  as  many  statements  as 
are  desired.    In  those  cases  where  only  dates  and  amounts  are  used,  the 

^IV  t"J  T  °!!f  ''''^^"  ""^  '^'  "'"'^^"'  ^"y^°^^^  ^"^  ^he  amount  in  the 
other  The  handle  is  pulled  once  and  both  the  date  and  amount  are  listed 
and  the  amount  only  is  added.  When  all  the  dates  and  amounts  for  one 
account  have  been  transferred  to  the  statement  in  the  manner  just  described, 
the  total  button  is  pressed,  the  handle  pulled  and  the  total  of  all  the  amounts 
IS  printed.  "wuma 


328A 


American   Business  and  Accounting  Encyclopedia 


Ca. 


■TATKMBXr 

— ...:^.^ny..l.5 .^.8 

tg ^ohn  Smith, 

Baker sville,  La. 

IV  *■•■■«■  van 

Adams  Grocer  Company 


»T*TmtWT 

Gre«»ville,  T«u_ 


.190_ 


M. 


1 

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5  4.6  0 

12 

3.3  3 

13 

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15 

6.56 

15 

650 

16 

7.5  0 

18 

5  00  0 

19 

1O5  0 

21 

3.2  0 

23 

5.4  0 

25 

4.5  0 

26 

&56 

28 

6.50 

28 

4.3  0 

28 

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29 

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29 

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6.14 

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1 

10 
15 
19 
20 
25 
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BaIukc 


1  A  3.31 


T«^         3  6a21 1~-    T.«       3  6  a 2  1  •"- 


FOB  Explanation  scc  Other  Sidc 


1 

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M 

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7  4554 

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31             3  000 

THBSS  STAtniENTS  ARE  PRINTID  IM  «OtX« 

1.36a83* 

FOR    CXPUMATION   SCC   OTHKR   SIK 

^                " ' - 1 

FOR  EXPLANATION  SEE  OTHER  SIDE. 


Statkments. 

The  dates  and  amounts  being  entered  on  the  statement,  it  is  torn  off 
and  dropped  into  the  ledger  at  the  account  from  which  the  amounts  have 
been  taken,  and  after  all  the  statements  have  been  made  in  this  manner 
the  book-keeper  turns  to  the  first  and  enters  the  name,  and  at  the  same  time 

556 


Monthly  Statements. 
Month,  date  and  amount  handled  at  same  time. 

compares  the  statement  footing  w^ith  the  ledger  footing.     In  this  way  both 
the  statement  footings  are  checked. 

In  this  connection  it  might  be  well  to  point  out  a  very  valuable  feature 
of  the  mechanical  accountant.  It  has  been  shown  how  daily  postings  could 
be  proved,  the  trial  balance  items  taken  off  and  monthly  statements  tran- 
scribed with  the  adding  and  listing  machine. 

These  three  phases  of  the  accountant's  work  are  linked  together  by 
the  use  of  the  adding  machine  and  serve  as  a  check  against  each  other.  The 
proof  of  postings,  which  can  be  applied  to  the  cash  book  as  well  as  the 
ledger,  assures  the  book-keeper  of  the  accuracy  of  his  postings.  Then  the 
monthly  statements  check  up  the  footings  of  the  ledger  accounts,  and 
finally  the  items  on  the  trial  balance  sheets  are  added  correctly  by  usin 
the  machine. 

557 


Ca.  American   Business  and  Accounting  Encyclopedia  328A 

When  mechanical  accounting  is  carried  out  in  this  way  there  is  but 
one  chance  of  missing  a  balance,  and  that  will  occur  only  when  an  error 
IS  made  m  transcribing  amounts  from  the  ledger  to  the  working  sheets. 

CASH    RECEIVED. 

There  is  another  valuable  application  of  the  adding  machine  which  is 
due  to  Its  ability  to  add  and  list.  This  application  is  that  of  handling  cash 
received.  s    «  " 

When  the  mail  comes  in,  all  letters  containing  remittances  are  sent 
to  the  cashier,  who  marks  on  each  letter  in  blue  pencil  the  amount  of  the 
accompanying  remittance. 

In  case  a  remittance  is  received  with  no  letter  accompanying  it  the 
envelope  is  torn  open  and  the  amount  marked  in  blue  pencil  on  the  envelope. 

If  a  voucher  is  received,  a  copy  of  the  items  on  the  voucher  is  made 
on  a  special  slip  arranged  for  that  purpose. 

In  the  case  of  cash  being  received  at  the  cashier's  window  or  collected 
by  the  salesman,  a  cash  memorandum  of  the  amount  is  made,  similar  to 
the  slip  used  for  vouchers. 

After  arranging  the  letters  and  the  remittances  according  to  the  ledger 

felZr  T.'  '"'r"  ''f  ,'"'  '''''  "^  ''^  "^^^^'"^  ^^-  -^--  -"counts 
received.  These  slips  and  letters  are  all  sent  to  the  book-keeper,  who  re- 
arranges them  according  to  the  classification  of  his  ledger.  He  opens  the 
ledger  to  the  first  account  and  figures  the  discount.  If  the  customer  has 
made  the  proper  deduction,  the  amount  is  added  to  the  blue-pencil  figures 
made  by  the  cashier,  and  the  amount  of  cash  received,  plus  the  discount  is 
posted  to  the  credit  of  his  account  in  the  ledger  direct  from  the  letter,  slip  or 
invoice.  ^ 

In  case  a  bound  ledger  is  used,  the  folio  number  is  marked  on  the  letter 
at  the  time  the  posting  is  made.  After  the  amount  has  been  posted  the 
le  ter  is  placed  in  the  ledger  opposite  the  account,  and  remains  there  until 
all  postings  are  completed.  The  letter  thus  serves  as  a  marker,  indicating 
the  location  of  the  active  accounts.  The  book-keeper,  or  an  assistant,  then 
opens  the  ledger  to  the  first  account,  as  shown  by  the  projecting  letter,  and 
lists  and  adds,  on  the  machine,  the  actual  amount  posted,  taking  it  from 
the  ledger  page.  The  amount  of  the  discount  is  then  transcribed  from  the 
letter  and  added  and  listed  on  the  machine,  and  the  folio  or  account  number 
can  also  be  printed  with  the  machine. 

When  the  amounts  posted  in  the  ledger  have  been  listed  and  added  by 
the  machine,  the  diflference  between  the  -discount"  column  and  the  "amount 
posted '  column  should  equal  the  amount  of  cash  held  by  the  cashier  for 
that  ledger  division. 


558 


328A 


American  Business  and  Accounting  Encyclopedia 


Ca. 


In  case  the  business  is  one  in  which  no  discount  is  allowed,  the  amount 
taken  from  the  ledger  must  equal  the  amount  of  cash  in  the  cashier's 
hands.  Transpositions  and  other  errors  in  posting  will  be  detected  by  this 
comparison. 

The  letters  and  slips  are  alphabetically  arranged  and  filed  each  dav, 
the  machine  record  being  placed  on  the  file  with  the  letters  and  slips. 

At  the  end  of  the  month  the  letters  are  taken  from  the  file,  bound 
between  heavy  pasteboards  and  labelled  with  the  ledger  division  and  month. 

It  is  much  easier  to  locate  a  letter  filed  in  this  manner  than  when  it  is 
filed  with  the  general  correspondence,  for  nothing  is  placed  in  this  binder 
except  letters,  slips  and  envelopes  pertaining  to  cash.  Hence,  in  case  a 
customer  complains  regarding  an  error  in  the  credit  side  of  his  account, 
it  is  very  easy  to  refer  at  once  to  the  original  letter  which  accompanied 
his  remittance  instead  of  being  compelled  to  first  consult  the  cash  book 
or  cash  journal  and  then  the  general  correspondence  files. 

DAILY  bank  balances. 

Another  feature  of  the  mechanical  accounting  in  banks  is  that  of  prepar- 
ing the  daily  bank  balance  by  means  of  yesterday's  and  today's  balances. 

After  the  postings  have  been  made  to  the  various  ledger  accounts  in 
the  customer's  ledgers,  a  sheet  is  inserted  in  the  adding  machine  carriage 
and  in  a  column  headed  "Deposits,"  all  the  deposit  items  are  listed  and 
added.  Then  the  carriage  is  shifted  over  and  the  check  amounts  are  added 
and  listed  in  their  proper  column.  The  next  process  is  to  turn  to  the  active 
accounts  (indicated  by  some  suitable  marker  inserted  at  the  time  of  posting) 
and  take  off  the  "yesterday's"  balances  and  list  and  add  the  amounts  in  their 
proper  column.  The  "today's"  balances  are  added  and  listed  in  a  similar 
manner. 

Now  the  total  deposits  plus  the  total  yesterday's  balances  should  agree 
with  the  "total  checks  plus  the  total  day's  balances."  An  agreement  of  these 
totals  proves  four  things :  First,  that  the  postings  in  the  ledgers  are  correct ; 
second,  that  the  extensions  for  the  balances  have  been  made  correctly; 
third,  that  the  checks  have  been  added  right;  and,  fourth,  that  the  deposit 
tickets  have  been  added  right. 

The  machine  makes  it  possible  to  do  this  work  in  about  one-third  the 
time  that  would  be  required  to  do  the  work  by  hand  and  mind. 

The  general  debits  and  credits,  as  well  as  the  cash  items,  can  also 
be  entered  on  the  sheet  as  shown  in  figure  8. 

559 


Ca. 


American  Business  and  Accounting  Encyclopedia 


328A 


328A 


American  Business  and  Accounting  Encyclopedia 


Ca. 


DAILY  BANK  BALANCE  AND  LEDGER  PROOF  SHEET 


OEKSTTS 

LEDGER  BALANCE 

occxs 

OCCKS 

5131 

15331              24324 

a 

4 

2800 
500 
10140 
113 
224  0 
22500 
200 
128 
1600 
500 
575 
22  9 
1600 
208 
10  0 
15  0 
181.2  0 
19.6  5 
500 
240 
575 
4.5  0 
28  7 
122 
130 
36  4 
4.2  5 
4.4  5 
500 
11.05 
/I  1.68 
4  4.0  0 

a2  0 

*                                   1,62192* 

5151 

25132              34567 

5.0  0 

a.254.00 
500 

1.24500          1,02050 
5600                 6501 

19.6  0 
100 

7  7.8  0 

i2aoo 

34504 

77.85                  7a78 
121.03             22034 
34565             354.O0 

aoo 

500 
150  0 

2000 

21.00                  41.00 

4.0  0 

31200 
&00 
7.0  0 
185 

31Q30              45a70 
601                 6600 
7.0  0                     a0  3 
186                     500 

150 
500 

2aoo 
loaoo 

39.2  5 
20000 

3  9.2  6             14  9.2  6 
201.00              104.05 

IQOO 
lOQOO 

2O00 

3  4.0  7                  4  3.0  0 

1,02000 

40253 

40635               40000 

lOOO 

2  59.4  6 

4  9.9  4 

500 

100 

2  5  9.4  0              2  6  776 

4  9.9  3                  5  9.9  0 

24  S                      4.4  5 

13.00                  2600 

19.6  0 
2O10 
54.00 
31.00 

577.59 

5  7  4.59          4,50600 

4000 

111.00 

211.03              70O00 

5  0  300 

30Q00 

30600              54034 

2  010  0 

70000 

7  0  000              10678 

4100 

53050 

53086             54506 

7600 

529.50 

359.87             70000 

4  4.60 

lOCLOO 

104.56              34600 

5180 

20000 

30O00              4  44  03 

4  4  300 

24Q00 

2  4  057                  2345 

3200 

16010 
6168538* 

161.10                  54.35 

16130          -  24587 

4.2  4Q0  0          1.0  11.0  0 

21.00             104.01 

6000 
7.0  0 

4^5  7  7.12* 

1156             36O90 

2500 

11.53222       1164048* 

230 
5.00 

ei6  8  53  8          4,5  7  712 

101.23 

1812  17.6  0       1^217.60* 

.      4.0  0 
2500 

IILOO 

4a51 

260 

DALY  BALANCE 

DOIT                        aaar 

500 

220 

» 

500 

3  52  8                 2  35  4 

!■■'' 

1825 

1.22629              10125 

■■M 

2aoo 

ai4a3  6         ,1.0  317  2 

lOOOO 
500 

3  00  4 

mntmiumtm 

1200 

85                       30 

•MMtKlipM 

1.35 

4,5  7  712          6^6  8  53  8 

4.0  0 

7,3  89.04           7.4  2  28  2 

CM 

4.4  0 

71.89 

IWCMIIW 

lOOO 
1200 

15,37094       15,37Q94* 

nik 

155 

loaoo 

2500 
687 

16  6 
2144 

TOOAY-S  CASH 

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19.60 

1.781.00 

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5  0  000 

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.  20  0 

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3.0  0 

1  550 

••      -      •  J« 

1.00 

12000 

Hmt-    -Ml 

1137 
200 

19.5  0 

N«r-      -ra 

6500 

Mi         -  IMI 

3.0  0 

2200 

IMi         -    - 

56  0 

2500 

IMM        •    - 

600 

54  9 

ioao5 

Mpuni 

1,6  2  19  2* 

7,3  8?.0  4* 

- 

„ 

Daily  Bank  Balance. 
Yesterday's  and  today's  balances  tabulated  at  same  time. 


Duly  BJmkc  Sheet  of  COOK  &  VENam  BANKERS. 

CHECKS 

mrr 

creorr 

ocroam 

♦                1,62392* 

2600                             500 

5  0  0                           19  6  0 

10340                               3  00 

113                             500 

2240                               500 

22500                          1500 

2  0  0                             4. 0  0 
126                             150 

1600  500 
500  2000 
575  lOOOO 
229                          IQOO 

1600  lOQOO 
20  8  X0  2O0  0 
100                           1000 

3  5  0                            19  6  0 
18  1. 20                           2Q10 

19  6  5                           5  4  0  0 
50  0                           3  1.0  0 
240                           4Q00 
57  5                        5  0  300 
4.50                       20300 
28  7                           4.3  0  0 
322                           7600 
13  0                           4  4  6  0 
364                           5380 

4. 2  5                         4  4  3  0  0 
4.  4  5                             3  2  0  0 
500                           6000 

1  1. 0  5                               7  0  0 
1168 

4  4.00                    ^5  7712* 
a20 

2  50  0 
230 
500 

101.23 

4.0  0 

2500 

1110  0 

4251 

260 

50  0 

220 

500 

1825 

2800 

•10  0  0  0 

50  0 

1  200 

1.3  5 
4.0  0 
4.  4  0 

IQOO 
1200 

35  5 

1  0  a  0  0 

2  5.00 
687 

36  6 
2  34  4 
7Q0  0 

375 
1  0.0  0 
1  9.6  0 
2Q0  0 
1  Q  2  5 

2.0  0 

300 

100 
133  7 

20  0 

30  0 

56  0 

600 

1.  6  2  3  9  2  • 

>    -J 

L4SM 

\ 

^1 

513  I 

5351 

1.2  5  4.0  0 

500 

7  78  0 

12Q0O 

34  504 

2Q00 

3  1  200 

600 

700 

385 

3  92  5 

20O00 

2000 

40253 

2  5  9  4  6 
4994 

500 

300 

5  7  7  5  9 

1  1  1. 0  0 

3  0  0  0  0 
7  0  0  0  0 
53050 
5  2  9  5  0 

1  OOOO 
20000 

2  4O0  0- 
16010 

66e538» 

^Sw; 

■arm  YMk 

'.tf-^ 

' 

■•7  <  v 

Chicuo 

i 

1  »  7v 

, 

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Si.  Loan 

, 

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■     .     m. 

KinMt  CUT 

i 

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:    r 

Inmxnm 

Cellmiom 

E»pCM« 

laur»i  tiMl  Esch.OK* 

^1W| 

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l>«inand  Cerlilicftif  ol  Orpoatl 

» 

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/ 

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J  • 

r  • 

■  i  r 

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' 

-t-r  V 

.' 

r.  <- 

Tout  C»lh  lt,(ni 

'  r; 

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1 

1 

..-l_ 

1 

i.i/j|J 

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■•  M 

'  ^1  ^,m 

)j'ii~ 

Gold  in  Vtull 

I 

a.i». 

J 

••    •■   Till 

?,     *0 

ti 

•  1 

CurrrncT  in  V«ull 

1 

f. 

1, 

•■  Till 

» 

ll 

Silver  DotUrt  in  Vault 

1 
> 

ii 

rill 

i     f 

Is. 

Hall                   "    Vault 

Li    4' 

/  J.  -f 

Till 

t 

1 

1 

7  L 

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{ .■ 

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\  :, 

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ij- 

Prnniri  it)  Vault 

Nickela,  Dim.,  and  Prnniei  m  Till 

■  r 

'iir 

< 

'  ■)  r 

Daily  Bank  Balance. 


560 


561 


Ca. 


American  Business  and  Accounting  Encyclopedia 


318A 


Daily  Bank  Balance  and  Ledger  Proof  Sheet 

5  313  1 

• 

15  331 

4 

^ 

*                 1. 6  2  5  9  2 

i— 

53151 

2  5  i3  2   1 

24324                     2800 

50C 

1.2  5*0  0 

1,2  4  50  C 

34567                          5.00 

1  96C 

&00 

5  60  0 

1.0  2O5C 

1                  10540 

50  C 

7  78  0 

■   7  7  8  5 

6501 

313 

500 

tsaoo 

1  2  1.0  3 

7878 

2240 

50C 

34&04 

3  4  5  6  5 

2  2  Q  3  4 

22500 

1  500 

2Q0O 

2  10  0 

3  5  4. 0  0 

2.00 

4.0  0 

31200 

3T.  Q3  0 

4  100 

^28 

15  C 

600 

60  1 

4  5  Q  7  0 

1  600 

50C 

70O 

700 

6600 

50  0 

2  QOO 

38  5 

385 

80  3 

575 

1  OQOO 

3  92  5 

3  9  2  6 

50  0 

229 

1  QOC 

20Q0O 

2  0  1.0  O 

14926 

1  50  0 

1  0  0  0  C 

aooo 

3  <0  7 

10  4  0  5 

208 

10200C 

40253 

4063  5 

4  300 

30  0 

1  OOQ 

2  5  9  4  6 

2  5  9.  4  o 

4  0  0  0  0 

35  0 

1  96C 

4  99  4 

4  993 

2  6  7  7  6 

1  8  L  2  0 

2Q1( 

500 

24  5 

5  99  0 

1965 

34  OC 

300 

1  30  O 

4.4  5 

500 

3  IOC 

5  7  7  5  9 

5  7  4  59 

2600 

240 

4  QOC 

1  1  lOO 

2  110  3 

4. 5  0  6  0  0 

57  5 

5  0  30C 

30O0O 

3  0  60  O 

70000 

4  50 

2050C 

70000 

7  0  QO  0 

5  4  0.  3  4 

287 

4  30Q 

53Q5C 

5  3  ae  6 

10678 

322 

7600 

52950 

3  5987 

54  506 

53  0 

4  46C 

10000 

10  4  5  6 

70Q00 

564 

•5  380 

20G0O 

3  0  0  0  0 

3  4  6  0  0 

4.2  5 

4  4  3-0  C 

24Q00 

ii  4  0.  5  7 

4  4  4. 0  3 

4.45 

3200 

1  6Q1  0 

16  110 

2  34  5 

50  0 

6  QOC 

6.68538* 

16330 

4. 2  4  0  0  0 

2  1.0  0 

13.5.6 

1  1.53222* 

5  4.3  5 

2  4  587 
1.0  1  LOO 

1  0  4. 0  1 

3  6  0  9  0 

• 

1 564048' 

1  L05 

1  L6  8 
4  400 

a2o 

2500 
230 
500 

70  0 
4.57712 

668  53  8    1 
1812  176  0  ' 

D.»-i                        < 

!»<*•      4. 5  7  7  1  2 
2  a2  1  76  0  ' 

1  0L23 

4  00 

2500 

1110  0 

4251 

260 

600 

220 

DiilybiJuce 

OiU 

Cndk 

» 

50  0 

3528 

1.22629 

_ail4  23  6 

Lmm 

«••  York 

CkkM< 

CaltacUMa 

E>p«M 

iMmHudKickUt* 

'2  35  4 

10325 

1.03372 

3O04 

1825 

2800 

lOQOO 

500 

1200 

13  5 

4.0  0 

8  5 

■MMlM  CMfcM  tf  Bl,M 

3  0 

4,57  712 
7.  2  8  0  9  9 

1  oao5 

Tw.lC>«ctoMKr).nllu 
T«ul  C—h  Iw^ 

6k68538 

7,42282 

7  1.8  9 

1  00  0 

1200 

355 

. 

1  5,3  7  09  4* 

TOTAL 

1  5.3  7  09  4* 

1  0  Q  0  0 

2  50C 

687 

56  6 

234  4 

7O0  0 

575 

IQOO 

T<Kky-,  OA 

« 

CaAIlM 

^58  750 

2O0  0 

200Q00 

1.7  8  1.0  0 

50000 

6000 

6000 

1  550 

1  2  O  0  0 

195  0 

GMhiVMti 

"  ••  Tja 

"TIM 
Mmt  IMhn  la  VmIi 

••       "  Tin 
H.M         ••       "  r.,1, 

-       ••  Till 

qp—  ••     •■  V.I.I, 

«...  T,„ 

7  78  0 
200 

1000 
500 
24  4. 
&65 
200 
7  6" 
540 

196  0 

2000 

1Q25 

200 

.  500 

10  0 

15  3-7 

200 

500 

56  0 

5500 

DlMa              ••  ThIi 

6lOO 

2200 
2500 

fmtlm           -     - 

1.62592* 

S49      M 

1 

laTM 

■ 

7, 2  8  O  9  9  "J 

TOTAL 

ioao5* 

Daily  Bank  Balance. 


562 


328A 


American  Business  and  Accounting  Encyclopedia 


Ca. 


pay  roll. 

The  machine  is  further  used  in  connection  with  pay  rolls  of  large 
mercantile  and  manufacturing  concerns,  as  well  as  railroads,  etc. 

The  old  way  of  making  up  a  pay  roll  by  writing  down  all  the  names 
and  amounts  by  hand  and  afterwards  footing  and  checking  back  the 
amounts  mentally,  takes  a  great  amount  of  time  unnecessarily. 

When  the  work  is  done  by  hand  there  is  not  only  more  time  consumed, 
but  in  checking  back  item  by  item  there  is  liability  to  error.  The  work  is 
accurately  done  and  the  time  required  to  do  it  is  diminished  when  the 
amounts   are  added  and   listed  on  the  machine. 

The  workmen's  time  and  rates  are  extended  on  the  clock  or  time  cards, 
and  the  amounts  are  then  added  and  listed  on  a  pay  roll  slip  or  sheet,  a.s 
the  case  may  be.  The  time  cards  are  turned  over,  one  by  one,  like  checks, 
and  the  workman's  number  and  amount  of  earnings  are  entered  on  a  pay 
roll  sheet.  The  Split  and  Normal  machine  lists  the  numbers  and  adds  and 
lists  the  amounts  at  one  operation. 

The  listing  itself  is  done  by  the  machine  in  about  one-fourth  the  time 
required  to  do  it  by  hand  and  the  totals  are  taken  both  of  the  number  col- 
umn and  the  amount  column  simply  by  pressing  the  total  button  and  pull- 
ing the  handle.  The  total  of  the  amount  column  will  indicate  the  amount 
of  money  necessary  to  pay  off  the  men,  and  the  total  of  the  number  column 
will  serve  as  a  check,  which  is  used  to  advantage  later  on.  Figure  repro- 
duced below  will  give  an  idea  of  how  a  pay  roll  looks  when  it  comes  from 
the   machine. 


Numbers 


Amounts 


* 


1 
1 
1 
1 
1 
1 
1 
1 


2 
2 
2 
2 
2 
2 
2 
2 


3  5 

4  6 
4  7 
4  8 

4  9 

5  0 
5  1 
5  2 


9  9  8  8 


$ 

2  2.4  5 
1  8.5  0 

1  9.4  5 

2  2  4  3 

1  3.5  6 

2  5  0  0 
2  3  5  5 
2  2.7  5 


1  6  7.6  0  * 


As  soon  as  the  numbers  and  amounts  have  been  taken  from  the  time 
cards  and  added  and  listed  on  the  pay  roll  sheets  it  is  desired  to  print  the 
workman's  numbers  and  amounts  on  the  pay  envelopes.  If  this  is  done 
by  hand,  it  is  necessary  to  add  the  amounts  afterwards  and  also  check  back 
the  numbers  in  order  to  ascertain  whether  the  correct  amounts  are  opposite 
their  respective  numbers.    With' the  machine  in  use,  neither  of  these  pro- 

563 


Ca. 


American  -Business  and  Accounting  Encyclopedia 


328A 


328A 


American  Business  and  Accounting  Encyclopedia 


Ca. 


Aierjcan  Steel  i  Wire  Co. 

PAY  ROLU 

MoHik                                                 190 

CHECK  No. 

Amovnt 

FmwwL 

«- 

£  €  06 

-<  f  04 

2  ^  00 

1  2  50 

1  £  6fi 

3  2  35 

a|2  50 

3  2  60 

3  £  70 

10 

1  390 

3'C  9  9 

2  2  3  00 

--^§7 

2  4  06 

i  S  07 

£  6  08 

24  0-5 

543 

65  60 

•!  407 

q  -^  e;  o 

£  4  50 

00 

2?  00 

4 

3  4  3  4  6-" 

Foninrd. 

Xjiyl«a»tioi  >  4  a  o 

11  •  •    lid*. 

cesses  is  necessary,  since  the  machine  is  capable  of  listing  amounts  and 
numbers  on  the  envelopes  at  one  operation  and  accumulating  the  totals.  Each 
envelope  is  inserted  into  the  carriage  like  a  sheet  of  paper  and  turned  up  a 
certain  distance,  vi^hich  the  eye  can  regulate  accurately  and  quickly,  and  the 
number  and  amount  is  taken  direct  from  the  pay  roll  sheet  and  printed  on 
the  envelope,  the  envelope  turned  out  and  the  next  one  inserted.  This  same 
operation  is  repeated  for  all  the  envelopes,  and  when  the  last  number  and 
amount  have  been  printed,  the  total  for  the  numbers  and  the  total  for  the 
amounts,  which  show  on  the  adding  wheels  of  the  machine,  should  agree 
with  the  corresponding  totals  on  the  pay  roll  sheet.  This  proves  that  the 
workmen's  numbers  and  the  earnings  have  been  correctly  printed  on  the 
envelopes. 

564 


This  work  is  not  only  done  more  quickly  on  the  machine,  but  both  the 
numbers  and  amounts  are  proved  by  comparing  the  totals  with  those  on 
the  pay  roll  sheet,  which  is  a  more  accurate  method  than  calling  back.  By 
employing  the  machine  for  this  purpose  the  liability  of  making  errors  either 
by  entering  wrong  amounts  or  by  getting  numbers  opposite  wrong  amounts 
is  reduced  to  a  minimum. 

COST  FINDINa 

The  adding  and  listing  machine  is  also  extensively  used  by  cost  accoun- 
tants. 

Figuring  the  cost  of  day  labor,  for  instance,  involves  a  great  amount 
of  addition.  The  number  of  hours  and  the  amounts  of  earnings  for  each 
day  in  the  week  must  be  transcribed  from  the  cost  or  time-cards  to  some 
suitable  sheet  and  then  added. 

The  necessity  for  so  many  additions  gave  rise  to  the  Cost-keeping 
Machine,  which  is  but  an  amplification  of  the  original  Adding  and  Listing 
Machine. 

When  a  Cost-keeping  Machine  is  used,  the  number  of  operations  for  add- 
ing and  listing  time  and  earnings  is  reduced  to  one,  and  the  time  required  to 


JOHN  JONES  A  CO. 


Dept.    No.    10 


Day  Labor 


Teek  Ending  Hot.   16 


Number 


Z-tl* 


Rate 


So  + 


10 '/2 

10 

16  1'2 

11% 

8/* 

66% 


8% 
11^ 

7% 
10 

59H 


l'/& 

2 'A 

9% 

0 

8'/i 

3% 


65% 


aio 
aoo 

3.3  0 
2.3  5 

1.6  5 
1-95 

13.3  5* 

aos* 

22* 

1.93 
a48 

2.7  5 
1.7  1 
220 
209 

1  3. 1  6  * 

2.0  3* 
24* 

276 
2.94 
23  4 
2.4  0 
204 
3.3  0 

15.7  8=- 


204  * 
26* 


10 '/i 
1  1 

12% 
9 'A 
10 
14'/4 

67% 


14      • 

13'/2 

i  l/« 

10^ 

8% 

9Vi 

67!ft 


10!4 

9'/2 

14% 
1  1!4 
15 

6  7 'A 


273 
a86 
3.3  2 
24  1 
a60 
3.7  1 

17  6  3  •"■ 

^05♦ 
27*- 


207* 


"16^ 


12'/6 
11% 
10 

9!4 
13 

7'/i 

64 


200 
1.88 
1.60 
1.48 
208 
1.2  0 

ia24* 

208* 
30* 


3l78 

11'^ 

3.4  5 

3.6  5 

9% 

293 

3.0  4 

12 

3.6  0 

284 

814 

255 

236 

10 

3.0  0 

257 

1314 

3.9  8 

a2  4« 

65 

19.5  1* 

206* 

209* 

10* 

12* 

•& 

« 

1.03 

10 

1.2  0 

95 

11% 

1.4  1 

1.48 

1016 

1.26 

1.13 

9!4 

1.11 

1.50 

12V6 

1.50 

65 

13 

1.56 

66% 

59% 

65% 

67% 

67Vi 

67% 

64 

65 

67 


13.35* 
13.16 
ia78 
17.6  3 
ia24 
^74 

ia24 

19.5  1 

ao4 


&90%   il2269 


6.7  4  " 


67 


ao4 


Cost  Work. 
Hours  and  amounts  listed  simultaneously, 

565 


Ca. 


American   Business  and  Accounting  Encyclopedia 


328A 


li 


!l 


do  the  work  is  just  about  one-fourth  what  is  required  when  the  hand  and 
mental   method   is   used. 

The  reproduced  fac-simile  of  a  day  labor  sheet  shows  the  daily  record 
of  nine  workmen  for  one  week. 

A  sheet  similar  to  the  one  shown  in  the  reproduction  is  inserted  in  the 
machine  carriage,  and  the  first  two  items  opposite  "Number"  and  "Rate" 


328A 


American  Business  and  Accounting  Encyclopedia 


Ca. 


JOHN  JONES  4  CO. 

mrrsauRG.  pa. 


Labor  Cost  by  Jobs,  Showim^  Hours  and  Amounts 


Niinber 


a34* 


10 /a 
8!4 

161^ 
8% 

12/2 

10 

11^^ 

15 

12!^ 

evz 

9 'A 

e'A 

10 
1.4  IJ^ 


13 
9'A 
7'^ 
9%. 
1314 
11% 
12!^ 
13 
10'/^ 
1114 
12^^ 
10 
12!i 
7% 
10 
13% 

1.7  8 'A 


2.10 
1.65 

3.3  0 
1.93 
a75 
2.20 
2.76 
1.50 
1.50 
2.55 
1.48 
1.65 
3.0  0 

2a3  7" 

£35* 

2.08 

1.4  8 

1.2  0 
a93 
3.9  8 

1.4  1 

1.5  0 
1,56 
£84 
3.0  4 

aoo 

1.60 

a75 

1.7  1 
2.4  0 

3.3  0 

3  5.7  8"- 


2.36  + 


10 

914 
13 

7 'A 
11% 
10'/& 

9!4 
13 
14!4 
10 
12% 
11 
lOli 

6'A 

9'h 
10 

7% 
1114 

8% 
12% 

9'/2 

2.2  0'/2 


14 

1316 

10!^ 

8% 

91^2 

15 

ll'A 

lO^i 

92% 


1.60 
1.48 

aoB 

1.2  0 
1.41 
1.2  6 
1.11 
1.56 
3.7  1 

aeo 

3.32 
a86 
2.73 
1.65 
a0  9 

a20 

1.7  1 
2.4  8 
1.93 
3.32 
95 

4  3.2  5 

2.37* 

3.78 
3.65 
a84 
2:3  6 
2.57 
1.50 
1.13 
1.03 

lase* 


a38* 


131^ 

11 '/i 

8% 

8/2 

13i4 
1116 

76S4 


14 
1114 
9l2 
1014- 
1114 
15     ' 
121^ 
101^ 
11% 
13  14 
10 
12 
111^ 
71^ 
13 

9!4 

121^ 

11% 

8  14 

9% 

9'« 

10 

7% 
12  1^ 
1114 

a7  5% 


3.6  5 

3.0  4 
£36 
2.57 

2.5  5 
3.9  8 
3.45 

21.6  0"- 

2.39* 

3.78 
3.04 
£57 

1.03 
1.13 
1.50 
1.50 
1.2  6 
1.4  1 
3.9  8 
3.0  0 

3.6  0 
3.4  5 

1.2  0 
2.08 
1.4  8 
2.00 

2.3  5 
1.65 
1.95 
2.09 
£2  0 

1.7  1 
£7  5 
£4  8 

5  5. 1  9  •" 


£40*- 


lOlfe 
12% 
10/2 
10 
13 
7% 

6414 


10 
8li> 
7 'A 
9>A 

1614 
11% 
1214 

76 


11/2 

9% 
10 
13  14 
1214 

11/4 

8% 

12/4 

9% 
13% 

1.12% 


£73 

3.3  2 
1.26 
1.20 
1.5  6 
1.7  1 

11.78* 

£41* 

3.0  0 
£55 

1.2  0 

1.4  8 
3,30 
£35 
£75 

1&63* 

£42* 

3.4  5 
£93 
3.0  0 
3.98 
£7  5 
£48 
1.93 
£94 
£34 

3.3  0 

2  9. 1  0  * 


Cost  Work. 

are  taken  from  the  clock  or  time  card  and  printed  on  the  sheet  with  the  elim- 
inating button  depressed,  which  prevents  the  amounts  being  added. 

Then  the  items  "103^"  and  "2.10"  are  set  into  the  machine.  The  10/i 
IS  set  into  the  left  hand,  or  hours  and  fractions  section,  and  the  2.10  is  set 
mto  the  right  hand  or  amount  section,  and  by  one  pull  of  the  handle  both 
amounts  are  added  and  listed  as  shown  in  the  reproduced  form. 

After  these  items  on  a  workman's  clock  or  time  cards  have  been  added 
and  listed,  a  total  is  taken  which,  in  the  case  of  the  first  group  of  items,  shows 
the  total  time  put  in  by  the  workman  No.  "201"  during  the  week  and  his 
earnings  at  the  rate  of  20  cents  per  hour. 

The  total  amount  of  money  earned  can  be  proved  by  multiplying  the 
total  time  by  the  rate  per  hour.    This  method  of  checking  the  work  is  easier 

566 


and  quicker  than  to  go  over  the  items  and  check  them  by  calling  back.  It 
is  also  a  more  accurate  check  because  checking  is  done  by  an  independent 
process  which  eliminates  the  liability  of  making  the  same  error  twice,  of 
which  there  is  a  chance  when  the  calling  back  system  is  used. 

The  recapitulation  shows  the  total  number  of  hours  for  all  the  workmen 
and  their  total  earnings. 

The  foregoing  outline  of  the  various  uses  which  have  been  found  for 
the  adding  machine  and  for  which  it  is  peculiarly  adapted,  serves  well  to 
indicate  its  development  from  the  original  machine,  which  was  capable  of 
adding  and  listing  amounts  on  a  narrow  strip  of  paper. 

The  wide  carriage,  together  with  the  improved  mechanism  made  it  pos- 
sible, not  only  to  tabulate  all  manner  of  records  on  wide  shetes,  but  also  to 
do  the  work  much  more  quickly  than  with  the  earlier  slow  acting  model. 

The  feature  of  adding  and  listing  soon  developed  from  the  handling  of 
small  units  to  that  of  compound  additions,  such  as  tons  and  cwts. 

remittance  and  collection  letters. 

The  preparation  of  Remittances  and  Collection  letters  has  also  been 
found  to  be  an  item  where  time  and  labor  can  be  saved  by  using  the  adding 
machine. 

All  banks  make  out  remittances  and  collection  letters  and  since  these 
letters  contain  a  number  of  amounts  with  footings,  there  is  a  considerable 
amount  of  listing  and  adding  to  be  done  in  their  preparation. 

The  remittance  letter  blank  is  inserted  into  the  machine  carriage  and 
the  amounts  are  taken  directly  from  the  checks  and  listed  and  added  in  the 
proper  column  on  the  blank.  This  list  can  be  made  in  duplicate  or  triplicate, 
as  desired.  When  the  duplicate  system  is  used  the  original  copy  of  the  letter 
is  sent  to  the  correspondent  bank  and  the  duplicate  copy  is  retained  by  the 
sending  bank.  In  case  the  triplicate  system  is  used  two  copies  are  sent  to 
the  correspondent  bank.  In  case  some  of  the  items  are  protested,  they  are 
marked  on  one  of  the  copies  and  it  is  returned  to  the  sending  bank.  When 
all  items  are  paid  without  protest,  the  letter  is  returned  either  unmarked  or 
with  a  suitable  check  mark  to  indicate  that  each  item  has  been  paid. 

The  machine  saves  a  great  amount  of  time  in  the  preparation  of  these 
letters  on  account  of  the  fact  that  it  not  only  lists  the  items  quicker  than 
a  typewriter,  but  foots  them  automatically.  After  the  items  have  been  listed 
and  added  by  turning  the  checks  over  in  rotation,  the  names  can  be  readily 
filled  in  opposite  their  respective  amounts  on  the  typewriter  by  running 
through  the  checks  again  in  the  same  order. 

depositors  statement  and  bank  balance. 

The  simple  listing  and  adding  of  checks  led  up  to  the  preparation  of 
depositors  bank  books  on  an  improved  sheet,  indicating  all  transactions  as 
shown  in  figure  1.    On  one  side  of  the  sheet  are  recorded  the  various  deposits 

567 


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HIBERNIA  BANK  &  TRUST  CO. 


To ?^-    Louis  Union  Trust  Co. 


W«  McloK  liervwilli  tor  Colkdioa  awi  Credi.  ittmt  atsKaatiaf  1 .^.*r.r".. .'..?:..„. u  liMcd  below: 


Cttarhif 

Noma 

No. 


ENDORSER 


AMOUNT 


2 
3 
3 

3 

1 


3 

3 
3 
3 
3 

3 
3 

3 

2 
7 
6 
2 
2 
2 
1 
3 
3 
3 
3 


2 
8 


6 

3 
4 
5 
6 
8 


5 
8 

2 
4 
6 
3 
2 
4 
6 
7 
5 
0 
0 
6 
7 
6 
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5 
5 
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1 

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910 

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5.9  5 

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No. 


ENDORSER 


AMOUNT 


g  0  1.  0  6 


Remittance  and  Collection  Letters. 


568 


PLEASE  RETURN  THIS  LETTER  WITH  YOUR  REMiHANCE. 


HIBERNIA  BANK  A  TRUST  CO.. 


OF  NEW  ORLEANS 

4-24 


New  Orleans, 

Delta  Bank  &  Trust  Co. 


Yazoo  City, 


Miss  ^ 


We  enclose  for  collection  and  remittance. 
Items  $10.00  and  under,  and  items  marked  X  NO  PROTEST. 


PAYER 


ENOOROKR 


AMOUNT 


5 

2 


67 
66 
8~8 
87 
12 
2  4 
8  9 
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7 
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3  1  2. 5  6 

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2  3.5  6 

6  7  8. 9  5 
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3.7  6 
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2, 3  3  9  5  0  - 


PAVCR 


KNDORSKR 


AMOUNT 


Remittance  and  Collection  Letters. 


569 


Ill 


II 


'!( 


Ca. 


Amkricax   Business  and  Accounting  Encyclopedia 


328A 


328A 


American  Business  and  Accounting  Encyclopedia 


Ca. 


Ill 

ill 
111 


Remittance  and  Collection  Letters. 


and  on  the  other  side  a  list  of  the  checks  is  given.  The  deposits  are  put  in 
with  a  pen  and  at  the  end  of  the  month,  when  the  customer  turns  in  his 
book  to  be  balanced,  the  clerk  takes  the  checks  drawn  by  that  customer  and 
adds  and  lists  the  items  in  the  columns  of  the  bank  book  sheet  provided 
for  that  purpose  and  shown  in  figure  2. 

The  statement  can  also  be  run  off  on  the  paper  ribbon,  adding  and  list 
ing  the  old  balance  and  deposits  first  and  then  adding  and  listing  the  can- 
celled checks,  but  the  first  method  is  the  more  preferable. 


XANE 


DEPOSITED  MUTH 

FIRST-NATIONAL   BANK 

^TROIT.    MICH. 


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^i«-  1-  Fig.  2. 

The  great  advantage  of  using  this  system  aside  from  the  convenience 
to  the  customer,  is  that  the  bookkeeper  has  an  extra  check  on  his  depositor's 
ledger  balance.  Since  the  totals  of  the  cancelled  checks  on  the  bank  book 
are  obtained  from  the  checks  themselves,  it  will  be  seen  at  once  that,  if  the 
balances  remaining  after  the  cancelled  checks  are  deducted  from  the  deposits, 
are  the  same  as  those  recorded  in  the  ledger,  the  postings  to  the  ledger  are 
absolutely  correct,  as  well  as  the  extensions.  This  feature  of  a  depositor's 
balance  makes  it  very  valuable  to  the  bookkeeper  as  an  extra  check  on  his 
work. 

interest  on  daily  balances. 

Another  important  use  of  the  adding  and  listing  machine  in  connection 
with  the  work  of  a  bank  is  that  of  calculating  interest  on  daily  balances. 

571 


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Many  banks  compute  interest  on  daily  balances  and  the  process  in- 
volves addition  as  well  as  multiplication.  The  addition  is  necessary  to  get 
a  total  of  the  daily  balances  on  each  account  for  a  month,  and  the  multiplica- 
tion is  necessary  in  order  to  compute  the  interest.  The  nature  of  the  work 
is  such  as  to  require  the  computation  of  interest  on  a  larger  number  of 
balances  within  a  limited  time. 

If  the  work  is  done  by  hand  the  amounts  must  be  transcribed  from  the 
ledger  and  added  afterwards.    Then  the  interest  is  computed. 

It  has  been  found  by  experience  that  about  two-thirds  of  the  time  can 
be  saved  on  such  work  by  using  the  adding  machine. 


The  daily  balance  for  each  day  of  the  month  is  taken  from  the  ledger 
and  added  and  listed  by  the  machine  and  the  total  printed.  In  case  the  balance 
remains  the  same  for  two  or  more  days,  the  amount  for  those  days  is  repeated. 

Then  the  total  is  multiplied  by  a  constant  representing  one  day's  interest 
for  whatever  per  cent  is  required.  These  multiplications  are  made  very 
rapidly  by  using  the  machine  in  connection  with  the  following  set  of  con- 
stants : 

.0555 
.0833 
.1111 
.1388 
.1666 
.1944 
.2222 
.2499 
.2777 

When  the  daily  balances  for  a  month  have  been  added  and  listed  as 
shown  in  figure  1,  the  total  is  multiplied  by  the  constant  corresponding  to 
the  desired  rate  of  interest.  This  multiplication  is  done  very  rapidly  on  the 
machine  by  repeated  additions  as  shown  in  figure  2. 

taking  off  savings  account  balances. 

The  accounting  in  Savings  Banks  is  greatly  facilitated  by  the  use  of  the 
adding  machine  and  especially  at  the  time  of  the  quarterly  or  semi-annual 


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Fig.  2.  Fig.  1. 

Interest  on  Daily  Report. 

572 


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Savings  Bank  Trial  Balance. 
Numbers  and  amounts  taken  off  at  same  time. 

573 


2213 
22 

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1 91 97  I 5» 


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American   Business  and  Accounting  Encyclopedia 


328A 


trial  balance  which  involves  an  amount  of  adding  and  listing  that  is  com- 
mensurate with  the  size  of  the  business.  Every  account  number  and  amount 
must  be  taken  from  the  ledger  books  or  cards,  listed  on  balance  sheets  and 
the  amounts  footed.  In  case  of  the  most  active  accounts  it  is  necessary 
to  leave  these  over  for  the  last  and  then  rush  through  the  adding  and  listing 
with  all  possible  speed  in  order  to  reduce  to  a  minimum  the  complications  in 
striking  the  balance  due  to  fluctuating  accounts. 

Since  from  several  days  to  three  or  four  weeks  is  required  to  take  off 
the  balances,  during  which  time  the  active  accounts  may  change  considerably, 
it  is  desirable  to  run  off  the  inactive  accounts  first.  The  changes  that  may 
be  necessary  in  these  will  be  comparatively  few,  and  can  be  easily  made  after 
the  adding  and  listing  has  been  done.  The  more  active  accounts  are  reserved 
for  the  last  and  can  be  added  and  listed  in  a  comparatively  short  time  by 
using  the  adding  machine. 

This  particular  kind  of  work  where  numbers  and  amounts  are  listed 
side  by  side  and  the  amounts  added,  was  one  of  the  influences  that  brought 
about  an  improvement  in  the  machine  which,  consisted  of  adding  several 
additional  columns  of  keys  and  equiping  it  with  a  split  and  normal  device. 
The  new  machine  permitted  an  operator  to  list  accounts,  numbers  and  also  to 
list  and  add  balances  at  the  same  time  by  setting  the  device  in  the  proper 
position. 

A  sample  of  the  work  of  the  wide  machine  equipped  with  the  split 
and  normal  device  is  shown  page  573,  and  indicates  how  the  machine  is 
used  in  connection  with  savings  bank  trial  balances. 

PROVING   EXTENSIONS   ON    SAVINGS   BALANCES. 

Savings  banks  make  a  further  application  of  the  adding  machine  for 
proving  extensions  on  savings  balances. 

In  addition  to  this  proof,  which  verifies  the  ledger  balances,  all  the 
balances  transcribed  to  the  balance  sheet  are  checked  automatically  by  the 
same  operation  that  proves  the  ledger  balances. 

The  method  of  doing  this  is  simple.  Before  using  the  machine,  the 
interest  for  each  account  is  calculated,  set  down  opposite  its  respective 
amount  and  the  extension  made. 

Then  a  sheet  is  inserted  in  the  machine  carriage  and  the  balances,  with- 
out interest,  are  added  and  listed  and  a  total  of  the  amounts  is  printed.  The 
amounts  of  interest  and  extended  balances  are  then  added  and  listed  on 
sheets  in  a  similar  manner. 

After  these  three  sets  of  ledger  amounts  have  been  transcribed  to  sheets 
and  footed  by  the  machine,  it  is  evident  that  if  the  extensions  have  been 
made  properly  and  all  the  amounts  have  been  transcribed  to  the  sheets 
correctly,  the  grand  total  of  the  amounts  and  the  interest  should  agree  with 
the  grand  total  of  the  extended  balances. 

By  this  method  the  ledger  extensions  are  proved  beyond  question  and 
since  the  amounts  transcribed  to  the  sheets  are  taken  directly  from  the  ledger, 

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and  since  the  totals  on  the  sheets  check  with  each  other  as  described  above, 
the  bookkeeper  knows  that  both  his  ledger  amounts  and  the  amounts  on  his 
sheets  are  correct. 

The  principle  of  this  proof  is  illustrated  by  the  following  example : 


Balances. 

Interest. 

Extended  Balances 

$             ♦ 

$         * 

$             * 

145.00 

.73 

145.73 

132.50 

.66 

133.16 

246.25 

1.23 

247.48 

75.00 

.38 

75.38 

100.00 

.50 

100.50 

698.75  * 


3.50  * 


702.25  * 


When  a  large  split  and  normal  machine  is  used,  the  bookkeeper  can 
transcribe  two  sets  of  figures  to  a  sheet  at  one  operation  and  either  add  and 
list  both  columns  or  list  one  column  and  add  and  list  the  other. 

With  this  machine,  the  account  numbers  and  the  balances  without 
interest  can  be  taken  from  the  ledger  at  one  operation,  printing  one  account 
number  and  one  balance  side  by  side  at  a  single  pull  of  the  handle.  Then 
the  amounts  of  interest  and  the  extended  balances  can  be  added  and  listed 
at  one  operation  in  a  similar  manner. 

The  examples  reproduced  below  show  how  the  four  above  mentioned 
columns  can  be  transcribed  to  sheets  at  two  operations: 


Account  Number. 

Balance. 

Interest. 

Extended  Balance. 

$ 

$             * 

$ 

$            * 

25.46 

145.00 

.73 

145.73 

25.47 

132.50 

.66 

133.16 

25.48 

246.25 

1.23 

247.48 

25.49 

75.00 

.38 

75.38 

25.50 

100.00 

.50 

100.50 

698.75  * 

3.50 

702.25  * 

One  Operation.  One  Operation. 

There  are  numberless  other  ways  that  the  adding  and  listing  machine 
of  today  is  used  to  relieve  the  work  in  bank  accounting.  In  fact,  it  plays 
such  an  important  part  in  bank  work  that  it  is  almost  indispensible  as 
the  ledger  and  can  properiy  be  called  the  mechanical  bank  accountant. 

making   sales   records. 

The  cashier,  over-burdened  with  turning  through  sales  slips  and  listing 
items  and  adding  them  mentally,  soon  realized  that  a  machine  that  could  add 
and  list  items  for  a  bank  deposit  could  also  be  used  for  recapitulating  daily 

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LL  *  CO.. 


DAILY  SALES  REPORT 


February,  1st  to  7th,  1907 


Hon.  Feb  1st  Tues.  Feb.  2nd  Wed.  Feb  3r(*   fhurs.  Feb.  4t 


Sales 
Change 

Total 

Cash 
Expense 

Total 

Cash 

Deposit 

In  Drawe 


1 
2 
3 
4 
5 
6 
7 
8 
9 

io 
1 1 

12 

1  3 
14 

1  5 
1  6 
17 
18 

1  9 
20 

2  1 
2S 
23 
24 

2  5 
26 
27 
28 
29 
30 

3  1 
32 
33 
34 

3  5 
36 
3-7 
38 
39 

4  0 


4a2o 

53l64 
5  4.7  0 
2  78  9 
5a9-5 
46l80 
5  3.6  1 
42.09 
4  1.73 
4i.80 
51. 1  6 
4340 
4a92 
4  4.  5  1 
6a47 
61.40 
33l67 
4  4.8  8 

4  2.67 

5  1.2  3 

4  4.9  2 

5  0.8  8 
451  5 
4  534 
43.19 
4  79  6 
4  34  2 
4  99  2 
4  1.0  1 
4863 
40l36 
4083 
4  4.0  2 
4  1.6  3 
4  4.4  2 
46.1  -: 
4  594 
4  1.4  1 
4  1.10 
5574 

1,8  4  a?  3 

1,8  4  87  3  ' 
76 

1.849  4  8 

•1,847  5  1 
197 

1.8  4  9.4  8 

1,847  5  1 
1,8  4  7  00 


51 


=:;-:preES  J.0£ 
60 
25 

Ca.'-fare  10 
10 


rotal 


1.9  7 


4a63 

4&50 
4555 
44.33 

5543 
44.67 
4543 

4  7.7P 
4543 
4565 
5&71 
5Q42 

5  32  1 
454  4 
5  4. 6  6 
53i46 
5  4.6  7 
4&2  1 
5  4.6  6 
5Q66 

5ao5 

4005 
4060 
3Q5  5 
6066 

4  3.4  4 
6055 

5  50  4 
44.04 
5004 
6a70 
3  55  0 

6  6.0  4 
a07 

3  4.0  4 
76l40 
6055 
5  4.0  4 
4Q55 
4a80 

1.9  4  9.2  1 

1.5  4  9.2  1  * 

51 

1,9  4  97  2 

1,94868 
10  4 

1,9  4  97  2' 

1.94868 
1,94800 

69 


4  3.4  5 

5  40  0 
3550 
54.66 
6554 
34.40 

3  50  5 
44.30 
4550 
4Q76 
4Q98 
5  4.2  2 
44.03 
4550 
5666 
4Q0  5 
4060 
43.30 
4505 
34.89 
6520 
44.56 
5532 
3555 
5544 
3506 

5  50  4 

4  4.0  4 

46.05 

4  80  7 
5&36 
5998 
5Q40 
52.4  3 
4003 
46.06 
3&00 
3  90  8 

6  09  5 
3Q4  4 

1.8  5  44  8 

1,85448 

68 

X3  5  516 

1,854  50 
66 

1,85516 

1.8  5  4.5  0 
1,8  5  3.9  0 

60 


Fri.    Feb.    5th 


D/  (Vi 


Febi  ia 


Express        3  9 
60 

Soap  5 

Total        ,1.0  4 


REP<  R' 


EXP2KS2 
ry   1st  to  7th 


Re.'-und  S  5 
Exoressl  3  6 
Carfare]     5 


Total 


66 


5  4.4  0 
5655 
5  7.7  7 

4  7.7  0 
4a08 

5  4.3  0 

3  70  7 

ao8 

2555 

4560 

4  7.0  7 
4a08 
5054 

■-5Q4  3 
5888 

6  4.30 
5066 
6808 
4Q4  3 
3  0.65 
4550 

3  4.0  6 
6077 
6Q66 

5  70  7 
3506 

4  22  0 
4  78  0 
5554 
4  0.54 
4  70  7 
4098 

4  4.3  0 
320 

4505 
5777 
4050 
3a08 

6  0.7  7 

5  1.6  6 

1.8  5  as  9-= 

1.85269* 
60 

1.853L29 

1,85200 
1.29 

1,853.29 

1.85200 
1.85000 

eoo 


Sat.    Feb     6th 


1908 


Salary      1.0  0 
Express        2  9 


Total 


1.2  9 


6500 

40 

503 

3  50  6 
5606 
6a54 
6  7.7  6 
-6  90  8 
6a54 
5a54 

5  77  0 

4  76  0 

6  77  7 
4  77  7 

503  0 
6066 
5087 
4Q6  5 
4  60  6 
3708 
3607 
4  70  8 

504  3 

3  6.0  6 
404  3 

4  06  7 
6540 
5065 
4Q44 
5077 

5  90  8 
5066 

5  4.3  0 

6  3.2  0 
4  50  5 
4506 
5065 
503C 
4  0.6  0 
61.51 

1,934  76 

1,9  3  4.7  6 

20  0 

1,936.76 

1.9  3  57  0 
1.0  6 

1,9  3  6.7  61 

1,93570 
1,93500 

70 

Total  Sail 


Express 
Refund 
Soap 
Carfare 

Total 


50 

25 

6 

25 

1.06 


504  0 
4  5.  6  5 
4  70  0 
4  70  0 
4  98  8 

505  5 
5Q76 
6  4.3  0 
6054 
6076 

4  0.4  3 
3030 
5055 

5  70  0 

6  98  0 

4  6.60 

5  70  7 
3506 
604  4 

6  4.0  2 
24.34 

4  70  8 
4-6.8  1 

5  4.5  6 
4566 
64.33 
3578 
7532 
4&78 
6540 

7  72  2 
5&78 

6  4.8  9 
6  78  8 
801  1 
5&07 

•4  57  6 
6067 
6066 
5  7.17 

2,1  4  1.7  8 

2.14L7  8  =• 

70 

2,1424  8  ' 

2,141.38 

1.10 

2, 1  4  2  4  8 


2.1  41.38 
2,1  4  0.0  0 

1.3  8 

11,531.65 


Express  5  0 
3  5 

Carfare    1 0 

10 

"        5 


Total 


1.10 


Daily  Sales  Report, 


576 


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sales,  and  from  this  developed  a  method  of  handling  the  records  of  daily 
sales  by  using  the  adding  machine. 

The  applications  of  this  system  involves  the  listing  and  adding  of  a 
great  many  small  items. 

The  sales  tickets  are  filed  as  they  come  to  the  Cashier's  office,  either  by 
departments  or  by  clerks,  according  to  the  sheet  that  is  to  be  prepared  first 
On  the  following  morning  the  machine  operator  puts  a  sheet  in  the  machine 
carriage  and  tabulates  the  sales  items  directly  from  the  sales  tickets  Each 
group  of  items  corresponding  to  any  department  or  clerk  is  designated  by  a 
number  or  letter  at  the  top  of  the  column  of  items. 

Above  form   shows  a   record   made   out   in   its   simplest   form      On   a 
sheet  made  out  after  this  manner,  the  clerk's  or  department's  number  is 


Wm.  S.  Town  &  Co..  Wholesale  Hani. 


Monthly  Statement  of  Sales 


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Recapitulation  of  Sales  Made  by  Each  Clerk. 

577 


W   J     1 


Ca. 


American  Business  and  Accounting  Encyclopedia 


328A 


328A 


American  Business  and  Accounting  Encyclopedia 


Ca. 


I 


printed  and  the  items  listed  in  column  form  below  it.  The  little  symbol  « 
is  an  eliminating  sign  ^vhich  indicates  that  the  amount  ''3"  has  not  entered 
into  the  adding  mechanism  of  the  machine.  It  is  printed  at  the  same  time 
the  number  is  printed  with  one  lever  pull,  simply  by  depressing  an  eliminat- 
ing button  when  the  "3"  is  depressed.  The  star  is  printed  when  tHe  total 
button  is  depressed  and  the  lever  then  added  and  listed  in  the  usual  manner. 

3« 
Dep't. 
.3.20  * 

4.12 
11.75 
lj.45 

2.35 

31.87  * 

The  simplest  form  of  sales  record  was  not  adequate  to  meet  the  demand 
when  it  was  desired  to  add  and  list  cash  and  credit  sales  items  side  by  side. 

This  necessity  was  taken  care  of  however,  by  the  improved  15  column 
machine  and  the  split  and  normal  device  which  permitted  an  operator  to 
add  and  list  two  columns  of  items  simultaneously  with  a  totaling  capacity 
of  9999999  in  one  column  and  99999999  in  the  other. 

Our  next  illustrations  give  an  idea  of  the  more  elaborate  forms  of  sales 
record.  These  illustrate  the  appearance  of  a  sales  record  where  cash  or 
credit  and  cost  price  and  selling  price  are  recorded. 


Department 
3.20 

1.50 

4.25 
2.25 
1.25 


It 

* 


Cash. 

Credit. 

Cost 

Selling 

Salesman      14$ 

Dep't 

Price 

Price 

24.20 

31.25  * 

10 

3.50 

4.20  * 

5.20 

6.50 

12 

3.00 

4.10 

7.85 

9.60 

4 

3.20 

5.35 

7.55 

7.35 

7 

3.2j 

4.35 

7.55 

7.35 

7 

3.20 

4.35 

56.10 


68.90 


30.15 


39.30 


5.00  ..     .7.75  * 

In  the  case  of  cash  and  credit  sales,  the  amounts  on  the  cash  tickets  are 
entered  in  one  section  of  the  machine  and  those  on  the  credit  tickets  in  the 
other  section  and  a  footing  made  of  both  sections  simultaneously.  Monthly 
recap,  shows  how  the  machine  can  list  department  numbers  at  the  same 
time  the  cost  price  and  selling  price  are  added  and  listed.  All  three  items 
are  printed  with  one  pull  of  the  lever. 

The  preparation  of  the  sales  sheets  is  comparatively  simple  when  the 
machine  is  used. 

The  sales  tickets  are  filed  as  they  come  to  the  Cashier's  office,  either  by 
departments  or  by  clerks,  according  to  the  sheet  that  is  to  be  prepared  first. 

578 


On  the  following  morning  the  machine  operator  puts  a  sheet  in  the  machine 
carriage  and  tabulates  the  sales  items  directly  from  the  sales  tickets.  Each 
group  of  items  corresponding  to  any  department  or  clerk  is  designated  by  a 
number  or  letter  at  the  top  of  the  column  of  items. 

Numerous  forms  of  sales  records  can  be  prepared  on  the  machine  as 
per  illustrations. 

The  sales  sheets  which  have  been  prepared  each  dav,  can  be  filed  and 
used  at  the  end  of  the  week  to  furnish  data  for  a  comparative  summary. 
See  illustration. 

It  will  be  noticed  that  the  sales  for  each  of  the  five  departments  are 
recorded  under  the  diflferent  days  of  the  week  and  a  total  of  the  week's  sales 
printed  on  the  extreme  right  hand  column.  All  the  departments  have  done  a 
normal  business  except  No.  3.  which  has  fallen  below  the  average.  This 
fact  is  clearly  indicated  on  the  summary.  The  total  amounts  of  business  for 
each  day  is  indicated  by  the  figures  in  the  bottom  row.  When  forms  similar 
to  this  are  prepared,  the  machine  is  set  to  cross  tabulate  and  the  items  are 
added  and  listed  in  horizontal  rows  instead  of  the  regular  column  form. 

Hundreds  of  commercial  houses  are  today  using  the  adding  and  listing 
machine  in  the  capacity  outlined  above  and  in  addition  use  it  in  connection 
with  all  forms  of  bookkeeping  work. 

TRIAL   balance. 

The  monthly  trial  balance  is  generally  dreaded  by  even  the  best  of 
bookkeepers,  not  only  on  account  of  the  tedious  work  involved  in  tran- 
scribing all  the  debits  and  credits  to  sheets  and  making  footings,  but  also 
because  they  have  visions  of  burning  the  midnight  oil  in  order  to  find  som^ 
fugitive  error  which  has  crept  in  despite  their  carefulness. 

There  are  many  safeguards  against  error  in  trial  balances,  but  there  are 
none  that  give  as  great  satisfaction  to  the  bookkeeper  as  one  which  assures 
him  of  accuracy  as  well  as  lightens  his  labor  and  mental  strain. 

There  are  several  ways  in  which  the  machine  can  be  used  for  taking  off 
the  debits  and  credits  that  make  up  the  trial  balance.  There  are  three  ways 
of  taking  off  a  trial  balance  with  the  regular  9  column  adding  machine. 

The  first  method  is  to  insert  a  column  ruled  sheet  in  the  machine  carriage 
and  then  turn  through  the  ledger,  taking  off  all  the  debits  and  adding  and 
listing  them  in  their  proper  column  or  columns.  When  there  is  a  credit  to 
be  recorded  it  is  listed  in  a  column  for  credits  but  not  added.  A  little  symbol 
t,  which  is  printed  to  the  right  of  an  amount,  whenever  the  eliminating  button 
on  the  machine  is  depressed  in  connection  with  the  amount,  indicates  that 
the  item  has  not  been  accumulated.  Wlien  all  the  debits  and  credits  have 
been  taken  from  the  ledger,  the  footing  of  the  debits  is  printed  and  then  the 
credits  are  added  on  the  Burroughs  with  the  carriage  thrown  back  and  the 
total  is  printed.    This  method  is  shown  in  Figures  1  and  2. 

579 


Ca. 


American  Business  and  Accounting  Encyclopedia 


328A 


328A 


American   Business  and  Accounting  Encyclopedia 


Ca. 


ti 


Sales  Recapitulation. 


580 


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581 


Ca. 


I 


American   Business  and  Accouxtixg   Encyclopedia 


Debits. 

$  * 

22.50 

12.50 
3.50 


328A 


12.40 
6.50 

57.40  * 
Debits. 

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Debits  and  Credits. 


$ 


« 


3.50 
13.50 
6.50 
4.55 
5.55 
12.50 
6.50 
7.50 


Debit     42.50  * 
Credit    17.60  * 
Fig.  2. 


328  A. 


A  second  method  consists  of  taking  off  the  debits  and  credits,  somewhat 
after  the  manner  outlined  in  Figure  2.  Sample  Form,  except  in  this  case 
the  credits,  which  are  usually  comparatively  few,  are  listed  into  the  column 
of  debits  with  the  eliminating  button  depressed  to  prevent  addition.  When 
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amounts  opposite  the  eliminating  symbol,iJ  and  add  these  on  the  machine 
with  the  carriage  thrown  back  and  print  the  total,  as  shown  in  the  illustra- 
tion. 

582 


American  Business  and  Accounting  Encyclopedia 


Ca. 


THIAL   BALANCE.    BITTNCR.    HUNSICKER   «  CD.   ALientows.    ft. 
MONTH   OF  i^r...    i. 


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Ca. 


American  Business  and  Accounting  Encyclopedia 


328A 


328A 


American  Business  and  Accounting  Encyclopedia 


Ca. 


TRIAL  BALANCE 


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Ca. 


American  Business  and  Accounting  Encyclopedia       328A-329 


329 


American  Business  and  Accounting  Encyclopedia 


Ca. 


1.1 


A  third  method  consists  in  taking  off  only  the  debit  and  credit  balances. 
Either  of  the  above  two  methods  can  be  followed. 

These  methods  save  more  than  half  the  time  required  by  the  old  hand 
method,  but  there  is  even  a  quicker  way  than  those  just  described  and  that  is 
found  by  making  use  of  the  large  No.  15  Split  and  Normal  machine. 

This  wonderful  machine  enables  the  bookkeeper  to  add  and  list  credits 
in  one  column  and  debits  in  another.  Thus,  when  he  turns  through  his  ledger 
and  comes  to  a  debit,  he  enters  it  in  one  section  of  the  machine  and  adds  and 
lists  the  amount  in  the  debit  column.  When  he  comes  to  a  credit,  he  puts  it 
in  the  other  section  and  adds  and  lists  it  in  the  credit  column.  When  all 
the  items  have  been  taken  in  this  manner  from  the  ledger,  all  that  is  necessary 
to  have  a  printed  total  of  both  debits  and  credits  is  to  press  the  total  button 
and  pull  he  handle.  All  debits  and  credits  or  only  the  debit  and  credit 
balances  can  be  taken  off  at  one  operation  with  this  machine  and  the  two 
footings  made  simultaneously. 

(329)    CAPITAL. 

Capital  may  be  described  as: 

1.  The  liability  of  a  business  for  value  invested  by  the  proprietors  or 
stockholders. 

2.  The  surplus  of  assets  over  liabilities. 

The  nominal  or  authorized  capital  of  a  corporation  is  the  amount  speci- 
fied in  its  articles  of  incorporation. 

The  capital  of  a  corporation  is  for  statistical  purposes,  generally  under- 
stood to  mean  the  sum  invested  to  carry  on  the  business. 

Capital  becomes  impaired  by  losses  so  that  the  balance  sheet  will  show 
a  deficit  if  the  losses  are  heavy  enough  to  wipe  out  the  capital  investment. 

It  is  customary,  however,  in  corporation  accounting  to  retain  on  the 
balance  sheet  the  original  amount  of  capital  as  a  liability  and  to  show  either 
surplus  or  deficit  separately. 

A  surplus  is  distributed  among  the  stockholders  of  a  corporation  in 
the  shape  of  dividends,  or  carried  to  reserve  account  as  a  precaution  against 
future  contingencies.  It  is  not  added  to  capital,  but  is  often  used  as  working 
capital. 

A  deficit  will  show  as  a  debit  balance  on  the  profit  and  loss  account,  and, 
of  course,  diminishes  the  actual  value  of  capital  investment. 

The  consideration  of  capital  as  applied  to  mercantile  operations  can  be 
divided  among  the  following  three  heads: 

1.  Capital  of  an  individual. 

2.  Capital  of  a  partnership. 

3.  Capital  of  a  corporation. 

When  an  individual  is  sole  proprietor  of  a  business,  he  usually  carries 
the  capital  account  in  his  own  name.  All  debits  and  credits  from  profit 
and  loss  go  direct  to  his  account,  and  in  many  businesses  the  profit  and  loss 

586 


account  is  merged  in  the  account  of  the  proprietor,  and  has  no  separate 
existence.  In  such  cases  the  net  gains  or  losses  for  the  current  year  are 
shown  by  the  increase  or  decrease  of  the  balance  of  the  proprietor's  account. 

In  the  case  of  a  partnership  the  profit  and  loss  account  must  be  kept 
separate  in  order  to  determine  the  proportion  of  profit  and  loss  divisible 
among  the  partners.  Here,  again,  however,  it  is  quite  usual  for  the  capital 
to  be  carried  as  separate  credits  to  the  partners  in  proportion  to  their  respec- 
tive interests,  and  not  as  a  "capital"  account. 

The  capital  stock  account  of  a  corporation  sometimes  consists  of  the 
amount  of  paid-up  stock,  but  more  frequently  of  the  amount  subscribed  or 
intended  to  be  subscribed  for  stock. 

The  history  of  the  development  of  corporations  as  we  know  them  at  the 
present  time  is  a  long  one.     They  may  be  briefly  described  as  combinations 
effected  for  the  purpose  of  increasing  trade  by  the  use  of  enlarged  capital 
and  limiting  the  responsibility  of  the  stockholders  to  the  amount  of  stock 
subscribed.    At  one  time  a  partner  in  a  business  or  the  holder  of  stock  in  an 
unlimited  company  was  held  responsible  to  the  extent  of  his  whole  posses- 
sions for  the  debts  incurred  by  the  business  in  which  he  was  interested. 
Thus,  if  one  partner  speculated  on  the  stock  exchange  with  such  proceeds 
of  the  business  as  he  could  obtain  possession  of,  and  the  business  failed  in 
consequence  through  being  unable  to  meet  its  liabilities,  the  other  partners 
were  held  responsible  to  make  up  the  loss  not  only  from  the  amounts  invested 
by  them  in  the  business  as  shown  on  the  books  of  accounts,  but  also  to  the 
extent  of  any  personal  property  of  which  they  might  be  possessed.     The 
stockholders  in  private  banks  which  failed  disastrously  from  various  causes 
were  made  responsible  for  losses  with  which  they  had  nothing  to  do,  and  tO 
an  extent  utterly  disproportionate  to  the  amount  of  their  interest.     It  was 
to  remedy  this  evil,  which  was  actually  a  menace  to  investment,  that  the 
present  laws  were  established,  limiting  the  liability  of  a  corporation  to  the 
amount   of   capital    invested   and   the    liability   of   each    stockholder   to   the 
amount  of  stock  subscribed. 

WORKING    CAPITAL. 

The  capital  of  a  corporation  may  consist,  in  addition  to  the  capital 
stock  subscribed,  of  amounts  raised  by  loans  or  otherwise,  for  the  purpose 
of  securing  working  capital.  In  large  corporations  this  working  capital  is 
usually  secured  by  the  issue  of  debentures  or  bonds  secured  by  property 
and  bearing  interest  which  must  be  paid  out  of  the  net  profits  prior  to  dis- 
tributing dividends  to  either  preferred  or  common  stockholders. 

Working  capital,  generally  speaking,  is  the  amount  available  for  carry- 
ing on  the  business  of  the  company,  i.  e.,  purchase  of  stock  or  material,  pay- 
ment of  wages  and  salaries,  etc.  It  frequently  happens,  however,  as  pre- 
viously indicated,  that  the  amount  available  in  the  ordinary  course  of  busi- 
ness is  insufficient  for  the  requirements  of  the  business,  curtailing  its  opera- 

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I 


i 


tions  and  preventing  its  proper  development.  In  such  a  case  various  meth- 
ods of  increasing  working  capital  are  resorted  to.  Sometimes  the  stock- 
holders will  denote  a  certain  proportion  of  their  stock  to  be  sold  for  cash 
which  will  be  used  as  working  capital,  and  the  cash  so  received  cannot  be 
credited  to  that  account  as  it  has  already  been  credited  with  the  full  amount 
of  the  authorized  capital.  The  usual  method,  therefore,  of  treating  such  a 
transaction  is  to  charge  cash  when  stock  is  sold  and  credit  working  capital 
account. 

Another  method  of  obtaining  working  capital  is  to  issue  mortgage  or 
debenture  bonds.  By  the  usual  provisions  of  the  acts  governing  corpora- 
tions, a  company  may,  upon  written  consent  of  its  stockholders,  representing 
not  less  than  two-thirds  of  its  stock,  mortgage  real  or  personal  property  to 
secure  the  payment  of  the  amount  of  such  debentures  or  bonds.  These 
bonds,  of  course,  bear  interest,  said  interest  being  payable  periodically. 

Another  method  of  obtaining  working  capital  is  to  call  an  assessment 
on  the  stockholders  of  so  much  per  cent  on  the  capital  stock.  This  plan, 
however,  is  not  often  resorted  to. 

Working  capital  may  therefore  consist  of: 
a.     Capital  stock  subscribed  and  paid. 

Capital  stock  sold  by  stockholders  to  raise  cash. 
Dividends  or  surplus  undistributed. 

Part  of  purchase  money  of  business  allowed  to  remain  unpaid. 
Loans  from  bank  or  otherwise. 
Proceeds  of  -accommodation  notes. 
Proceeds  of  sale  of  bonds. 
Assessment  on  stockholders. 


b. 
c. 
d. 
e. 

f. 


h. 


capital  account. 


Capital  account  is  sometimes  used  as  a  medium  for  defeating  pertina- 
cious creditors.  For  instance,  a  company  is  incorporated  with  $200,000 
capital,  of  which  $100,000  is  scheduled  as  the  value  of  patents.  A  credit 
of  $100,000  is  passed  to  the  supposed  owner  of  the  patents  on  the  books, 
and  stands  as  a  liability,  so  that  in  case  the  company  fails  the  supposed 
owner  of  the  patents  schedules  his  claim  for  50  per  cent  of  the  company's 
assets.  Fifty  per  cent  of  the  realizable  assets  of  the  company  at  the  time 
of  failure  probably  represents  more  than  the  actual  assets  with  which  the 
company  started,  so  that  the  company  has  the  sinews  of  war  to  start  again 
immediately  under  a  new  name.    This  is  one  of  the  common  tricks  of  trade. 

(330)     CIRCULATING  CAPITAL. 

A  term  used  to  describe  that  portion  of  the  capital  devoted  to  the 
purchase  of  commodities  to  be  resold  or  material  necessary  for  the  manu- 
facture of  articles  for  sale. 


(331)     FIXED  CAPITAL. 

That  portion  of  capital  invested  in  permanent  assets,  such  as  real  estate, 
buildings,  machinery,  etc. 

(332)     CAPITAL  ASSETS. 

Where  capital  is  sunk  in  permanent  assets  which  would  not  realize  the 
amount  invested,  it  has  been  decided  by  eminent  authorities  that  it  is  not 
necessary  to  re-value  the  assets  at  their  present  value,  deducting  the  amount 
of  depreciation  from  the  profits  earned  and  thus  reducing  probable  dividends. 
Nevertheless,  it  is  evidently  sound  conservative  policy  to  establish  a  reserve 
to  oflFset  depreciation  of  capital  assets  in  cases  of  this  nature.  Permission 
is  sometimes  obtained  from  the  stockholders  to  reduce  the  capital  stock ;  thus 
a  company  incorporated  for  $100,000  in  1,000  shares  of  $100  each'  may 
obtain  consent  to  a  reduction  to  $75,000  in  1,000  shares  of  $75  each,  this 
reduction  in  the  value  of  capital  stock  thus  offsetting  the  reduction  in  the 
value  of  capital  assets.  The  procedure  necessary  in  case  of  increasing  or 
decreasing  capital  stock  is  about  the  same.  The  consent  of  two-thirds  of 
the  stockholders  must  be  secured  at  a  special  meeting  properly  called  in 
accordance  with  the  laws  of  the  State  regulating  such  transactions,  and 
certified  copies  of  proceedings  must  be  filed  with  the  Secretary  of  State. 
The  treatment  of  additional  capital  stock  on  the  books  of  account  is  similar 
to  that  of  the  original  capital  stock. 

(333)     NOMINAL  AND   ACTUAL   CAPITAL. 

Many  accountants  differ  as  to  the  proper  method  of  showing  capital 
stock  on  the  balance  sheet.  In  Great  Britain  the  nominal  capital  is  always 
placed  in  an  inner  column,  while  the  amount  of  actual  capital  subscribed 
is  included  in  the  statement  of  assets  and  liabilities.  In  the  United  States 
it  is  usual  to  include  the  whole  of  the  authorized  capital  in  the  balance  sheet, 
offsetting  unsubscribed  stock  by  a  negative  account. 

(334)     CAPITAL   EXPENDITURE. 

Capital  expenditure  is  that  incurred  in  placing  an  enterprise  on  a  footing 
to  do  business,  such  as  the  purchase  of  real  estate  on  which  to  locate  a 
factory,  the  building  of  the  factory,  the  purchase  of  equipment  for  the  manu- 
facture of  the  articles  to  be  sold,  of  the  rolling-stock  of  a  railroad  company, 
etc.,  and  any  other  expenditures  incurred  with  a  view  to  increasing  the  earn- 
ing capacity  of  a  business,  such  as  improvements  to  machinery,  the  addition 
of  new  devices,  etc.,  are  capital  expenditures. 

Capital  expenditure  is  the  exchange  of  cash  for  fixed  assets  of  equal 
value,  such  as  machinery,  real  estate,  buildings,  improvements,  etc. 

Expenditures  for  the  purpose  of  constructing  or  improving  factories 
or  plants,  should  be  considered  as  capital  expenditures. 


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334-336 


The  cost  of  sinking  a  new  shaft  in  a  mine,  driving  new  levels  or  erecting 
engines  is  capital  expenditures,  but  the  cost  of  maintenance  of  the  mines, 
repairs  and  renewals  should  be  charged  against  revenue.  Renewals  are 
capital  expenditures  only  to  the  extent  of  the  increase  in  value  of  the  asset 
renewed  over  its  original  value, 

(335)     CAPITAL  EXPENDITURES— INTEREST  ON. 

A  great  many  corporations  who  own  their  land  and  buildings  still  make 
a  charge  on  their  books  for  interest  on  the  value  of  such  land  and  buildings, 
as  they  say  this  covers  the  rent  they  would  have  to  pay  supposing  the 
property  were  leased. 

This  interest  is,  of  course,  charged  against  profits  on  the  one  hand,  and 
included  as  part  of  the  burden  to  be  distributed  over  the  various  products 
manufactured,  so  that  it  becomes  a  part  of  the  value  of  finished  goods  and 
goods  in  process  and  thus  gets  into  the  profits  again. 

This  may  be  scientific,  but  appears  to  us  entirely  unnecessary.  It  would 
also  be  probably  prejudicial  to  the  business  in  cases  of  keen  competition. 

"Why  should  interest  on  the  capital  invested  in  a  productive  plant, 
which  is  invested  in  the  ordinary  way  of  carrying  on  the  business  of  the 
undertaking,  be  added  to  the  provision  for  depreciation?  This  method  com- 
plicates and  obscures  the  actual  facts,  and  is  by  no  means  to  be  commended. 
The  locking  up  of  the  capital  for  a  time  in  productive  plant  is  one  of  the 
incidents  of  the  undertaking,  and  is  one  of  the  purposes  for  which  the  capital 
is  provided,  and  the  whole  profit  resulting  from  the  various  incidents  of  the 
business  is  the  reward  of  the  capital  invested  therein ;  and  it  appears  that  be- 
tween the  two  methods,  interest  or  no  interest,  for  this  particular  purpose, 
the  latter  has  much  to  commend  it.  If  interest  is  to  be  calculated  on  portions 
of  capital  locked  up  from  time  to  time  in  the  course  of  carrying  on  the 
business,  it  would  follow  that  it  should  be  computed  on  an  overdue  debt, 
for  instance,  the  amount  so  computed  being  debited  to  the  Profit  and  Loss 
Account  as  a  loss  on  sales,  while  on  the  credit  side  of  the  Profit  and  Loss 
Account  would  appear  the  fictitious  interest  so  charged  upon  the  overdue 
debt.  Indeed,  to  carry  the  matter  to  its  logical  conclusion,  and  having 
regard  to  the  fact  that  the  amount  of  capital  locked  up  in  productive  plant 
averages  itself  as  closely  as  capital  locked  up  in  debts,  interest  should  be  com- 
puted on  all  debts  outstanding,  whether  due  or  not,  less  perhaps  the  amounts 
payable  to  creditors.  Profit  and  Loss  Account  being  credited  with  this  interest 
and  at  the  same  time  debited  with  a  similar  sum  under  the  head  of  Loss  on 
Sales." 

(336)     CAPITAL  LIABILITIES. 

Those  due  to  stockholders  and  for  bonds  issued  or  loans  procured  for 
the  purpose  of  obtaining  working  capital. 

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337-340         American  Business  and  Accounting  Encyclopedia  Ca. 

(337)     CAPITAL  PARTNERSHIP. 

In  partnerships  the  profit  and  loss  account  must  be  kept  separate  in 
order  to  determine  the  proportion  of  profit  and  loss  divisible  among  the 
partners.  It  is  customary  for  the  capital  to  be  carried  as  separate  credits 
to  the  partners  in  proportion  to  their  respective  interests,  and  not  as  a 
"capital"  account. 

(338)     CAPITAL  RECEIPTS. 

Capital  receipts  include  cash  or  value  received  from  the  stockholders  in 
payment  for  stock  subscribed,  or  sold;  cash  received  from  the  sale  of 
debentures  or  bonds  issued  to  provide  working  capital;  cash  received  from 
the  sale  of  fixed  or  capital  assets;  cash  received  from  the  investment  of 
surplus  capital  in  outside  enterprises  either  in  the  nature  of  interest,  dividend, 
or  otherwise. 

(339)     CAPITAL  AND  REVENUE  (DISTINCTION  BETWEEN). 

Amounts  appearing  on  the  debit  side  of  a  trial  balance  represent  either 
assets  or  expenditures. 

Those  debits  from  which  we  expect  to  receive  returns  or  equivalents  are 
active  assets. 

Those  debits  which  are  payments  on  acount  of  machinery,  plant,  wages 
for  construction,  new  parts,  etc.,  are  capital  expenditures. 

Those  debits  which  represent  payments  in  respect  to  which  no  returns 
are  ever  expected,  are  revenue,  or  profit  and  loss  expenditures. 

Amounts  appearing  on  the  credit  side  of  a  trial  balance  represent  liabili- 
ties, negatives  to  assets,  capital  receipts  and  profits. 

Those  credits  which  have  to  be  satisfied  with  cash  or  its  equivalent, 
are  liabilites. 

Those  credits  which  relate  to  receipts  not  pertaining  to  the  ordinary 
transactions  of  the  business — such  as  sale  of  machinery,  royalties  or  patents, 
sale  of  land,  rents,  etc. — are  capital  receipts. 

Those  credits  which  show  gross  sales,  or  earnings  of  the  business,  are 
revenue  receipts. 

It  sometimes  occurs  that  some  balances  relate  partly  to  capital  and 
partly  to  revenue.     In  this  case  they  must  be  analyzed  and  distributed. 

(340)     CAPITAL— SOLE  PROPRIETOR. 

When  an  individual  is  sole  proprietor  of  a  business,  he  usually  carries 
the  capital  account  in  his  own  name.  All  debits  and  credits  from  profit  and 
loss  go  direct  to  his  account,  and  in  many  businesses  the  profit  and  loss 
account  is  merged  in  the  account  of  the  proprietor,  and  has  no  separate 
existence.  In  such  cases  the  net  gains  or  losses  for  the  current  year  are 
shown  by  the  increase  or  decrease  of  the  balance  of  the  proprietor's  account. 

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(341)     CAPITAL  STOCK. 


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343-344         American  Business  and  Accounting  Encyclopedia 


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See  STOCK. 

(342)     CAPITAL  STOCK  UNSUBSCRIBED. 
See  STOCK. 

(343)     CARD  SYSTEM. 

A  method  of  keeping  records  on  cards.  These  cards  can  be  made  of 
any  size,  with  trays,  or  files,  to  fit. 

Generally  speaking,  the  advantages  obtained  by  the  use  of  card  records 
may  be  described  as  follows. 

Guide  Cards. — These  can  be  placed  wherever  desired  for  the  pur- 
pose of  securing  general  and  special  information  at,  practically,  a  moment's 
notice.  This  information  is  secured  by  attaching  movable,  or  immovable, 
extension  tabs  to  the  cards.  In  many  cases  immovable  tabs  may  be  used 
with  safety,  all  possible  requirements  being  perfectly  understood,  but  in 
instituting  a  card  system,  it  is  better  to  at  first  employ  movable  tabs,  as  many 
new  ideas  and  uses  for  guide  cards  are  more  than  likely  to  be  discovered 
after  the  adoption  of  this  device. 

These  guide  cards  constitute  the  indexes  proper,  but  special  indexes  can 
be  obtained  by  attaching  extension  tabs  to  the  record  cards  themselves,  and 
anyone  who  has  had  experience  with  the  card  system  will  readily  recognize 
the  fact  that  a  card,  filed  in  a  finely  subdivided  index,  is  much  more  quickly 
found  than  is  a  name  in  any  book  index.  Then,  too,  with  the  card  system, 
reference  is  had  direct  to  the  records  themselves  instead  of  first  finding  the 
name  and  then  turning  to  the  page  of  a  book  to  find  the  desired  record. 
Various  illustrations  will  be  shown,  but  as  good  an  example  as  any  may  be 
found  in  a  real  estate  office  rent  record,  which  by  the  use  of  this  system  may 
be  made  to  show  at  a  glance. 

Name  of  owner. 

Name  or  location  of  property. 

Due  date  of  rent 

(Weekly,  monthly,  quarterly,  yearly.) 

In  the  meantime  the  card  contains  full  particulars  of  rental  agreement 
and  the  ledger  account  with  the  tenant.  Cards  of  tenants  in  arrear  may  be 
placed  in  a  separate  section,  or  file,  which  will  demand  constant  attention 
from  the  collection  department,  and  unrented  property  will  be  placed  in 
another  section. 

By  the  use  of  these  guide  cards  and  extension  tabs  the  separate  index 
is  no  longer  required  and  a  great  saving  of  time  is  thereby  effected. 

Transfers. — In  bound  books  transfers  are  frequently  necessary  on 
account  of  space  allowed  to  an  account  being  insufficient,  or  ledger  being 
filled,  these  changes  having  to  be  recorded  in  the  index.  By  the  card  system 
all  accounts  are  unlimited  as  to  expansion.    When  a  card  is  filled  a  new  card 

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is  placed  in  front  of  it,  so  that  the  record  is  continuous  no  matter  how  many 
entries  may  be  required.  Records  that  are  no  longer  needed — such  as  closed 
accounts — are  removed  to  a  Transfer  file,  so  that  all  useless,  or  dead,  matter 
is  eliminated. 

In  a  small  business  it  is  practicable  to  carry  both  active  and  inactive 
accounts  in  the  same  tray,  the  active  accounts  in  front  and  the  inactive 
accounts  at  the  back,  properly  distinguished  by  guide  cards.  This  arrange- 
ment is  found  very  convenient  in  transferring  dead  accounts  and  saves 
expense. 

(344)     PETTY  ledger. 

Transient,  or  Sundry  Accounts.— Every  book-keeper  has  ex- 
perienced the  inconvenience  and  general  annoyance  caused  by  the 
ordinary  "Sundries"  Account  in  the  customers'  ledger.  This  account  is,  as 
a  rule,  full  of  small  items  occupying  numerous  pages,  the  charges  occupying 
one  line  each.  When  every  account  on  a  page  except  one  has  been  closed  it 
is  extremely  .difficult  to  recognize  the  fact  that  there  is  one  unpaid  account 
left  on  that  page,  as  it  is  practically  "buried  alive"  among  the  dead  accounts. 
With  the  card  system  only  unpaid  accounts  would  appear  in  the  "Sundries" 
ledger,  or  section,  and  one  of  the  most  dangerous  "trial  balance  traps"  would 
thus  be  removed. 

Doubtful  Accounts.— These  can  be  filed  together,  either  at  the  back 
Df  the  active  accounts,  or  in  a  special  Suspense  file,  where  they  will  always 
call  for  special  attention. 

Detection  of  Errors.— In  taking  off  the  trial  balance,  the 
amount  due  to  date  is  placed  in  the  balance  column  of  each  card,  then  the 
sectional  system  is  adapted  as  follows :  into  each  alphabetical  section  of  cards 
is  placed  a  balance  card,  to  which  is  carried  the  footing  of  each  column  for 


593 


Ca. 


American  Business  and  Accounting  Encyclopedia 


344-345 


the  month,  of  all  the  accounts  in  that  section,  hence  if  an  error  occurs  in  the 
trial  balance,  these  columns  from  the  balance  cards  can  be  proved  by  the  day- 
book or  the  cash  book,  and  so  an  error  located  to  one  book.  Inside  of  one 
hour  after  the  completion  of  a  trial  balance  all  errors  can  be  located.  The 
balance  cards  also  prove  the  correctness  of  the  balance  columns  of  all  the 
cards  in  a  given  section. 

Saving  of  Time. — By  the  elimination  of  dead  matter  in  a  card  ledger 
it  is  not  necessary  to  carefully  go  over  all  closed  accounts  in  getting  a  trial 
balance.  In  sending  out  statements  at  the  end  of  the  month  the  cards  may 
be  distributed  among  several  clerks  and  the  work  promptly  accomplished. 

In  posting,  the  cards  called  for  by  the  book  from  which  postings  are  to 
be  made  can  be  taken  from  the  card  tray  and  arranged  to  correspond  with 
the  entries.  Posting  can  then  be  accomplished  in  at  least  half  the  time  which 
would  be  occupied  in  posting  to  a  bound  ledger. 

The  saving  of  time  in  regard  to  indexing  has  already  been  referred  to. 

Expense. — The  card  system  is  not  only  the  most  efficient  but  the 
cheapest  form  of  record.  The  trays  once  secured  do  not  have  to  be  periodi- 
cally replaced,  and  cards  of  any  style  can  be  purchased  in  large  quantities  at 
almost  nominal  prices. 

Utility. — Card  systems  can  be  adapted  to  almost  any  kind  of  record 
— such  as  Advertising,  Correspondence,  Credits,  Collections,  Factory  Costs, 
Indexes  of  Electros,  Tools,  Libraries,  Machinery,  Subjects,  Stationery,  etc. 

The  card  system  has  been  described  as  a  method  of  recording,  classify- 
ing, and  indexing  facts,  figures,  or  names  of  every  description  by  means  of 
cards,  uniform  in  size,  arranged  on  edge  in  drawers  or  trays,  according  to 
some  defined  order,  with  projecting  guide  cards  to  facilitate  immediate  ref- 
erence. 

Among  its  many  uses  may  be  specified — 


(345)     CUSTOMERS*  reference  list. 

This  is  a  card  index  of  dealers  purchasing  certain  lines  of  goods,  to 
whom  appropriate  advertising  matter  is  mailed  periodically.  Different  col- 
ored cards  are  used  for  the  different  lines  manufactured.  The  card  allotted 
to  the  prospective  customer  is  dropped  into  an  index  "tickler"  and  will  come 
to  light  again  in  about  ten  days,  when  a  reminder  will  be  mailed  along  the 


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345-347 


American  Business  and  Accounting  Encyclopedia 


Ca. 


trail  of  the  preceding  letter.  The  card  is  then  put  away  in  the  monthly  file 
and  will  appear  once  more  at  the  expiration  of  thirty  days.  There  must 
necessarily  be  a  limit  set  to  the  letter  writing  which  fails  to  bring  an  inquiry 
to  the  purchasing  stage,  and  it  is  customary  to  set  this  limit  at  the  third 
letter,  when  the  card  is  filed  with  the  Customers'  Reference  List. 

(346)     customer's  records. 

In  many  businesses  it  has  been  found  advantageous  to  keep  a  complete 
record  of  sales  to  customers,  and  how  the  orders  were  secured,  principally 
for  the  purpose  of  checking  up  the  salesmen  and  their  work  with  customers 
in  the  various  cities  on  their  routes. 

These  cards  may  be  indexed  in  several  ways,  but  in  a  business  of  any 
size  it  is  best  to  provide  a  separate  tray  for  each  salesman's  route.  The 
cards  should  then  be  indexed,  and  cross-indexed,  with  extensions  of  differ- 
ent colors  and  sizes  to  show  state,  city,  and  names  in  alphabetical  order  in 
each  city.  Salesmen  should  make  reports  on  all  customers  from  whom  no 
orders  were  received  and  dates  of  calls  should  be  entered  on  the  cards. 

ChuRCH   MBMQERSMiP  RECORb 


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(347)     church  membership  and  parish  record. 

Records  of  this  kind  can  be  very  conveniently  arranged  by  the  card  sys- 
tem. The  list  of  members  will  always  be  up-to-date,  as  the  cards  of  those 
who  have  removed,  or  died,  can  be  taken  out  and  placed  in  another  tray. 

Cards  should  be  provided  for  all  families  under  the  pastor's  jurisdic- 
tion, containing  particulars  of  history,  individuality,  church  connections,  etc. 
Visits  would  be  recorded  on  these  cards,  which  would  form  a  most  valuable 
record  for  the  pastor's  guidance  at  all  times.  When  families  remove  to 
another  parish  cards  are  sent  to  the  pastor  of  the  parish  to  which  they  now 
belong. 


595 


Ca. 


American  Business  and  Accounting  Encyclopedia         348-350 


(348)       COLLEGE    RECORDS. 

Records  of  the  studies  of  college  students,  students*  personal  records, 
etc.,  can  be  kept  by  the  card  system  with  great  advantage,  one  card  being 
issued  for  each  subject  of  study.  On  this  card  will  be  entered  the  grading 
for  the  several  terms  of  each  year,  together  with  certificate  of  graduation 
at  the  close  of  the  course. 


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(349)       CATALOGUE    INDEX. 

This  card  shows  that  the  filing  case  has  various  catalogues  from  build- 
ers of  upright  drills;  the  card  giving  the  address  of  the  manufacturers  and 
the  number  of  the  catalogue,  also  the  page  on  which  references  to  upright 
drills  mav  be  found.  If  any  one  requires  a  drill  that  is  not  then  in  stock,  it 
is  possible  to  refer  immediately  to  the  various  builders  and  find  the  catalogue 
by  the  number  and  the  page.  It  thus  takes  but  a  few  seconds  to  find  the 
printed  matter  relative  to  the  product  of  any  builder  the  company  may 
require. 


NOf^e 

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(350)       COLLECTIONS. 

In  all  large  businesses  it  is  necessary  to  provide  a  separate  record  for 
collections,  and  the  card  system  is  admirably  suited  for  this  purpose. 

The  illustration  here  shown  provides  for  name  and  address  of  customer 
rating,  limit,  date,  amount  and  terms  of  bills,  steps  taken  for  collection  and 

596 


350-353         American  Business  and  Accounting  Encyclopedia 


Ca. 


other  particulars  rendering  the  credit  man  absolutely  independent  of  the 
bookkeeper.  The  cards  are  filled  out  and  given  to  the  credit  man  the  day 
the  order  is  received,  so  that  he  has  an  opportunity  to  stop  any  order  exceed- 
ing the  limit  of  credit.  They  are  cross-indexed,  alphabetically  and  by  due 
date.     Overdue  accounts  are  transferred  to  a  separate  section  or  tray. 

(351)     employee's  experience  record. 

This  is  a  permanent  record  of  the  workmen  who  have  at  any  time  been 
employed  in  a  factory,  etc.,  and  is  extremely  useful  in  case  of  inquiries  being 
made  by  other  employers,  or  in  case  a  former  employee  desires  reinstatement. 


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(352)     record  of  inquiries. 
This  record  is  for  "follow-up"  purposes. 

(353)     manufacturers'  record. 

The  handling  of  catalogues  sent  out  by  other  manufacturers  is  a  matter 
of  considerable  importance  and  is  more  frequently  neglected  than  otherwise. 
Every  catalogue  should  be  filed  in  such  a  manner  that  it  can  be  removed 
without  disturbing  any  other  catalogue  in  the  case;  and  provided  that  a 
thoroughly  effective  method  of  getting  at  the  catalogues  without  delay  can 
be  used  in  connection  with  a  complete  and  well-weeded  stock  of  trade  litera- 
ture, and  this  combination  is  employed  in  turn  with  a  close  price  list,  the  man 
in  control  will  be  able  to  quote  without  delay  on  any  goods  his  customers 
may  require  in  his  line  of  business. 


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597  . 


Ca. 


American  Businf.ss  .\m>  Accounting  Encyclopedia 


354-355 


(354)       SALES   RECORD. 

The  information  contained  on  a  record  of  this  kind  is  of  value  when  a 
duplicate  machine  is  ordered,  while  it  enables  the  manufacturer  to  readily 
refer  a  prospective  buyer  of  a  certain  kind  of  machine  to  purchasers  of  simi- 
lar machines  in  his  vicinity. 


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(355)       SUBJECT   RECORD. 

Authors,  lecturers,  political  speakers,  and  clergj'men  are  necessarily 
heavy  readers,  and  realize  the  difficulty  of  remembering  passages  that  not 
only  prove  of  great  interest  at  the  time  of  reading,  but  which  would  be  valu- 
able for  future  reference.  This  difficulty  can  be  entirely  overcome  by  noting 
on  cards,  either  a  brief  summary  or  an  exact  copy  of  the  passage  in  full, 
stating  the  name  of  the  book,  its  author,  number  of  the  page  or  pages,  con- 
taining the  article  of  interest  and  filing  same  in  a  Card  Filing  Cabinet. 

These  cards  are  placed  between  guide  cards  in  alphabetical  order,  under 
the  name  of  the  subjects  to  which  they  relate.     Frequently  these  extracts 


t      2      3     4     5      e 


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SUBJECT 


598 


355-356 


American  Business  and  Accounting  Encyclopedia 


Ca. 


could  be  appropriately  filed  under  two  or  more  titles.  This  is  termed  cross- 
indexing  and  is  advisable,  as  it  greatly  facilitates  ready  reference.  The 
extract  is  written  on  the  card  which  bears  the  title  by  which  it  is  most  likely 
to  be  remembered.  The  cards  bearing  the  other  titles  only  state  the  division 
of  the  index  where  the  extract  is  to  be  found.  Thus  all  information  of 
special  interest  pertaining  to  a  certain  subject  collected  at  diflferent  times 
from  diflferent  sources  will  be  found  together.  The  value  of  this  work  will 
be  readily  appreciated.  The  system  would  prevent  the  loss  of  much  valua- 
ble time  spent  in  looking  for  information  that  must  either  be  found  or  else 
curtail  to  that  extent  the  weight  and  value  of  the  work  to  be  done. 

(356)       INSTALMENT    RECORDS. 

Since  the  advent  of  the  card  system  of  records,  many  firms  have  found 
that  they  more  fully  conform  to  the  requirements  of  their  business  than  their 
present  bound  book  methods  permit.  This  may  be  said  to  be  especially  true 
of  accounts  relating  to  accrued  amounts  falling  due  at  stated  intervals,  in 
which  the  card  system  is  not  simply  a  substitute  for  books  but  a  decided 
improvement. 

By  using  the  card  system  in  the  instalment  business  accounts  can  be 
indexed  alphabetically,  and  by  dates  of  expiration,  at  the  same  time;  while 
bound  ledgers  cannot  be  cross-indexed.  All  overdue  or  unpaid  instalments 
cannot  be  separated  from  those  that  are  paid,  which  goes  to  show  that  some 
auxiliary  "tickler"  system  would  have  to  be  provided  in  order  to  ascertain 
the  due  dates  of  the  diflferent  instalment  accounts. 

With  the  card  system  cross-indexing  can  be  eflfected  with  extension 
tabs  of  diflferent  sizes  and  colors.  From  the  illustration  submitted  it  will  be 
seen  that  the  cards  are  filed  away  in  alphabetical  order  and  tab  cards  pro- 
vided which  have  edges  projecting  above  on  which  are  printed  the  due  dates 
of  the  diflferent  instalments,  June  1,  8,  15  and  22.  All  accounts  falling  due 
on  the  same  dates  are  indicated  by  straight  rows  of  tabs  in  the  same  position ; 
consequently  the  projections  will  all  be  in  a  direct  line,  thus  enabling  the 
bookkeeper  or  clerk  to  readily  procure  a  collection  list. 

In  case  a  customer  does  not  pay  when  account  is  due,  simply  transfer 
the  card  in  front  of  tab  card  bearing  date  when  payment  is  promised  or 
remove  to  a  separate  file  for  special  attention. 

Closed  accounts  can  be  removed,  thus  eliminating  all  dead  matter. 

Should  a  prejudice  exist  against  the  use  of  the  card  system,  the  tabular 
bound  ledger  would  undoubtedly  answer  the  purpose  best  for  instalment 
accounts.  By  carrying  a  representative  or  controlling  account  in  the  gen- 
eral ledger  with  the  tabular  ledger,  the  accuracy  of  the  work  can  be  easily 
checked  by  comparing  the  grand  total  of  the  balances  as  shown  by  the  tab- 
ular ledger  with  the  general  ledger  representative  or  controlling  account. 

On  the  other  hand  when  the  card  system  is  used,  in  order  to  prove  the 
accuracy  of  the  work,  it  will  be  necessary  to  make  a  recapitulation  of  the 
balances  each  month,  which  will  involve  considerable  labor. 

599 


Ca. 


American  Business  and  Accounting  Encyclopedia 


356-35/ 


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Should  a  card  happen  to  be  lost  or  misplaced,  a  duplicate  can  be  readily 
obtained  from  the  balance  sheet,  which  will  show  the  charges  and  credits  for 
the  month  together  with  the  new  balance,  and  from  order  book  and  cash 
book. 

(357)     REAL  estate  record. 

In  this  business  three  kinds  of  records  must  be  provided  for. 

1.  Account  with  tenant. 

2.  Account  with  property. 

3.  Account  with  owner. 

The  account  with  the  tenant  will  show  rent  accrued  and  paid. 

The  account  with  the  property  will  show  expenditures  on  property  for 
repairs,  etc. 

The  account  with  the  landlord  will  show  payments  to  him  with  particu- 
lars of  deductions  on  account  of  expenditures  and  commission  on  rents  col- 
lected. 

Separate  cards  of  regular  ledger  form  should  be  provided  for  accounts 
with  owners,  debiting  their  accounts  and  crediting  expenditures  controlling 
account  when  rendering  periodical  reports  of  transactions.  It  is  well  to  have 
cards  of  different  colors  for  these  two  classes  of  cards,  the  property  records 
following  those  relating  to  the  owners.  This  arrangement  can  be  effected 
equally  well  by  the  loose  leaf  system.    Where  accounts  are  designated  by 

600 


357-358 


American  Business  and  Accounting  Encyclopedia 


Ca. 


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numbers  the  owner's  number  will  be  (say)  5,  and  the  property  account  num- 
bers will  be  5a,  5b,  5c,  etc. 

In  this  case,  instead  of  removing  the  accounts  of  tenants  in  arrears  they 
might  be  designated  by  special  extension  tabs. 

Separate  columns  should  be  provided  in  cash  book  for  rents  received 
and  property  disbursements. 

(358)     mortgage  loan  business. 

A  card  index  of  mortgage  loans  is  one  of  the  handiest  office  records  a 
savings  bank  man  can  use.  It  can  be  made  so  as  to  be  inexpensive  and  at 
the  same  time  very  effective.  For  a  savings  bank  of  ordinary  size  a  card 
tray  about  eighteen  inches  long  and  with  an  inside  width  of  from  five  to  six 
inches  would  suffice  to  contain  all  the  cards  needed.  The  cards,  in  order  to 
show  all  the  needed  information  on  one  side  would  better  be  about  five  by 
four  inches.  Any  card  of  good  material  furnished  by  your  printer  and 
printed  to  suit  your  needs  should  answer.  For  a  bank,  however,  that  uses  a 
regular  card  index,  and  has  a  drawer  to  spare,  the  ordinary  index  card  should 
be  made  to  serve  by  utilizing  both  sides.  The  information  may  be  arranged 
to  suit  the  needs  of  the  bank  adopting  the  system,  but  should  present  the  fol- 
lowing information: 

1.  Location  of  property. 

2.  Name  of  mortgagor;  address  for  mailing  interest  notices. 

3.  Amount  of  loan,  and  indorsements  on  principal. 

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4.  Rate  of  interest. 

5.  Description  of  property;  such  as  land  area,  street  or  othei  bounds 
buiWings  and  their  use. 

6.  Amount  of  insurance;  expiration  dates  of  policies. 

7.  Assessed  valuation  for  taxation;  estimated  value  by  investment 
committee. 

This  information  can  be  arranged  as  the  user  chooses,  but  it  is  sug- 
gested that  it  be  as  follows:  Let  the  first  line  on  the  card  be  divided  about 
two  inches  from  the  left  margin.  In  the  first  division  place  the  location ;  in  the 
second  the  name  of  the  mortgagor.  On  a  second  line  immediately  below  the 
name  place  the  address.  It  is  better  to  leave  a  line  below  this  even  for  a 
possible  change,  which  often  takes  place  when  the  mortgagor  does  not  occupy 
the  premises  in  person.  At  the  left  of  the  card,  under  the  location,  have  an 
ordinary  column  ruling  running  from  the  second  line  to  the  bottom.  This 
can  be  used  for  the  amount  of  the  loan,  and  as  each  indorsement  is  made  it 
can  be  readily  deducted.  The  bottom  figure  will  then  show  the  outstanding 
loan  in  all  cases.  This  column  need  be  no  more  than  an  inch  wide,  and  in  the 
other  inch  below  the  location  on  the  second  line  of  the  card  place  the  interest 
rate.  In  a  column  running  from  this  to  the  bottom  of  the  card  can  be  placed 
the  amount  of  insurance  and  the  expiration  of  the  policies.  The  latter  part 
of  the  matter,  however,  is  usually  kept  in  a  separate  record,  and  is  suggested 
for  use  here  simply  to  bring  all  the  needful  facts  together.  The  assessed 
value,  and  the  loan  estimate  value  of  the  property,  together  with  the  date  of 
the  loan,  can  be  put  on  the  line  immediately  under  the  name  and  address  of 
the  mortgage.  All  the  rest  of  the  card  may  be  cross  ruled  and  used  for  a 
description  of  the  property.  If  it  is  desired  this  space  may  be  subdivided  for 
the  following  captions:    Location,  lot  area,  buildings,  condition. 

It  will  be  seen  at  a  glance  how  useful  such  a  record  can  be.  The  cards, 
arranged  by  groups,  according  to  the  alphabetical  order  of  location,  show  at 
once  just  what  property  is  held  as  security  in  a  given  locality  as  well  as  the 
amount  loaned  in  that  locality.  An  alphabetical  arrangement  in  each  of 
these  locality  groups  by  names  of  mortgagors  will  render  it  almost  as  easy 
to  obtain  a  given  address  as  though  the  cards  were  arranged  by  mortgagors 
from  beginning  to  end.  If  it  is  desired  to  classify  the  mortgage  loans  by 
rates  of  interest  the  cards  can  be  taken  out  and  sorted,  or  the  amounts  called 
to  a  sheet  without  handling  any  dead  matter.  If  it  is  desired  to  list  the 
assessed  or  estimated  value  of  the  property,  as  compared  with  the  loans  car- 
ried, it  can  be  readily  done  from  these  cards  alone.  If  it  is  desired  to  watch 
the  condition  of  any  of  the  mortgaged  property,  where  it  is  suspected  that 
waste  is  being  committed,  the  card  can  be  laid  aside  as  a  memorandum,  or 
a  duplicate  made  and  given  to  the  investment  committee  or  agent.  Being  in 
the  possession  of  all  the  material  information  about  the  property  a  more 
intelligent  report  concerning  its  condition  will  be  obtained.  The  expiration 
of  insurance  policies  can  be  noted  and  the  cards  extracted  as  memoranda 

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until  the  new  policy  is  filed.  It  is  no  great  matter  to  keep  such  a  system  as 
this  up-to-date.  The  change  in  address  can  be  corrected  after  every  inter- 
est date  or  when  they  occur  in  the  interim.  Endorsements  of  loans  can  be 
made  as  they  occur,  and  in  fact  all  the  needful  changes  can  be  noted  with  a 
very  small  expenditure  of  time.  The  value  of  such  an  index  is  very  g^eat. 
It  is  an  epitome  of  the  whole  real  estate  loan  system  of  the  bank,  arranged 
in  such  a  manner  that  as  sooon  as  a  loan  is  paid  the  card  can  be  removed, 
and  when  a  new  one  is  made  a  record  can  be  inserted.  It  has  stood  the  test 
of  practical  experience  in  a  number  of  banks  that  would  not  be  without  it  as 
a  follow  up  system. — (E.  L.  Sanderson.) 

(359)     societies,  clubs,  etc. 

A  set  of  books  or  a  system  of  accounting  eminently  adapted  to  one  club 
might  not  be  suited  to  or  exhibit  desired  results  under  other  conditions.  The 
accountant  must  exercise  his  ingenuity  in  bringing  about  results  wherein 
are  exemplified  the  most  complete  and  valuable  information  with  the  least 
amount  of  labor,  a  minimum  of  labor  with  a  maximum  of  results.  All  in- 
ventors have  in  mind  an  economy  of  labor,  a  saving  of  material.  They 
expend  great  labor  themselves  that  others  may  be  relieved  of  it.  They  are 
great  promotors  of  civilization.  The  successful  accountant  is  one  who  uses 
his  brains,  like  the  great  painter,  who  when  asked,  "How  do  you  mix  your 
paints  to  secure  such  brilliant  coloring?"  replied,  ''With  brains!" 

The  set  of  books  here  submitted  was  devised  to  meet  the  requirements 
in  a  club  having  a  membership  of  over  750.  The  dues  are  $20,000  per  year, 
payable  quarterly  in  advance.  If  dues  are  not  paid  by  the  end  of  the  first 
month  of  the  current  quarter,  a  fine  of  $1.00  is  charged.  If  still  not  paid 
two  weeks  after  the  additional  charge  of  $1.00  is  made,  or  on  the  15th  of  the 
second  month,  the  delinquent  is  then  notified  that  his  name  will  be  posted  on 
the  bulletin  in  the  club  rooms  and  if  not  paid  by  the  end  of  quarter  the  mem- 
ber stands  suspended  from  all  privileges  until  full  payment  has  been  made. 

It  will  be  readily  seen  that  it  becomes  necessary  to  know  how  the  delin- 
quents stand  at  any  time  and  again  the  directors  may  call  for  an  estimate  of 
delinquents,  which  must  be  made  out  by  the  treasurer  at  a  moment's  notice. 
Obviously  the  old  style  ledger  is  wholly  inadequate. 

Payments  for  expenses,  etc.,  are  made  by  order  of  vouchers  signed  by 
the  secretary  and  president. 

To  meet  these  requirements  the  following  system  has  been  devised  by 
the  writer. 

1.  Journal. 

2.  Receiving  cash  book. 

3.  Distribution  sheet  for  vouchers  paid. 

4.  Ledger. 

The  journal  used  is  the  ordinary  two  column  ruling.  In  this  the  mem- 
bers are  charged  for  the  quarter's  dues  and  "dues"  account  credited,  also  at 

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American  Business  and  Accounting  Encyclopedia 


359 


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end  of  first  month  delinquent  members  are  debited  for  $1.00  and  "delinquent 
dues"  credited.  However,  instead  of  writing  the  list  of  members  as  debits 
and  then  posting;  to  the  card  ledger,  the  charges  are  made  directly  on  the 
card,  the  cards  counted  and  an  entry  for  the  total  made  in  the  journal  and  so 
many  members  debited  to  dues  credited  for  the  total.  All  allowances  and 
sundry  other  entries  are  also  entered  in  the  journal.  When  members  are 
suspended  the  cards  are  filed  together  in  the  back  of  the  "Unpaid"  drawer. 
No  entry  being  necessary.  If  the  directors  order  the  suspended  members' 
accounts  closed  they  may  be  credited  and  "Suspended  Dues"  debited." 

In  the  receiving  cash  book  are  entered  cash  receipts  for  dues,  sales,  and 
donations.  All  receipts  are  deposited  in  bank.  The  total  should  equal  the 
amount  deposited. 


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The  distribution  sheet  (size  8x13)  is  for  the  record  of  all  payments 
ordered  for  vouchers.  The  amounts  are  entered  in  first  or  total  column  and 
then  distributed  to  proper  columns  as  per  directions.  The  total  of  the  total 
column  should  equal  the  total  of  the  several  columns,  thus  proving  the  dis- 
tribution. The  sheets  in  this  book  alternate  as  short  and  long  at  both  top 
and  bottom.    For  instance,  the  totals  of  the  first  page,  while  appearing  at  the 

604 


359-360         American  Business  and  Accounting  Encyclopedia 


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bottom  of  the  page,  are  in  reality  on  the  second  page  at  bottom,  which  ex- 
tends below  the  first  page.  When  the  second  page  is  totalled  the  totals  are 
placed  at  the  top,  being  written  on  the  third  page,  which  projects  above  the 
second  page.  This  saves  carrying  totals  forward,  saves  time  and  prevents 
mistakes.  The  heavy  ruled  line  at  bottom  of  form  represents  the  edge  of  the 
sheet,  the  space  below  is  the  bottom  of  the  next  page.  The  extra  items 
appearing  in  the  cigar  and  liquor  columns  represent  sales  and  are  entered 
here  from  the  receiving  cash  book. 

The  ledger  used  is  a  two-drawer  cabinet  card  ledger.  One  drawer 
marked  "Paid"  and  the  other  "Unpaid."  The  card  (size  4x6)  also  contains 
•other  than  account  information.  The  cards  are  arranged  alphabetically  with 
vowel  subdivision.  The  account  number  is  of  no  particular  use.  The 
numbers  are  carried  consecutively.  An  extra  card  on  which  numbers  appear 
from  1  to  1000  being  kept  in  one  of  the  trays,  and  as  a  new  member  is 
added  the  number  is  crossed  ofif  the  card  and  entered  as  an  account  member 
on  the  ledger  card.  When  a  member  resigns,  a  red  line  is  drawn  through 
his  cancelled  account  number  and  then  this  card  number  is  used  for  the  next 
new  member,  thus  keeping  the  list  filled.  The  space  beneath  the  account 
number  is  used  for  pencil  memorandum  relative  to  collections,  suspensions, 
etc.,  and  is  erased  after  it  has  served  its  purpose.  (See  card  as  above.)  At 
the  beginning  of  the  quarter  when  each  amount  has  been  charged  for  dues, 
the  cards  are  filed  in  the  "unpaid"  drawer.  As  payments  are  made,  receipts 
are  given,  the  amount  entered  in  the  receiving  cash  book  and  posted 
to  the  account  as  per  card.  The  card  is  then  transferred  to  the  "paid" 
drawer.  At  the  end  of  the  first  month  those  remaining  in  the  "unpaid" 
drawer  are  to  be  charged  for  delinquency  as  per  bylaws.  At  any  time  that 
the  board  of  directors  may  call  for  a  list  of  delinquencies  the  "unpaid" 
drawer  may  be  taken  to  the  board  room  for  inspection. 

The  cards  are  held  in  place  by  a  rod  passing  through  a  hole  in  the  card 
at  the  bottom,  and  the  rod  has  a  spring  which  locks  when  the  rod  is  fully 
returned,  and  cannot  be  withdrawn  without  the  aid  of  a  key.  This  prevents 
any  one  from  easily  removing  the  card.  The  cards  can  be  readily  looked 
over  without  being  removed. 

When  a  trial  balance  is  desired,  the  totals  of  columns  as  per  distribution 
sheet  are  to  be  included  together  with  cash  balance  and  the  accounts  shown 
in  the  "unpaid"  drawer. — {W .  H.  Whigam.) 


(360)     accident  insurance  companies. 

The  card  below  illustrated  has  proved  the  most  convenient  record  ever 
adopted  in  this  particular  industry.  It  will  be  noticed  that  sufficient  space  is 
provided  for  the  payment  of  thirty-six  assessments,  or  a  record  for  nine 
years. 

Where  there  are  agencies  in  several  cities  the  cards  are  distributed 
either  geographically  or  by  agents'  names  and  then  alphabetically.     Lapsed 


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American  Business  and  Accounting  Encyclopedia 


360-362 


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cards  are  transferred  to  dead  files  arranged  in  exactly  the  same  way,  so  that 
a  complete  list  of  lapsed  members  in  any  territory  can  be  furnished  promptly 
when  required. 

(361)     telephone  business.  • 

A  card  index  system  is  employed  which  contains  names  and  addresses 
of  subscribers,  rate,  character  of  service,  date  of  installation,  etc.,  so  that 
the  names  and  address  columns  in  the  Lease  Ledger  are  not  used,  the  record 
of  the  number  of  the  lease  being  sufficient.  This  eliminates  a  good  deal  of 
work  on  the  ledger  and  saves  the  bookkeeper  from  interruption,  as  reference 
can  ordinarily  be  made  to  the  cards  instead  of  to  the  ledger. 

(362)     records  and  ledgers  for  the  medical  profession. 

The  Card  Ledger  system  of  accounting  may  be  said  to  consist  of 
recording  on  separate  cards  or  slips,  original  financial  transactions,  which, 
instead  of  being  bound  together,  in  one  or  more  volumes,  are  placed  in  files 
or  boxes,  and  are  easily  detachable. 

The  chief  advantage  of  this  system  over  the  bound  book  system  are: 

1.  Settled  accounts  can  easily  be  removed  and  filed  separately,  thereby 
enabling  the  bookkeeper  to  prepare  a  trial  balance  readily  by  having  ail 
current  accounts  together. 

2.  The  variety  of  classifications  of  the  matter  to  be  filed,  viz.: 

(a)  Alphabetically. 

(b)  Geographically. 

(c)  Numerically. 

(a)  can  be  subdivided  as  follows: 
Alphabetically  as  to  names  of  individuals. 
Alphabetically  as  to  places. 
Alphabetically  as  to  subjects. 

(b)  can  be  subdivided  as  follows: 
Geographically  as  to  streets. 
Geographically  as  to  towns. 
Geographically  as  to  counties  or  countries. 

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American  Business  and  Accounting  Encyclopedia 


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Patient's  Namr  >^c/er/cA/4rr/»                            Yestr/fat                Card    >^ 

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And  further  subdivisions  can  take  place,  such  as : 

Geographically — counties  subdivided  either  alphabetically  or  numer- 
ically, and  so  on. 

Reclassification  can  also  be  accomplished,  without  the  trouble  and 
expense  of  rewriting,  by  the  simple  act  of  moving  and  rearranging  the  cards. 

3.  The  Card  Ledger  is  always  the  exact  size  for  the  business.  It  con- 
tracts and  expands  automatically  with  the  contraction  and  expansion  of 
trade. 

4.  No  opening  of  new  ledgers  when  old  ones  are  completed.  A  new 
account  in  the  Card  Ledger  system  means — one  of  an  innumerable  quan- 
tity; whereas  in  the  bound  Book  Ledger  a  new  account  means — one  of  a 
fixed  quantity,  which  when  extending  beyond  1,000  becomes  cumbersome 
and  unwieldy.  It  is  just  as  easy  to  keep  100,000  accounts  as  10,000  on 
the  Card  system.  The  cards  can  be  handled  by  more  than  one  individual 
at  the  same  time,  so  that,  in  the  preparation  of  statements,  etc.,  it  is  possible 
to  prepare  100  statements  on  the  Card  system  whilst  10  are  being  prepared 
from  the  Book  Ledger. 

5.  No  separate  index  required,  except  when  the  ledger  accounts  are 
arranged  in  numerical  order,  as  the  Ledger  Card  is  index  and  account  com- 
bined. 

For  example:  Say  that  the  account  of  H.  Hughes  is  required  in  a 
Card  Ledger.  Turn  to  the  index  card  guide  H,  and  under  Hu  will  be  found 
the  account  wanted.  Now  take  the  book  index,  arranged  on  the  best  pos- 
sible plan,  say,  the  "Vowel"  system.  Turn  first  to  the  index  letter  H.  then 
to  the  fifth  division,  and  amongst  all  the  names  will  be  found  the  particular 


*: 


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Ca. 


American  Business  and  Accounting  Encyclopedia  362-363 


on  required.  It  may  be  the  first,  or  it  may  be  the  last,  but  every  name  com- 
mencing with  Hu  must  be  looked  at  until  Hughes  is  arrived  at.  When 
found,  the  folio  must  be  noted  and  the  page  required  turned  up  in  the 
Ledger.  Estimate  the  amount  of  time  lost  by  this  latter  method,  multiply 
it  by  the  number  of  references  made  into  a  ledger  in  a  year,  and  you  will 
be  amazed  at  the  result. 

The  material  of  which  the  cards  are  made  in  the  ledger  before  you 
is  known  as  "Two-sheet  cardboard,"  and  the  size  used  is  8  in.  broad  by  8^ 
in.  long.  I  may,  however,  say  that  a  card  6  in.  long  by  5  in.  deep  has  been 
found  to  be  more  practicable.    These  cards  are  of  two  classes: 

1.  Record  Cards,  for  receiving  the  financial  accounts. 

2.  Guide  Cards,  for  indicating  the  position  of  the  Record  Cards. 

The  Guide  Cards  are  composed  of  a  stouter  material  known  as  "Four- 
sheet  cardboard,"  and  stand  half-an-inch  higher 'than  the  Record  Cards. 
This  half-inch  is  partly  cut  away  and  rounded  off,  so  as  to  form  a  kind  of 
tab,  at  the  top  of  the  card.  Upon  this  tab  or  sign-post  is  written  or  printed 
the  index.  The  number  of  these  Guide  Cards  will  vary,  according  to  the 
number  of  Record  Cards  requiring  classification  in  any  one  division 
and  the  tray  pro-ided  to  contain  the  cards  should  be  deep  enough  to  allow 
about  a  quarter  of  an  inch  clearage  between  top  of  the  Guide  Cards  and 
lid.  It  has  also  been  found  advisable  to  have  the  inside  of  the  box  about 
one-sixteenth  of  an  inch  wider  than  the  Cards. 

The   uses   that  the   Card  or  Slip   system   can  be   adapted   to  are  very 
numerous.     Among  the  principal  may  be  mentioned  the  following: 
1.     Keeping  records  of  costs. 

Keeping  records  of  stocks. 

Keeping  records  of  inquiries. 

Keeping  records  of  orders. 

Keeping  records  of  quotations. 

Catalogues  of  books. 

Lists  of  individuals. 
8.     Membership  of  societies,  etc. 

{363)     INDEXES  and  ledgers  for  savings  banks. 

When  a  person  desires  to  make  a  deposit  (he  or  she)  is  first  required  to 
fill  out  a  signature  card,  by  signing  which  he  agrees  to  conform  to  the  by- 
laws, rules  and  regulations  of  the  Society.  These  signatures  would  be 
found  extremely  interesting  by  the  graphologist,  comprising  those  of  every 
variety  of  class  and  condition.  He  is  also  given  a  depositor's  number.  After 
this  formality  has  been  duly  complied  with  the  depositor  is  given  a  deposit 
card  which  is  handed  to  the  receiving  teller  in  the  usual  way. 

The  amount  of  deposit  is  then  entered  in  a  pass  book  which  is  handed 
to  the  depositor. 

When  money  is  withdrawn  the  depositor  makes  out  a  withdrawal  card. 

608 


3. 
4. 
5. 
6. 

7. 


363 


American  Business  and  Accounting  Encyclopedia 


Ca. 


Form  5. 


Incorporated  1849. 


SOCIETY  FOR  SAVINGS 

In  the  City  of  Cleveland. 


A'o 

If  convenient,  present  this  Card  when  you  re-open 
vour  account. 


Form  2. 

No 

$... 

DEPOSIT 

!  1 

:::::::::::::::::;::::;::::::;:::;::::;::::::::;:;;:  1 

Date 

o 

O 

Form  3. 
No 

Date.... 


WITHDRAWAL 


o 


Form  4. 

closed  account       1 

No '         $ 

Received  of  the  SOCIETY  FOR  SAVINGS  the  above  Mim. 

Date 

o 

0 

h^3¥l>l> 

o     o     o 

Dcfte 

£^r 

Cr 

C)al(3ncc 

July 

l5 

\(\OA 

v3oo 

v3oo 

N 

15 

H 

10 

2qo 

If  total  deposit  is  withdrawn  and  account  closed  a  special  card  is  used, 
constituting  a  receipt  in  full  for  amount  on  deposit.  The  depositor  is  at 
the  same  time  handed  a  special  card,  bearing  the  number  of  his  accojint, 
with  a  request  that  same  be  presented  if  account  is  reopened. 

609 


.1 * 


-liliBiiuillliaiiSllB 


- m   *i  I  II  iiMMMlMlitiM 


t^ttrnm^ 


Ca. 


American  Business  and  Accounting  Encyclopedia 


363-364 


The  accounts  are  divided  into  sections  of  10,000  accounts,  and  to  each 
section  a  book-keeper  is  assigned.  The  card  system  is  used  for  ledgers,  a 
separate  tray  being  provided  for  each  thousand  accounts.  As  each  tray 
really  constitutes  a  separate  ledger  each  bookkeeper  controls  ten  ledgers. 
The  book-keepers'  desks  are  arranged  in  double  lines  across  the  office. 

As  above  stated,  the  ledger  cards  are  indexed,  and  the  guide  cards 
have  large  projections  on  the  left  for  convenience  of  the  book- 
keepers in  quickly  securing  any  desired  card.  These  large  projections  give 
numbers  in  ten — the  small  projections  units  from  1  to  9.  Thus,  to  find 
account  No.  493,433  look  for  guide  49,343  and  following  card  3.  A  card 
index  of  names  and  numbers  of  accounts  is  kept  for  miscellaneous  reference. 

We  will  suppose  that  our  bookkeeper  is  enlightened  and  progressive, 
and  desires  to  prove  each  day's  work  as  he  goes  along,  so  as  to  be  able  to  get 
his  balance  promptly  without  trouble  on  the  first  day  of  the  month. 

He  will  post  from  his  sales  book,  or  ticket,  $484.26.  As  he  posts  the 
amount  in  the  ledger  he  extracts  his  proof  figure  "4,"  and  writes  it  in  the 
sales  book  in  a  column  which  he  arranges  for  the  purpose. 

The  proof  figure  of  the  footing  of  the  sales  book  will  then  prove  the 
accuracy  of  the  postings  to  the  ledger  for  the  day  by  agreeing  with  the 
footing  of  the  column  of  proof  figures  in  the  sales  book  which  represent 
the  postings  to  the  ledger.  The  same  operation  will  prove  the  accuracy 
of  the  day's  postings  from  the  cash  book,  journal,  purchase  record,  or  any 
other  book,  so  that  it  is  within  easy  reach  of  every  bookkeeper  with  extra- 
ordinarily little  trouble  to  prove  each  day's  work  as  he  goes  along,  and  to  be 
free  from  all  bother  and  trouble  of  errors  when  he  endeavors  to  obtain  his 
monthly  trial  balance. 

In  order  to  make  this  matter  perfectly  clear,  we  append  an  explanation 
representing  one  day's  work  from  the  cash  book  and  its  proof. 

The  amounts  posted  to  the  ledger  from  the  sundries  column  of  the 
cash  received  side  of  the  cash  book  are  represented  by  the  check  figures  in 
the  check  column,  the  footing  of  which  is  29,  or  9  minus  2  equals  7.  The 
check  figure  extracted  from  the  total  of  the  sundries  column — ^$12,578.68 — 
is  also  "7,"  thus  proving  the  postings  to  be  correct  for  the  day.  The  post- 
ings from  the  sales  book,  journal,  etc.,  are  treated  in  like  manner,  each  sec- 
tion of  the  work  being  thus  proved  separately  and  easily. 

In  entering  balances  from  the  ledger  into  the  trial  balance  book  the 
check  figure  should  be  extracted  first,  and  the  amount  copied  from  the  ledger 
after.  The  footing  of  the  check  figures  will  then  check  the  correctness  of  the 
amounts  in  the  trial  balance  book,  which  have  been  copied  from  the  ledger, 
and  any  errors  will  be  promptly  located. 

(364)     CASH  ACCOUNT. 

A  ledger  account  to  which  the  balance  of  cash  on  hand  is  posted  at  the 
end  of  each  month  for  trial  balance  purposes.  Some  accountants  prefer  to 
post  total  receipts  and  total  expenditures,  drawing  off  the  balance  in  the 
usual  way. 

610 


365-366         American  Business  and  Accounting  Encyclopedia  Ca. 

(365)     CASH  ASSETS. 
Checks  and  currency  received  from  customers,  tenants,  etc. 

(366)     CASH  BALANCE  RECORD. 

This  is  a  cashier's  financial  statement  to  the  proprietors  of  the  business. 
It  is  a  summary  of  the  cashier's  daily  cash  balance.  This  statement  or  report 
should  be  made  in  duplicate,  the  original  going  to  the  executive  officer  and 
the  duplicate  being  retained  for  reference. 

Some  of  these  daily  balance  books  or  records  are  very  elaborate,  being 
copies  of  almost  the  entire  cash  book  entries  for  the  day.  This  is  unnecessary 
trouble,  as  the  totals  of  the  columns  in  a  columnar  cash  book  should  in  most 
cases  be  sufficient.  When  details  are  required  they  can  be  obtained  by 
reference  to  the  cash  book. 

In  form  two  note  the  itemized  cash  count  and  list  of  checks,  etc, 
deposited. 

Where  a  daily  balance  book  or  record  is  used  and  the  copy  handed 
each  day  to  the  principal,  it  is  a  very  useful  preventive  of  subsequent  altera- 
tions of  the  figures  on  the  cash  book. 

A  more  detailed  form  of  cash  statement  is  shown  in  form  3,  this  being 
a  weekly  report  from  branch  to  main  office.  The  balance,  as  per  previous 
report,  is  first  shown,  the  total  cash  receipts  for  the  week  are  entered  in 
one  amount,  and  the  expenditures  are  then  entered  in  detail  and  vouchers 
accompany  the  report.  If  a  traveling  auditor  visits  the  branch  at  short 
intervals,  this  report  may  be  considered  unnecessary,  but  where  this  is  not 
the  case,  it  will  be  found  extremely  useful  in  calling  attention  to  undue  or 
improper  expenditures. 

A  very  good  method  of  recording  daily  cash  balances  is  to  use  a  form 
arranged  to  show  exactly  of  what  the  balance  of  cash  consists,  viz.,  checks, 
currency,  due  bills,  ticket,  etc.  Such  a  record  should  be  kept  in  duplicate, 
the  original  being  handed  each  day  to  the  treasurer  or  manager  of  the 
business  and  the  duplicate  retained  by  the  cashier.  The  following  form 
of  daily  report  possesses  merit,  and  will  probably  suggest  good  ideas  to 
those  interested: 

Cash  received  2/1  to  2/14  inc 

Cash  received  2/15  

Cash  received  to  date  

Balance  in  bank  2/14 •  • 

Cash  deposited  2/15  

Less: 

Checks  issued  2/15 

Bills  payable  paid  2/13    

Balance  in  bank  2/15  

Cash  in  drawer  2/15 

Bills  receivable  in  bank  for  collection  2/15 

Bills  receivable  in  drawer  2/15 

611 


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Ca.  American  Business  and  Accounting  Encyclopedia  366-367 

Bills  receivable  in  I  ank  to  discount   2/15    

Total  available  2/15  

Sales  2/1  to  2/13  inc 

Sales  2/14    

Sales  to  date  

Average  sales  for  the  month 

Sales  same  day  last  month 

Sales  same  day  la"st  year  

Accounts  outstanding  2/l  

Sales  to  date  

Total  receipts  and  allowances  to  date 

Balance  accounts  outstanding  2/15 

{Z67)     CASH  AND  BANK  ACCOUNT. 

This  is  one  of  the  most  important  elements  of  the  accounting  sysiem  of 
any  business.  The  man  who  handles  the  cash  holds  a  very  responsible 
position,  and  is  always  surrounded  by  more  or  less  checks  on  his  work. 

The  double  entry  cash  book  carries  receipts  on  the  left  hand  page  and 
payments  on  the  right  hand  page,  and  is  self-proving  by  inclusion  of  the 
balances  on  hand  at  the  commencement  and  close  of  any  particular  period. 

Where  businesses  are  very  large  and  the  detail  is  very  great  separate 
books  are  used  for  cash  receipts  and  cash  payments,  each  book  being  in 
charge  of  a  separate  clerk.  For  facility  of  posting,  it  is  frequently  arranged 
that  there  shall  be  alternate  cash  books,  one  being  used  for  Mondays, 
Wednesdays  and  Fridays,  and  the  other  for  Tuesdays,  Thursdays  and 
Saturdays. 

The  debit  and  credit  to  cash  on  double  entry  casn  books  is  usually- 
referred  to  as  "automatic."  This  is  explained  by  the  following  illustration 
of  cash  account : 


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FoKM  3. 

Jan.     2.  Cash  on  hand $  750.00 

Jan.    2.  Cash  Receipts    200.00 

Jan.    3.  Cash  Receipts    450.00 

Jan.    5.  Cash  Receipts    600.00 

Jan.  31.  Cash  Receipts    290.00 

$2,290.00 

Jan.    2.     Cash  Payments   $     65.50 

Jan.    3.     Cash  Payments   126.00 

Jan.     5.     Cash  Payments   468.00 

Jan.  31.     Cash  Payments   75.00 

Bal.  on  hand 1,555.50 

•  ' 

$2,290.00 


613 


Ca. 


American-   Busixessand  Accounting  Encyclopedia 


367 


367 


American  Business  and  Accounting  Encyclopedia 


Ca. 


OILV    CASH  aALANCE. 


CosK-l3«l»nc«    I**  ot  r\f,rjfl( 
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FOKM   1. 

On  Saturday,  Dec.  31st,  the  ledger  account  shows  a  debit  to  cash  of 
5/50.  If,  therefore,  all  the  above  items  are  posted  to  cash  account  in  detail 
or  in  daily  totals,  the  result  would  be  a  debit  balance  on  Jan.  31st  of 
$1,555.50,  but  in  order  to  save  trouble  and  unnecessary  labor,  it  is  usual 
to  simply  rule  a  line  under  the  "balance  on  hand"  Jan.  2,  $750,  the  next  post- 
ing being  the  balance  on  Jan.  31st  of  $1,555.50.  This  amount  is  incorpor- 
ated in  the  trial  balance,  and  this  entry  answ^ers  every  purpose,  it  being 
understood  that  cash  has  been  debited  with  all  the  receipts  on  the  cash 
book,  and  credited  with  all  the  payments,  leaving  $1,555.50  on  hand 
Another  method  is  to  post  the  total  of  the  cash  received  on  ''debit  to  cash" 
side  for  the  month  to  the  debit  side  of  cash  account,  and  to  post  the  total 
•of  cash  paid  or  credit  to  cash  side  at  the  end  of  the  month  to  the  credit 
of  cash  account,  which  furnishes  the  same  balance  for  incorporation  in  the 
trial  balance. 

The  method  of  dividing  cash  account  into  main  cash  and  petty  cash  with 
separate  books  for  each  will  be  treated  under  the  heading  of  "Petty  Cash.'* 

One  of  the  best  methods  of  arranging  the  cash  department  of  a  business 
is  the  following: 

Deposit  all  receipts  and  credits,  and  the  bank  pass  book  w^ill  then  always 
equal  the  receipts  in  the  cash  book  less  exchange. 

Pay  everything  by  check  with  the  exception  of  small  incidentaf  expenses. 

Draw  checks  for  currency  to  meet  incidental  expenses  and  provide  a 
separate  column  for  such  payments,  charging  the  cashier  with  the  amount  of 
checks  drawn  for  this  purpose,  and  holding  him  responsible  to  furnish 
vouchers  for  all  disbursements. 

For  the  purpose  of  checking  the  amount  of  receipts  entered  on  the  cash 
book,  a  method  frequently  adopted  is  for  the  officer  or  other  person  who 


opens  the  mail  to  make  a  memorandum  of  the  checks,  money  orders,  notes, 
etc.,  contained  in  the  envelope  which  he  opens,  and  some  time  thereafter  this 
memorandum  is  compared  with  the  entries  on  the  cash  book. 

In  some  businesses  the  cashier  is  permitted  to  carry  an  "over  and  short" 
account,  to  which  are  debited  or  credited  differences  for  which  he  is  unable 
to  account.  This  is  certainly  conducive  to  carelessness,  and  the  practice  is 
to  be  discouraged.  While  it  may  not  be  strictly  equitable,  yet  it  has  been 
found  that  the  best  method  of  making  the  cashier  equal  to  his  responsibilities 
is  to  charge  the  account  with  all  shortages  and  to  credit  any  overages  to 
the  profit  and  loss  until  accounted  for. 

The  best  method   of  treating  cash  sales  will  be  found  under  that  heading. 

The  cash  book  usually  shows  a  balance  of  cash  both  on  hand  and  at 
bank,  but  there  are  many  different  methods  of  arranging  this  form  of  record. 

Sometimes  the  cash  balance  show^s  the  total  of  cash  on  hand  and  at 
bank  in  one  amount,  but  the  check  register,  or  stub,  of  check  book  must 
be  consulted  to  find  how  much  is  on  hand  and  how  much  is  at  the  bank. 

.  Sometimes  bank  columns  are  provided  on  each  side  of  the  cash  book, 
and  when  this  is  the  case,  bank  deposits  are  usually  entered  on  the  cash 
paid  side  as  a  charge  to  the  bank,  while  the  amount  of  checks  issued  are 
entered  in  the  bank  column  on  the  cash  receipt  side  as  a  credit  to  the  bank; 
thus  reversing  the  method  used  in  the  same  book  in  regard  to  cash  on  hand. 
Where  cash  on  hand  and  at  bank  are  distinguished  in  this  way,  we  think 
the  same  rule  should  apply  to  both,  that  the  deposits  in  bank  should  be 
entered  in  the  column  adjoining  the  cash  receipts,  and  that  the  record  of 
checks  issued  should  be  entered  in  the  column  on  the  cash  paid  side  adjoin- 
ing the  payments.  This  will  be  found  particularly  convenient  where  it 
is  the  practice  to  deposit  all  receipts  and  make  all  payments  by  check. 
Using  the  petty  cash  book  for  incidental  expenditures.  The  deposits  in 
the  bank  column  will  then  equal  the  amount  of  receipts  and  the  total  of  the 
bank  withdrawal  column  will  equal  the  total  of  the  checks  issued. 

When  bank  columns  are  used  it  is  scarcely  necessary  to  say  that  the 
items  of  receipts  and  payments  should  not  be  entered  in  detail  in  the  bank 
columns,  as  this,  of  course,  involves  double  entries  for  every  amount.  Not 
more  than  one  entry  in  the  bank  withdrawal  column  should  be  made  per 
page,  and  only  the  total  of  each  deposit  should  be  entered  in  the  bank 
deposit  column. 

Where  the  bank  withdrawal  column  is  placed  on  the  cash  received 
side  of  the  cash  book  and  the  bank  deposit  column  on  the  cash  paid  side  of 
the  cash  book,  it  is  interesting  to  note  the  actual  course  of  the  entries. 
Under  these  circumstances  the  cash  received  side  will  contain  entries  of  the 
follow^ing  different  descriptions: 

1.  Credits  to  customers  for  value  received. 

2.  Debits  to  cash  for  same. 

3.  Credits   to   bank   for   cash   paid   out   obtained   from   cash    at   bank. 


614 


615 


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American  Businessand  Accounting  Encyclopedia  367-368 


Inasmuch  as  cash  in  the  office  safe  and  cash  at  the  bank  are  equally  avail- 
able and  constitute  part  of  the  same  fund,  it  does  not  seem  consistent  to 
debit  and  credit  cash  on  the  same  side  of  the  cash  book. 

(368)     CASH  AND  BANK  RECONCILIATION. 

THE  reconciliation  account. 

How  many  bookkeepers  are  in  the  habit  of  preparing  a  reconciliation 
account,  bringing  the  cash  book  and  the  bank  pass  book  balances  into  har- 
mony monthly?  I  have  no  doubt  but  that  almost  every  bookkeeper  proves 
the  one  against  the  other,  by  checking  and  ascertaining  the  outstanding 
checks  which  when  presented  at  the  bank  will  make  the  balances  coincide. 
This  is  probably  figured  out  on  a  slip  of  paper,  and  when  the  reconciliation 
has  been  eflPected  to  the  satisfaction  of  the  bookkeeper,  the  slip  is  destroyed. 
Very  few  accountants  ever  put  into  shape  of  a  permanent  record  this 
account,  which  is  of  so  much  assistance  to  the  auditor  when  he  comes  to 
<?fieck  up  the  work  of  the  office.  Not  only  is  it  useful  in  an  audit,  but  much 
time  is  saved  the  bookkeeper  himself,  if  from  the  nature  of  the  business 
many  checks  are  liable  to  be  outstanding,  some  of  them  perhaps  for  two 
or  three  months.  This  condition  of  affairs  does  not  so  frequently  obtain 
in  commercial  as  in  municipal  offices,  and  in  the  latter  case  it  is  especially 
valuable.  With  those  who  are  in  the  habit  of  recording  this  account  in  a 
shape  for  future  reference,  the  work  is  generally  kept  on  the  stub  of  the 
check  book,  more  particularly  so  if  the  bank  account  is  kept  on  the  stubs. 
Where  the  bank  account  is  made  an  integral  part  of  the  cash  book,  however, 
I  always  recommend  that  a  special  book  shall  be  kept  for  the  purpose,  and 
in  something  like  the  illustration. 

Upon  receipt  of  the  bank  pass  book  with  the  February  account  written 
up,  the  bookkeeper  proceeds  to  check  up,  and  after  clearing  off  the  business 
of  the  month  just  closed,  he  finds  that  the  bank  has  charged  two  or  three 
items  not  in  the  current  rnonth's  business.  Without  searching  back  through 
hundreds  of  stubs  to  ascertain  what  these  items  represent,  he  at  once  turns 
to  his  reconciliation  account  for  the  preceding  month,  and  finds  that  of  the 
outstanding  checks  at  the  close  of  the  month  Nos.  330,  375  and  380  have 
been  paid.  Of  the  old  checks,  Nos.  332  and  333  are  still  outstanding,  and 
these  are  brought  down  to  the  next  account,  which  will  look  about  as 
below : 


1899. 
Feb.  28.    Bank  balance  per  Cash  book. 
Bank  balance  per  Pass  book.. 


$992.37 


$783.75 


Less  0/S  Cheques: 

No.  332— Smith     $  37.50 

70.00 


No.  333 — Thomson 
No.  396 — Meeking 
No.  402 — Somers 
No.  417— Mitchell 


14.28 
50.00 
36.84 


208.62 


783.75 


616 


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Ca. 


The  outstanding  checks  of  the  longest  duration  also  come  first  on  the 
list,  and  thus  a  quick  reference  tab  is  kept  upon  them,  and  after  a  sufficient 
length  of  time  has  elapsed,  duplicates  may  be  issued,  or  steps  taken  to  cancel 
the  payment  of  the  outstandings,  as  the  circumstances  may  require. 

(369)     CASH  BOOK. 

Several  forms  of  cash  book  are  appended  hereto,  and  should  be  of  interest 
to  our  readers  who  may  be  able  to  obtain  useful  ideas  therefrom. 

Cash  Book  No.  1  is  used  in  a  large  manufacturing  and  foundry  business. 
Note  the  treatment  of  Bank  account. 


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commended  as  it  does  not  furnish  sufficient  statistics. 

No.  3  is  used  in  a  store  manufacturing  fixtures  and  furniture.  It  will 
be  seen  that  they  do  a  large  country  business  and  therefore  provide  a 
separate  ledger  for  this  section  of  the  business. 

No.  4  is  arranged  for  a  department  store. 

No.  5  is  in  use  at  a  large  hotel. 


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369 


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American  Business  and  Accounting  Encyclopedia 


Ca. 


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(370)   CASH  JOURNAL. 

No.  6  belongs  to  a  large  dry  goods  establishment  \vith  city  and  country 
trade. 

No.  7  is  a  Cash  Journal  for  a  brewery,  although  it  is  headed  "Cash 
Book." 

No.  8  is  used  by  a  concern  doing  an  instalment  business  as  a  side  line. 

No.  9  is  a  Cash  Journal  in  use  by  the  Secretary  of  a  Fraternal  Society. 

The  columns  headed  "Treasurer"  take  the  place  of  those  usually  headed 
"Cash."    • 


619 


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American  Business  and  Accounting  Encvclopldia 


370 


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American  Business  and  Accounting  Encyclopedia 


370-371 


CASH  JOURNAL 

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No.  10  is  a  Cash  Journal  used  in  a  business  where  all  receipts  are  depos- 
ited in  bank  and  all  expenditures  made  by  check. 

No.  11  is  a  Cash  Journal  for  a  department  store  owned  by  a  single  pro- 
prietor. 

(371)    CASH  DISCOUNT. 

A  deduction  from  the  principal  on  account  of  cash  anticipations  or  other 
agreed  terms. 

An  allowance  or  rebate  in  consideration  of  a  note  being  liquidated 
before  due  date. 

The  custom  of  discounting  trade  bills  for  cash  at  ten  days,  etc.,  is 
now  conveniently  provided  for  in  cash  books  and  cash  journals  by  special 
Discount  columns.  At  the  end  of  the  month  the  total  of  the  Discount  column 
is  charged  or  credited  to  Cash  column,  whether  it  is  in  respect  of  accounts 
with  customers  or  creditors  if  receipts  and  expenditures  are  entered  in  total. 

Much  has  been  said  and  written  regarding  the  relative  merits  of  post- 
ing the  total  amount  of  bill  to  the  credit  of  customers'  accounts,  and  the 

622 


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posting  of  the  cash  and  discounts  separately.  After  reviewing  the  matter 
very  carefully  and  considering  both  sides  of  the  question,  we  are  in  favor  of 
posting  the  cash  and  discount  separately,  as  this  facilitates  the  audit  of  the 
books  and  also  gives  information  in  the  ledger  account  which  does  away 
with  the  necessity  of  referring  to  the  Cash  Book  for  further  particulars. 

When  arranging  for  separate  Accounts  Receivable  Ledgers  where  con- 
trolling accounts  are  carried,  it  is  desirable  to  provide  a  separate  discount 
column  for  each  sales  ledger,  as  otherwise  the  items  must  be  picked  out 
at  the  end  of  each  month  in  order  to  arrive  at  the  necessary  agreement. 

Where  the  net  amounts  of  remittance  and  discount  allowed  are  posted 
separately  to  the  credit  of  the  customer's  account  it  is  better  to  arrange  for 
the  discount  and  ledger  columns  to  be  adjacent.  Also,  in  this  case  it  is  desir- 
able to  provide  separate  discount  columns  for  each  ledger,  as  otherwise  the 
items  must  be  dissected  in  order  to  make  the  necessary  credits  to  the  Con- 
trolling accounts. 

We  do  not  approve  of  recording  customers'  deductions  on  the  credit 
side  of  the  Cash  Book,  as  it  involves  unnecessary  duplication  in  rewriting 
names.  The  Discount  column,  when  placed  adjacent  to  the  amount  of  cus- 
tomers' remittances,  answers  every  purpose  and  affords  the  most  convenient 
reference  possible. 

There  has  been  considerable  discussion  in  regard  to  the  proper  method 
of  treating  both  Discount  on  Sales  and  Discount  on  Purchases,  and  after 
considering  the  matter  very  carefully,  we  have  arrived  at  the  conclusion  that 
while  Discount  on  Sales  is  properly  a  selling  expense,  Discount  on  Purchases 
should  be  included  in  Trading  account,  because  it  reduces  the  cost  of  pro- 
duction. 

The  question  is  frequently  raised  as  to  whether  when  goods  are  sold 
delivered  but  freight  is  not  prepaid,  the- cash  discount  should  be  deducted 
from  the  gross  amount  of  the  bill  or  from  the  net  amount  after  freight  has 
been  deducted.  When  goods  are  sold  delivered  the  freight  is  generally 
included  in  the  price,  i,  e.,  the  price  of  the  goods  delivered  is  higher  than 
the  price  of  similar  goods  sold  f.  o.  b.  point  of  shipment.  The  shippers, 
therefore,  frequently  claim  that  cash  discount  should  not  be  deducted  from 
gross  amount  of  invoice,  but  from  that  amount  less  freight,  and  in  the  coal 
and  lumber  business,  where  freight  is  one  of  the  principal  components  of 
the  amount  charged  for  the  goods,  business  usage  appears  to  have  decided 
that  freight  shall  be  deducted  prior  to  taking  oflf  cash  discount,  as  the  freight 
is  paid  to  the  railroads  in  full.  On  the  other  hand,  however,  the  purchasers 
of  goods  claim  that  when  buying  f.  o.  b.  at  destination,  the  question  of 
freight  does  not  concern  them,  and  that  in  fact,  in  paying  the  freight  in  order 
to  clear  the  goods  they  are  making  an  advance  on  account  of  the  shippers, 
on  which  advance  they  are  entitled  to  interest. 

It  would  seem  that  where  freight  is  prepaid  as  an  accommodation  to 
the  customer  cash  discount  should  not  be  deducted  from  the  amount  thereof, 
but  wherever  it  is  included  in  the  price  as  an  inducement  to  obtain  the  order, 

623 


Ca,  American  Business  and  Accounting  Encyclopedia  371-372 

the  customer  would  be  acting  perfectly  within  his  rights  in  deducting  cash 
discount,  unless  there  was  an  agreement  or  understanding  with  the  seller 
to  the  contrary. 

There  are  many  methods  of  keeping  track  of  bills  so  as  to  secure  the 
cash  discount,  such  as  special  columns  in  the  ledger  or  purchase  journal 
ticklers  in  which  to  keep  the  bills  and  other  similar  devices.  A  diary  seems 
to  be  as  good  a  plan  as  can  be  adopted,  the  dating  of  the  bill  being  entered 
under  the  proper  date  when  received  or  when  they  are  entered  on  purchase 
or  voucher  records.  In  this  way  no  bill  can  be  lost  sight  of.  and  no  cash 
discount  can  be  overlooked. 

When  bills  are  discounted  regularly,  it  is  a  common  practice  to  make 
no  entry  on  the  books  until  payment,  when  net  amount  is  credited  to  cash 
and  charged  to  purchase  account  or  to  the  department  to  which  thev  belong 
By  so  domg  the  discount  is  charged  against  gross  profit,  i.  e.,  the  purchases 
included  in  the  trading  account  are  diminished  by  the  amount  of  the  dis- 
counts.     The  question  has,  therefore,  come  up  on  various  occasions  as  to 
whether  cash  discounts  should  not  be  charged  to  trading  account  instead 
of  to  profit  and  loss  account,  in  all  cases  where  the  gross  amount  of  the 
invoices  is  entered  on  books  of  account.     Cash  discount  is  generally  looked 
upon  as  a  revenue  item,  and  for  statistical  purposes  it  is  doubtless  more 
convement  to  express  it  separately  on  the  profit  and  loss  account,  as  in 
that  statement  it  impresses  the  business  man  as  it  does  not  when  incor- 
porated m  the  trading  account  as  a  reduction  of  the  purchase  price  of  the 
goods  bought.     It  is  undoubtedly  interest  earned  on  money  advanced    and 
as  such  should  be  exhibited  in  a  special  account  for  comparative  purposes. 

(372)     CASH  ON  DELIVERY. 

In  businesses  where  this  is  an  important  department,  it  will  be  found 
very  convenient  to  provide  for  separate  columns  in  the  cash  book  for  such 
sales.    A  separate  C.  O.  D.  account  should  be  carried  in  the  general  ledger  to 


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Ca. 


which  should  be  credited  the  amounts  of  C.  O.  D.  columns  from  cash  books, 
and  all  returns,  and  to  which  should  be  charged  the  total  of  C.  O.  D. 
sales.  This  account  will  then  at  all  times  show  the  amount  of  C.  O.  D.'s 
outstanding. 

The  handling  of  "collect  on  delivery"  packages  is  always  an  annoying 
matter  to  the  cashier.  The  following  plan  is  proposed  for  the  purpose  of 
doing  away  with  the  cumbersome  record  usually  used. 

The  C.  O.  D.  order  is  handled  in  all  respects  like  a  charge  order,  except 
that  a  C.  O.  D.  ticket  is  made  in  duplicate.  This  ticket  is  signed  by  the 
driver  or  messenger  who  takes  the  package  for  delivery.  The  signed  ticket 
is  treated  as  cash.  When  the  actual  cash  is  turned  in  the  messenger  is 
given  the  ticket,  and  he  has  the  privilege  of  destroying  it.  If  the  goods 
are  returned,  the  ticket  is  taken  out  only  when  a  refund  voucher  is  issued 
to  take  its  place. 

The  C.  O.  D.  sale  being  rung  up  or  otherwise  recorded  just  the  same 
as  a  cash  sale,  no  other  record  than  the  signed  ticket  is  necessary  and  the 
task  of  caring  for  a  large  number  of  such  sales  is  reduced  to  a  minimuip 

(373)     CASH  PRICE. 

The  price  of  articles  paid  for  in  cash  at  the  time  of  purchase,  in  dis- 
tinctin  from  the  barter  and  credit  prices.  A  sale  for  cash  is  a  sale  for  money 
in  hand. 


(374)     CASH  REGISTERS. 

See  calculating  machines. 

(375)  CASH  SALES  RECORD. 

(376)     CASH  SALES  SLIPS. 

See  Department  and  General  Store  Accounting. 


(377)     CASH  VOUCHER. 

A  receipt,  or  explanatory  memorandum,  in  connection  with  cash  pay- 
ments required  for  auditing  purposes. 

(378)     CASHIER. 

In  mercantile  establishments  the  cashier  is  the  clerk  who  keeps  the  cash 
book  and  handles  the  cash. 

In  banks  the  cashier  is  usually  the  chief  of  the  accounting  department, 
ledger  and  all  other  clerks  being  included  in  his  jurisdiction.  In  small 
banks  the  cashier  is  frequently  entrusted  with  the  sole  management. 

In  corporations  the  treasurer  controls  the  cashier's  department,  and 
frequently  assumes  the  cashier's  duties. 

625 


Ca.  American  Business  and  Accounting  Encvclopedia  379-384 

(379)     CERTIFICATE  OF  AUDITOR. 

In  certifying  to  the  Balance  Sheet  or  the  accounts  which  have  been 
audited,  it  is  necessary  for  the  auditor  to  be  very  particular  to  see  that  (1) 
the  liabilities  are  all  included;  (2)  the  assets  are  not  inflated;  (3)  that 
fictitious  assets  are  so  defined ;  (4)  that  the  profit  and  loss  account  includes 
all  chargeable  expenses  for  the  period  covered  by  the  audit,  whether  paid 
or  unpaid;  (5)  that  all  profits  earned  are  included. 

A  number  of  accountants  in  good  practice  have  hit  upon  the  expedient 
of  presenting  to  their  clients  two  Balance  Sheets  in  cases  where  the  values 
of  the  fixed  assets  have  been  very  much  inflated  in  order  to  offset  the  capital- 
ization. One  balance  is  based  on  book  values,  and  the  other  balance  sheet  is 
based  on  such  values  as  the  accountant  considers  fair  and  reliable. 

(380)     CERTIFICATE— ARCHITECT'S. 

See  Accounting  for  Architects,  par.  163, 

( 381 )     CERTIFICATE— AUDITOR'S. 
See  Auditing — par.  178. 

{3S2)     CERTIFICATE— CORPORATION  STOCK. 

See  Stock. 

(383)     CERTIFIED  CHECK. 

A  promise  to  pay  on  demand  on  which  is  endorsed  the  agreement  of  a 
bank  to  pay  on  presentation  by  the  holder. 

A  check  which  has  been  recognized  by  the  proper  officer  as  a  valid 
appropriation  of  the  amount  of  money  therein  specified  to  the  person  therein 
named,  and  which  bears  upon  itself  the  evidence  of  such  recognition. 

Certified  checks  are  regarded  as  the  equivalent  of  cash  and  used  as  de- 
posits to  insure  the  fulfillment  of  contracts  where  cash  deposits  are  considered 
necessary. 

It  has  been  held  by  the  United  States  Courts  that  a  certification  of  a 
check  IS  a  declaration  on  the  part  of  the  bank  that  it  has  taken  from  the 
account  of  the  signer  money  enough  to  pay  it,  and  holds  the  same  subject  to 
the  payee  or  his  assigns,  no  matter  how   long  the  delay  in  presentation 
According  to  this  decision  payment  on  a  certified  check  cannot  be  stopped. 

(384)     CERTIFIED  PUBLIC  ACCOUNTANTS. 

sample  state  act. 
An  Act  to  establish  a  Board  for  the  examination  of  accountants,  to  provide  for 
the  granting  of  certi^tates  to  aeccmntants,^  and  to  provide,  a  punishment  for 
the  violation  of  this  Act. 

Section  I.-BE  IT  ENACTED  by  the  Senate  and  House  of  Reprcsenta- 
tives  of  the  Commonwealth  of  Pennsylvania  in  General  Assembly  met,  and  it 
IS  hereby  enacted  by  the  authority  of  the  same,  that  any  citizen  of  the  United 

626 


3S4 


Amerkax  Business  and  Accounting  Encyclopedia 


Ce. 


States  residing  or  having  an  office  for  the  regular  transaction  of  business  in  the 
State  of  Pennsylvania  being  over  the  age  of  twenty-one  years,  and  of  good 
moral  character,  and  who  shall  have  received  from  the  Governor  of  the  State 
of  Pennsylvania  a  certificate  of  his  qualification  to  practice  as  a  public  expert 
?ccountant  as  hereinafter  provided,  shall  be  designated  and  known  as  a  certi- 
fied public  accountant,  and  no  other  person  shall  assume  such  title  or  use  the 
abbreviation  C.  P.  A.,  or  any  other  words,  letters  or  figures  to  indicate  that 
the  person  using  the  same  is  such  certified  public  accountant.  Every  person 
holding  such  certificate  and  every  co-partnership  of  accountants,  every  member 
of  which  shall  hold  such  certificate,  may  assume  and  use  the  title  of  certified 
public  accountants,  or  the  abbreviation  thereof,  C.  P.  A.,  provided  that  no  other 
person  or  co-partnership  shall  use  such  title  or  abbreviation,  or  other  words, 
letters  or  figures  to  indicate  that  the  person  or  co-partnership  using  the  same  is 
such  certified  public  accountant. 

Section  II. — The  Governor  of  the  State  of  Pennsylvania  shall  appoint  a 
Board  of  five  examiners  for  the  examination  of  persons  applying  for  certifi- 
cation under  this  act.  Three  of  said  examiners  shall  be  public  accountants, 
who  shall  have  been  in  practice  as  such  for  at  least  five  years,  one  of  whom 
shall  be  appointed  for  the  term  of  one  year,  one  for  two  years,  and  one  for 
three  years,  and  upon  the  expiration  of  each  of  said  terms  an  examiner  shall 
be  apppiiited  for  the  term  of  three  years,  and  after  one  thousand  eight  hundred 
and  ninety-nine,  these  three  examiners  shall  be  certified  public  accountants.  The 
other  two  examiners  shall  be  practicing  attorneys  in  good  standing  in  any  of 
the  Courts  in  the  State  of  Pennsylvania.  One  of  them  shall  be  appointed  for 
the  term  of  one  year  and  the  other  for  two  years,  and  upon  the  expiration  of 
each  of  said  terms  a  successor  shall  be  appointed  for  the  term  of  two  years. 
The  examination  for  certificates  shall  be  based  upon  an  examination  in  commer- 
cial law  and  general  accounting;  said  examination  shall  take  place  in  Phila- 
delphia, Harrisburg  and  Pittsburg,  twice  a  year,  during  the  months  of  May  and 
November  of  each  year,  under  such  rules  and  regulations  as  may  be  adopted  by 
the  Board.  The  fees  provided  by  this  act  shall  be  twenty-five  dollars  for  each 
applicant,  from  which  shall  be  paid  for  the  expenses  incident  to  such  exam- 
ination, for  stationery  and  clerk  hire,  a  sum  not  exceeding  two  hundred  dollars, 
and  if  any  surplus  above  said  expenses  shall  remain  at  the  end  of  any  year  it 
it  shall  be  paid,  after  the  travelling  expenses  of  the  Board  shall  be  deducted 
therefrom,  into  the  treasury  of  the  Commonwealth.  The  results  of  such  exam- 
ination shall  be  certified  to  the  Governor  and  filed  in  the  office  of  the  Secretary 
of  Internal  Affairs,  and  kept  for  reference  and  inspection  for  a  period  not  less 
than  five  years,  the  Governor  to  issue  the  certificates. 

Section  III. — The  Governor  of  the  State  of  Pennsylvania  may  revoke  any 
such  certificate  for  sufficient  cause  upon  the  recommendation  of  the  Board  of 
Examiners,  who  shall  have  given  written  notice  to  the  holders  thereof,  and 
after  he  has  had  a  hearing  thereon. 

Section  IV. — The  Board  of  Examiners  may  in  its  discretion  waive  the 
examination  of  any  person  who  shall  have  been  for  three  years  before  the  pas- 
sage of  this  act,  practicing  in  the  State  of  Pennsylvania  as  a  public  accountant, 
and  who  shall  apply  in  writing  for  such  certificate  within  one  year  after  the 
passage  of  this  act. 

Section  V. — If  any  person  shall  hold  himself  out  as  having  received  the  cer- 
tificate provided  for  in  this  act,,  or  shall  assume  to  practice  thereunder  as  a  cer- 
tified public  accountant,  or  use  tlie  initials  C.  P.  A.  without  having  received  such 
certificate,  or  after  the  same  shall  have  been  revoked,  he  shall  be  deemed  guilty 
of  misdemeanor,  and  on  conviction  thereof  shall  be  sentenced  to  pay  a  fine  not 
exceeding  five  hundred  dollars. 

627 


I: 


i 


< 


Ch.  American  Business  and  Accounting  Encyclopedia         385-389 

(385)     CERTIFIED  STATEMENT. 

A  verified  statement.  In  cases  of  liquidation  or  bankruptcy,  statements 
of  claim  must  be  verified  by  being  sworn  to  before  a  Notary  Public. 

(386)     CHARGE. 

A  debit  to  an  account,  whether  from  original,  adjusting  cross-entry  books, 
or  any  other  source. 

It  may  be  noted  that  while  the  term  "charge"  has  to  a  certain  extent 
supplanted  the  use  of  the  word  "debit,"  no  similar  interchangeable  expression 
has  been  found  to  take  the  place  of  the  word  "credit." 

(387)     CHARGE— FIXED. 

A  term  used  to  define  such  expenses  as  occur  regularly  from  year  to  year, 
such  as  rents,  rates,  taxes,  interest  on  funded  debt,  etc. 

(388)     CHART  OF   CLASSIFICATION. 

A   SECTIONALIZED   SUMMARY   OF   BUSINESS   ACCOUNTING   RECORDS. 

We  present,  as  illustrations,  the  following  charts: 


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(389)       NO.  1.    CHART  OF  DEPARTMENTAL  ORGANIZATION. 


390 


American  Business  and  Accounting  Encvclopldia 


Cii 


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(390)     no.  2.   GRAPHIC  chart  of  production  cost. 


628 


629 


Ch. 


American  Business  and  Accounting  Encyclopedia 


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(391)       no.   3.     CHART   OF   CLASSIFICATION    FOR    GENERAL    STORE. 


630 


392 


American  Business  and  Accounting  Encyclopedia 


Ch. 


BALANCE 
SHEET 


Assets 


Liabilities 


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Passive 


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* 

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Wholesale  Ledger 

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15th  St.  Yard 
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(392)  NO.  4.  chart  of  classification  for  wholesale  and  retail  coal  business* 

631 


ii 


Ch. 


American  Business  and  Accounting  Encyclopedia 


393 


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(393)     no.  5.    chart  of  classification  for  machinery  manufacturing 

business. 


632 


394 


American  Business  and  Accounting  Encyclopedia 


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(394)       NO.  6.     CHART  OF  CLASSIFICATION   FOR  BOTTLING   WORKS. 


II 


633 


Ch. 


American  Business  and  Accounting  Encyclopedia 


395 


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(395)       NO.   7.     CHART   OF    CLASSIFICATION    FOR    HOSPITAL. 


634 


396-401  American  Business  and  Accounting  Encyclopedia  Ch. 

(396)     CHARTER. 

A  license  to  trade  or  do  business  under  certain  regulations  and  rules 
or  constitution  and  by-laws  approved  by  the  State  authorities 

It  is  necessary  to  be  very  careful  in  drawing  up  articles  of  incorporation 
that  sufficient  scope  is  included  to  cover  the  probable  developments  of  the 
business,  for  the  reason  that  an  incorporated  company  cannot  legally  embark 
in  any  business  not  specified  in  such  articles  of  incorporation,  and  the  tran* 
action  of  unauthorized  business  by  a  corporation  is  sufficient  ground  for 
winding  up  petition. 

(397)     CHARTER  PARTY. 

A  form  of  agreement  whereby  the  owners  of  a  vessel  lease  the  whole 
or  part  of  same  to  another  person  for  a  certain  specified  period  or  for  the 
transportation  of  certain  specified  commodities. 

(398)     CHECK. 

A  promise  to  pay  at  sight  on  demand  through  a  bank.  A  draft  on  a 
bank  payable  to  bearer  or  to  the  order  of  payee. 

A  written  order  or  request  addressed  to  a  bank  or  persons  carr^'ing 
on  the  business  of  banking,  by  parties  having  money  in  their  hands,  desiring 
them  to  pay,  on  presentment,  to  a  person  therein  named  or  bearer,  or  to 
such  person  or  order,  a  named  sum  of  money. 

Checks  are  in  use  only  between  banks  and  bankers  and  their  custom- 
ers, and  are  designed  to  facilitate  banking  operations.  It  is  of  their  very 
essence  to  be  payable  on  demand,  because  the  contract  between  the  banker 
and  the  customer  is  that  the  money  is  payable  on  demand. 


See  check  systems. 


(399    CHECK  FIGURES. 


(400)    CHECK  LEDGER. 


A  small  ledger  ruled  with  the  ordinary  debit  and  credit  columns  in 
which  all  accounts  kept  in  the  regular  ledgers  are  carried  in  skeleton  form, 
the  balance  of  the  check  ledger  accounts  agreeing  with  the  balances  of 
accounts  kept  in  the  regular  ledgers. 

(401)     CHECK  MARKS. 

Symbols  used  on  books  of  account  to  denote  that  the  items  to  which 
they  relate  have  been  examined  and  found  correct. 

In  auditing,  each  auditor  is  expected  to  possess  an  individual  check  mark 
which  will  distinguish  his  work  from  that  of  others  assisting  in  the  audit. 

Check  marks  are  also  used  to  facilitate  posting.  Thus,  when  the  cash 
book  has  to  be  posted,  it  is  usual  to  first  fill  in  the  page  number  from  the 

635 


<4 


Cii. 


American  Business  and  Accounting  Encyclopedia 


401-402 


index  in  the  folio  column,  and  to  make  a  check  mark  in  the  check  column  to 
show  that  the  amounts  have  been  posted. 

(402)     CHECK  REGISTER  OR  BANK  ACCOUNT. 

A  record  of  checks  issued  which  usually  includes  a  record  of  amounts 
deposited  at  bank  and  balance  at  credit. 

When  checks  issued  are  posted  from  the  check  register  to  the  debit  of 
the  persons  to  whom  issued,  the  check  register  becomes  a  bank  cash  book. 

When  using  a  form  of  this  kind,  the  checks  are  usually  padded,  as  stubs 
are  unnecessary. 


Afio                                                                                                                                                       

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We  illustrate  a  form  of  combination  check  register  and  distribution 
journal,  which  is  very  convenient  and  labor-saving.  The  left  hand  side 
shows  the  balance  at  bank  and  postings  to  accounts  payable  and  general 
ledgers;  the  right  hand  side  contains  the  distribution  of  the  checks  to  the 
various  disbursement  accounts,  the  totals  of  these  columns  being  posted 
at  the  end  of  each  month. 

635 


402-403  American  Business  and  Accounting  Encyclopedia  Cii. 


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(403)     CHECK  SYSTEMS. 

A  number  of  systems  have  recently  been  devised  with  the  object  of  en- 
abling the  book-keeper  to  check  his  work  of  addition  and  posting  page  by 
page,  so  that  on  the  last  day  of  the  month  he  may  be  absolutely  sure  of  his 
balance.  These  may  be  distinguished  principally  as  check  figures  and  reverse 
posting. 

The  check  figures  used  are  "the  proof  by  9,"  "proof  by  11,"  "proof  by 
13,"  "proof  by  19."  The  proof  by  11  is  more  generally  used,  as  it  can  be 
easily  learned  and  requires  no  tables  of  reference.  The  proof  by  9  has  been 
found  not  to  be  so  efficient,  as  there  are  a  number  of  transpositions  it  does 
not  detect. 

While  the  check  figure  11  is  not  infallible,  it  is  reliable  in  most  cases. 
An  operation  of  this  system  may  be  described  as  follows: 

Take  two  amounts  of  five  figures  each.  Starting  at  the  right  hand,  add 
the  first,  third  and  fifth  figures  and  deduct  the  second  and  fourth.  If  the 
latter  exceeds  the  former,  add  11  and  then  deduct.  The  result  is  the  proof 
figure. 

This  illustration  merely  shows  that  the  footing  is  correct,  the  footing 
of  the  check  figures  giving  the  same  check  figure  as  the  footing  of  the 
amounts.  But  if  these  amounts  are  posted  to  the  ledger  the  same  operation 
will  prove  the  accuracy  of  the  posting. 

637 


Ch. 


American  Business  and  Accounting  Encyclopedia 
(404)     CHECK  FIGURE  17. 


404 


The  check  figure  17  is  obtained  by  casting  out  the  excess  over  multiples 
of  this  number,  but  as  these  multiples  involve  considerable  calculation  and 
are  not  easily  retained  in  memory,  it  is  usual  to  provide  a  chart  of  multiples 
as  per  our  illustration. 

Our  illustration  shows  the  extraction  of  the  check  figure  from  two  tables, 
including  the  proofs. 


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638 


405-406 


American  Business  and  Accounting  Encyclopedia 


Ch. 


(405)     REVERSE   POSTING   CHECKING    SYSTEM. 

The  plan  is  perfectly  simple,  and  can  be  described  in  a  few  words.  It 
requires  first  a  slip  of  ruled  paper  about  the  size  of  the  blotter  which  is  used 
by  the  book-keeper  while  posting,  the  ruling  so  devised  as  to  produce  ten 
posting  columns.  A  slip  should  be  provided  for  each  book  of  original  entry ; 
that  is,  one  slip  for  sales,  one  for  cash  receipts,  one  for  cash  payments,  one 
for  journal  credits,  and  one  for  journal  debits.  When  an  item  is  posted  into 
the  ledger  the  amount  of  the  posting  is  immediately  copied  to  the  correspond- 
ing column  of  the  check  slip.  At  convenient  intervals  during  the  month  the 
check  slips  are  footed  and  totals  compared  with  the  footings  of  the  corre- 
sponding books  of  original  entry,  thus  proving  that  the  postings  have  all 
been  accurately  made.  At  the  end  of  the  month  the  total  footings  of  each 
check  slip  are  first  made  to  balance  with  the  totals  of  the  corresponding  book 
of  original  entry;  then  the  balances  are  drawn  from  the  ledger  accounts  for 
each  section,  the  amounts  footed  and  compared  with  the  balance  produced 
by  the  use  of  the  balance  for  preceding  month,  plus  debits  and  minus  credits 
as  shown  by  the  corresponding  columns  of  the  check  slip. 

It  will  be  seen  that  an  important  point  in  this  plan  is  that  the  amounts 
entered  on  the  check  slips  must  be  copied  from  the  ledger,  and  not  posted 
from  the  book  of  original  entry,  the  idea  being  that  the  amounts  in  each 
column  of  the  check  slip  correspond  exactly  with  the  amounts  in  the  cor- 
responding section  of  the  ledger. 

Another  important  point  to  be  remembered  is  that  debits  and  credits 
should  never  be  posted  at  the  same  time,  and  for  this  reason  the  original 
entries  should  be  so  grouped  that  the  book-keeper  will  be  able  to  make 
distinct  jobs  of  the  debit  and  credit  posting. 

At  first  thought  this  method  appears  to  be  quite  intricate.  It  is,  how- 
ever, the  simplest  plan  I  have  run  across  in  an  experience  of  apbout  25  years 
in  handling  accounts.  Prior  to  the  adoption  of  this  system  in  our  office  our 
book-keepers  were  continually  struggling  with  their  trial  balances.  It  was 
a  frequent  occurrence  that  some  of  the  ledgers  were  not  balanced  for  periods 
of  four  or  five  months,  and  much  time  was  wasted  in  checking  for  errors. 
On  the  other  hand,  as  before  stated,  under  the  system  now  in  operation  all 
the  ledgers  are  balanced,  as  a  rule,  by  the  evening  of  the  first  day  of  the 
month. — (P.  W.  Jackson,  Jr.) 


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(406)     CHEX:KING  ADDITIONS. 

(Auditing.) — The  checking  of  additions  of  any  book  should  be  done  at 
the  time  the  other  work  connected  with  that  book  is  receiving  attention,  if 
the  books  being  audited  are  not  exclusively  at  the  disposition  of  the  auditor 
during  the  progress  of  the  audit.  The  amounts  brought  forward  should  also 
receive  careful  attention  to  see  that  they  correspond  with  the  totals  of  the 
preceding  pages. 


639 


Ch. 


American  Business  and  Accounting  Encyclopedia 


407 


(407)     CHURCH  RECORDS. 

Form  1  is  intended  for  use  of  the  church  clerk,  in  keeping  a  complete 
record  of  the  membership,  for  the  use  of  the  pastor  to  keep  in  close  touch 
with  his  congregation,  and  for  the  financial  secretary  as  an  alphabetical  list 
of  the  members  for  locating  personal  accounts  recorded  on  Form  2.  The 
member's  name  and  number  are  recorded  across  one  side  of  the  card,  for 
convenience  in  locating  the  card  when  in  position  in  the  card  file.  The 
other  information  could  be  printed  in  the  same  position  on  the  card  by- 
dividing  the  space  on  the  card  into  two  divisions  or  columns,  but  the  method 
shown  here  gives  a  little  more  room  for  recording  items. 

This  form  is  for  the  use  of  the  financial  secretary,  and  consists  of  an 
individual  account  of  each  member,  showing  amount  pledged,  in  what 
manner  to  be  paid,  amount  paid  each  Sunday  in  the  month  or  year,  total 
paid,  balance  due  for  year  just  closed,  amount  on  the  former  card  unpaid 
and  total  due  on  account.  A  small  space  is  reserved  for  notations  by  the 
financial  secretar3\    This  form  is  intended  for  use  with  the  envelope  system, 


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407 


American  Business  and  Accounting  Encyclopedia 


Cii. 


in  which  each  member  is  furnished  with  an  envelope  for  payments  weekly, 
monthly  or  quarterly,  with  his  number  and  the  amount  thereon.  From  these 
envelopes  the  secretary  makes  his  records,  each  week,  as  they  are  deposited 
in  the  collection  basket. 

Form  3  is  a  record  of  receipts,  to  be  used  by  both  the  financial  secretary 
and  the  treastirer  to  show  the  gross  receipts  for  each  Sunday  and  month 
during  the  year.  This  system  provides  for  three  funds,  known  as  general, 
missions  and  special.  From  the  general  fund  are  paid  all  the  regular  expenses 
of  the  church,  which  are  prorated  by  comparing  the  total  amount  pledged 
with  the  amount  to  be  expended  and  a  definite  percentage  established  so  that 
the  treasurer  can  at  all  times  tell  how  much  money  is  on  hand  for  any  par- 
ticular expense. 

By  the  footing  of  the  three  funds,  as  arranged  for  on  the  form  and  sub- 
tracting expenditures  as  shown  on  Form  4,  the  balance  in  eadi  fund  can  be 
shown  at  the  close  of  each  month,  or  at  any  time.  It  will  be  noticed  that  no 
provision  is  made  for  showing  the  exact  balance  in  each  branch  of  the  general 
fund,  but  a  moment's  addition   and  subtraction   will   show   the   information 


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desired.  A  space  is  reserved  to  record  the  established  percentages  of  general 
fund,  so  that  the  financial  secretary  and  treasurer  can  apportion  the  funds 
as  received.  Form  4  is  used  by  the  treasurer  to  record  his  expenditures  and 
is  divided  in  the  same  manner  as  Form  3,  so  that  amounts  can  be  transferred 
and  balances  ascertained.  The  missions  fund  shown  on  Forms  3  and  4  is 
intended  for  recording  amounts  paid  on  special  subscriptions  for  this  pur- 
pose. 

(408)     CLASSIFICATION  OF  ACCOUNTS. 

The  arrangement  of  different  classes  of  accounts  on  financial  statements 
and  books  of  account. 

The  proper  method  of  exhibiting  on  financial  statements  the  results  of 
business  transacted  is  quite  an  important  part  of  accounting,  and  much  has 
been  written  on  the  subject  by  accountants  of  experience.  It  is  universally 
admitted  that  the  proper  arrangement  of  accounts  is  that  which  will  most 
clearly  furnish  the  information  required  by  the  business  man  as  to  the  con- 
dition and  results  of  his  business.  The  general  principle  is  to  group  all 
accounts  of  one  kind  together ;  thus  on  a  trial  balance  the  accounts  of  some 
businesses  may  be  classified  as  follows: 

Debits.— Available  assets  capable  of  prompt  realization,  such  as  cash, 
accounts  receivable,  notes  receivable. 

Fixed  assets  of  the  nature  of  permanent  investments,  such  as  real  estate, 
machinery,  furniture  and  fixtures. 

Manufacturing  Expense  Accounts.— Showing  cost  of  production,  such  as 
labor,  material,  freight. 

642 


408-409 


American  Business  and  Accounting  Encyclopedia 


Cl. 


General  Expense. — Showing  cost  of  management  and  conduct  of  busi- 
ness, such  as  salaries,  interest,  rent. 

Credits.— Liabilities  payable,  such  as  accounts  and  notes  payable,  pay 
roll. 

Trading  Credits. — Such  as  sales. 

Capital  Accounts.— Such  as  capital  stock,  surplus,  undivided  profits,  un- 
distributed dividends. 

Accountants  differ  considerably  in  their  views  as  to  the  classification  of 
accounts  on  trial  balances  and  balance  sheets,  but  the  above  arrangement 
will  always  be  intelligible  and  consistent.  The  question  as  to  whether  capital 
accounts  should  be  at  the  top  or  at  the  bottom  of  the  liability  column  can 
be  left  for  others  to  elucidate. 

The  classification  of  accounts  on  the  trading  and  profit  and  loss  accounts 
offers  a  large  scope  for  accountants  of  ability  in  the  division  between  cost  of 
production,  maintenance  of  plant  and  machinery,  and  administrative  ex- 
penses. In  some  large  modern  corporations  all  manufacturing  and  general 
expense  is  prorated  over  the  various  departments,  involving  a  considerable 
amount  of  book-keeping,  but  in  this  way  no  detail  of  cost  can  be  overlooked 
and  the  possibility  of  underestimates  or  erroneous  prices  is  practically  elim- 
inated. Thus,  one  accountant  recommends  the  following  classification  of 
cost  of  making  machines:  (1)  Prime  cost.  (2)  Repair  and  renewal  costs 
on  same.  (3)  Cost  of  added  equipments.  (4)  Repair  and  renewal  costs  on 
same.  (5)  Carriage  costs,  applicable  to  prime  costs.  (6)  Insurance  costs 
relating  to  headings  1  and  3.  (7)  Sundry  special  costs,  like  storage,  traveling, 
telephone,  etc. 

Classification  of  Accounts  on  Ledgers. — ^The  accounts  of  a  business 
should  wherever  possible  be  classified  in  accordance  with  the  arrangement 
of  the  balance  sheet,  but  in  any  case  customers'  and  creditors'  accounts 
should  be  sectionalized,  and  all  other  accounts  provided  for  in  a  separate 
general  ledger,  in  which  should  be  carried  summary  or  adjustment  accounts, 
showing  the  debits,  credits  and  balances  of  all  customers'  accounts  and 
creditors'  accounts  in  total. 

The  work  on  ledgers  can  be  greatly  facilitated  by  proper  classification. 
Where  there  are  a  large  number  of  accounts  they  should  be  divided  into  con- 
v^enient  sections,  each  section  to  be  proved  independently.  Thus  Accounts 
Receivable  can  be  divided  and  classified  as  "City"  and  "County";  or  as 
"Country"  A-K  arid  "Country"  L-Z.  Or  they  can  be  classified  according  to 
salesmen,  according  to  States,  in  each  case  providing  that  each  separate 
section  shall  have  its  representative  account  in  the  nominal  ledger  through 
which  the  accuracy  of  the  postings  shall  be  checked. 

(409)     STANDARD  CLASSIFICATION  FOR  TELEPHONE 

COMPANIES. 

The    following  is  the    classification  of    accounts  recommended  by    the 

643 


Jl 


Cl. 


American  Business  and  Accounting  Encyclopedia 


409 


National  Committee  appointed  by  the  National  Interstate  Telephone  Asso- 
ciation to  report  on  standard  form  of  accounting: 

classification  of  incomes  (receipts). 

1.  Telephone  rentals. 

2.  Long  distance  toll  earnings. 

3.  local  toll  earnings. 

4.  Pay  station  receipts. 

5.  Pole  line  earnings. 

6.  Conduit  earnings. 

7.  Measured  service  excess  calls. 

8.  Telegraph  line  earnings. 

9.  Private  toll  line  earnings. 

10.  Sale  of  old  material. 

11.  Miscellaneous  income. 

12.  Interest  on  bank  balance. 

13.  Messenger  fees. 

14.  Dividends  and  interest  on  stocks  owned. 

15.  Any  other  earnings  not  covered  by  above. 

classification  of  construction  (installation  and  equipment  accounts). 

(A)  Pole  Lines — This  account  to  include  the  cost  of  poles,  cross  arms, 
insulators,  hardware  and  all  sundry  material,  including  also,  the  cost  of 
setting  and  painting  poles,  freight,  cartage,  wages  and  cost  of  handling. 

(B)  Wires  and  Cables  (Aerial) — This  account  to  include  the  cost  of 
all  circuit  wire,  tie  wire,  drops,  cable,  cable  hangers,  sleeves,  cable  terminals, 
and  all  labor  employed,  including  freight  and  cartage,  up  to  and  including 
the  house-bracket. 

(C)  Interior  Wiring  and  Equipment — To  this  account  will  be  charged 
the  cost  of  complete  telephone  instruments,  house  cable  covered  wire,  office 
wire,  inside  fittings,  junction  boxes,  lightning  arresters  and  all  labor  em- 
ployed in  installing  same. 

(D)  Subways — This  account  to  include  the  cost  of  man-hole  frames 
and  covers,  eye  beams,  conduits,  cement,  paving,  lateral  bonds,  lumber  and 
all  freight,  cartage,  labor  and  sundry  materials  used  in  the  construction  of 
subways. 

(E)  Cable  Underground — This  account  to  include  the  cost  of  cable  and 
labor  putting  same  in  conduit,  freight,  hauling,  tools,  splicing,  testing  and 
connecting,  including  terminals,  etc. 

(F)  Exchange  Equipment — This  account  to  include  the  cost  of  new 
switchboards,  cable,  cross  connecting  boards,  storage  batteries,  charging 
machines,  ringing  machines,  freight,  drayages,  and  the  labor  of  installing 
same.  This  account  to  be  used  when  plant  is  enlarged  or  improved  and  in 
no  case  should  be  confused  with  repairs  to  exchange  equipment  under  main- 
tenance. 

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(G)  Booths  and  Pay  Stations — This  account  to  include  the  cost  of 
private  exchange  switchboard  and  the  cost  of  installing  complete;  and  the 
complete  cost  of  intercommunicating  systems  including  labor,  and  all  ma- 
terials used,  all  interior  wiring,  and  telephones  installed  in  connection  with 
private  branch  exchange  switchboard  to  be  charged  to  Subdivision  C  under 
construction. 

(I)  Soliciting — To  this  account  should  be  (harged  the  salaries  and 
expenses  of  solicitors  engaged  entirely  on  new  work  or  extension  of  plant. 
If  part  of  their  time  is  engaged  in  maintaining  old  business  that  part  should 
be  charged  to  soliciting,  operating. 

(J)  Right  of  Way — This  account  to  include  the  cost  of  all  rights  and 
permits,  exclusive  of  franchises  to  construct,  operate -and  maintain  pole  lines 
or  other  equipment  along  or  over  private  or  municipal  property. 

(K)  Franchise — This  account  to  include  the  cost  of  city  or  town  fran- 
chises, granting  the  right  to  construct  and  operate  telephone  lines  and  sys- 
tems and  extensions  of  original  property,  including  all  expenses  incidental 
thereto. 

(L)  Toll  Lines — This  account  to  include  the  cost  of  all  circuit  and  pole 
lines,  including  labor,  freight,  hauling  and  sundry  materials,  erected  strictly 
for  toll  purposes. 

(M)  Real  Estate  and  Buildings — This  account  to  include  the  cost  of 
all  real  estate  and  buildings  acquired  in  any  manner. 

(N)  Tool  Accounts — To  include  the  first  cost  of  all  new  tools  pur- 
chased. 

(O)  Construction  Salaries — Charge  to  this  account  all  salaries  appli- 
cable to  construction  work  which  cannot  be  distributed  in  the  foregoing 
subdivision.  This  refers  particularly  to  a  proportion  of  salaries  of  the  gen- 
eral officers  of  the  company. 

(P)  Interest  and  Discount  During  Construction — This  account  to  in- 
clude the  interest  paid  on  all  loans  eflfected  for  construction  purposes,  also 
the  discounts  on  stocks,  bonds  or  other  securities  used  by  the  company  and 
sold  at  a  discount,  for  construction  purposes.  Any  interest  earned  by  the 
temporary  lending  of  construction  funds  to  be  credited  to  this  account. 

(Q)  Legal  Expenses — Includes  all  law  expenses  in  connection  with 
organization,  franchises,  etc.  These  expenses  must  not  be  distributed  through 
the  various  other  accounts — such  law  expenses  as  may  be  incurred  in  con- 
nection with  the  purchase  of  rights  of  way  and  real  estate  may  be  charged 
to  the  account  "right  of  way"  or  "real  estate  and  buildings"  provided  the 
expense  is  incurred  only  in  connection  with  the  purchase  of  some  particular 
right  of  way,  or  piece  of  real  estate. 

(R)  Construction  Expense — Charge  to  this  account  all  miscellaneous 
items  of  expense  not  directly  covered  by  any  other  subdivision. 

Note — Further  subdivisions  of  cost  of  construction  may  be  made  if 
deemed  necessary. 


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GENERAL  ACCOUNTS — DEBITS. 

1.  Plant. 

2.  Accounts  receivable,  rentals,  etc. 

3.  Unexpired  insurance. 

4.  Unexpired  directory, 

5.  Interest  on  bonds. 

6.  Treasury  stock. 

7.  Treasury  bonds. 

8.  General  office  expense. 

9.  Freight  and  cartage. 

10.  Bank  accounts. 

11.  Stable  expenses. 

12.  Warehouse  supplies. 

13.  Furniture  and  fixtures. 

14.  Petty  cash. 

15.  Rebates,  cancellations,  etc. 

16.  Officers'  and  clerks'  salaries. 

17.  Collection  expense. 

18.  Soliciting  expense. 

19.  Taxes. 

20.  Insurance. 

21.  Light. 

22.  Heat. 

23.  Power. 

24.  Water. 

25.  Damage  and  accident. 

26.  Stationery  and  printing. 

27.  Postage. 

28.  Advertising. 

29.  Directory. 

30.  Traveling  expense. 

31.  Pole  and  right  of  way  rental. 

32.  Interest  and  discount. 

ZZ.  Rental  of  real  estate  and  buildings. 

34.  Pay  station  commissions. 

35.  Telegraph  line  earning  commissions. 

36.  Long  distance  toll   earning  commissions. 

37.  Private  toll  line  earning  commissions. 

GENERAL   ACCOUNTS — CREDIT. 

38.  Capital  stock. 

39.  Bonded  indebtedness. 

40.  Unearned  rentals. 

41.  Surplus. 

42.  Bills  payable. 

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409  American  Business  and  Accounting  Encyclopedia  Cl, 

43.  Accounts  payable,  vouchers,  etc. 

44.  Accrued  interest  on  bonds. 

45.  Accrued  taxes,  state,  city  and  county. 

46.  Accrued  tax  on  gross  receipts. 

47.  Unclaimed  wages. 

operating  accounts. 

1.  Salaries  and  Wages,  Local  Exchanges — Operators,  supervisors, 
monitors,  attendants,  etc. 

2.  Salaries  and  Wages,  Long  Distance — Toll  operators,  supervisors, 
monitors,  attendants,  etc. 

3.  Printing  and  Stationery — This  account  to  include  cost  of  all  printing 
and  stationery  used  in  the  operating  departments  for  compiling  records, 
monthly  and  daily  reports. 

4.  Postage — Cost  of  all  postage  used. 

5.  Light — Exchange  Light — This  account  to  include  a  fair  prorate  of 
total  light  bills  which  is  considered  applicable  to  operating  according  to 
existing  conditions.  Balance  of  light  bills  to  be  charged  to  the  general 
expense  account  of  light. 

6.  Exchange  Heat — Charge  a  fair  prorate  of  total  heat  bills  which  is 
considered  applicable  to  operating  according  to  existing  conditions.  Balance 
to  be  charged  to  the  expense  account,  "heat." 

7.  Exchange  Water — Charge  a  fair  prorate  of  total  water  bills  to  this 
account  as  in  the  case  of  light  and  heat. 

8.  Exchange  Power — Charge  entire  power  bill  to  this  account. 

9.  Exchange  Rent — Charge  a  proportionate  amount  of  rent  applicable 
to  operating  department. 

10.  Exchange  Miscellaneous  Expenses — This  account  to  include  the 
cost  of  expense  of  dining  room  supplies,  hospital,  hospital  supplies,  medical 
services,  traveling  expenses,  car  fares,  and  other  items  incident  to  the  oper- 
ating department.  In  the  event  of  meals  being  sold  to  operators  or  other 
employes,  the  proceeds  to  be  credited  to  this  account. 


(A)  Repairs 

(B)  Repairs 

(C)  Interior 

(D)  Repairs 

(E)  Repairs 

(F)  Repairs 

(G)  Repairs 
(H)  Repairs 
(I)  Repairs 
(J)  Repairs 


maintenance  accounts. 

to  pole  lines. 

to  wires  and  cables  aerial, 

wiring  and  equipment. 

to  subway. 

to  cable,  underground. 

to  exchange  equipment. 

to  booths  and  pay  stations. 

to  private  branch  exchange. 

to  toll  line. 

to  real  estate  and  buildings. 

647 


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409-410 


All  of  the  above  accounts  to  include  the  cost  of  repairs  to  and  replace- 
ments of  materials,  as  listed  under  Construction,  including  freights  and  car- 
tage and  all  costs  of  labor  employed. 

(K)  Soliciting— To  this  account  should  be  charged  the  salaries  and 
expense  of  solicitors  engaged  in  maintaining  old  business. 

(L)  Repair  to  Tools— To  this  account  should  be  charged  the  cost  of 
all  repairs  to  tools,  or  cost  of  tools  purchased  to  take  the  place  of  tools 
destroyed  or  lost, 

(M)  Miscellaneous  Expense— To  provide  for  all  repairs  not  otherwise 
specified. 

(410)     STANDARD    CLASSIFICATION   FOR    STREET    RAILROAD 

COMPANIES. 

(arranged  by  the  public  service  commission  of  new  YORK  city). 
SCHEDULE  A:  BALANCE  SHEET  OR  INDICANT  ACCOUNTS. 

Fixed  Capital. 
SlOO.    Fixed  Capital,  December  31,  1908. 


Land. 


Sill. 
S112. 


101. 
Sl02. 
Sl03. 
S104. 


181. 

182. 

183. 
184a. 
184b. 

185. 

186. 

187. 

188. 

189. 

190. 

191. 

192. 

193. 

194. 


Sl61. 
Sl62. 
Sl63. 
Sl64. 


Right  of  Way. 

Other  Street  Railroad  Land. 


Intangible  Street  Railroad  Capital. 

Organization. 

Franchises  (Street  Railroad). 

Patent-rights  (Street  Railroad). 

Other  Intangible  Street  Railroad  Capital. 

Roadzvay. 

Grading. 

Ballast. 

Ties 

Rails,  Rail  Fastenings,  and  Joints. 

Special  Work. 

Underground  Construction. 

Track  Laying  and  Surfacing. 

Paving. 

Roadway  Tools. 

Tunnels. 

Elevated  Structu'-e?  and  Foundations. 

Bridge,  Trestles,  and  Culverts. 

Crossings,  Fences,  and  Signs. 

Interlocking  and  Other  Signal  Apparatus. 

Telephone  and  Telegraph  Lines. 


Electric  Line. 


Poles  and  Fixtures. 
Underground  Conduits. 
Transmission  System. 
Distribution  System. 


648 


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Sl31. 
Sl32. 
S151. 
S120. 

195. 

196. 

197. 

198. 


Sl41a. 
Sl41b. 

Sl42. 

Sl43. 

S144. 

S145. 

S152. 
153. 


Sl22b. 
201. 
202. 
203. 
204. 
205. 


S281. 
S282. 
S283. 
S284. 
S285.. 
S286. 


Olio. 

O102. 
O103. 
O104. 
O120. 


Buildings  and  Structure^. 

Dams,  Canals,  and  Pipe  Lines. 

Power  Plant  Buildings. 

Sub-station  Buildings. 

General  Office  Buildings  and  Equipment. 

Shops  and  Car  Houses. 

Stations,  Waiting  Rooms,  and  Miscellaneous  Buildings. 

Docks  and  Wharvs. 

Park  and  Resort  Properties. 

Power  riant  Equipment. 

Furnaces,  Boilers,  and  Accessories. 

Steam  Engines, 

Turbines  and  Water-wheels. 

Gas  Power  Equipment. 

Power  Plant  Electric  Equipment. 

Miscellaneous  Power  Plant  E(;uipment. 

Sub-station  Equipment. 

Cable  Power  Equipment. 

Rolling  Stock  and  Miscellaneous  Equipment. 

Shop  Equipment. 

Locomotives. 

Revenue  Cars. 

Electric  Equipment  of  Cars. 

Other  Rail  Equipment. 

Miscellaneous  Equipment. 

Undistributed  Construction  Expenditures. 

Engineering  and  Superintendence. 
Law  Expenditures  During  Construction. 
Injuries  During  Construction. 
Taxes  During  Construction. 
Miscellaneous  Construction  Expenditures. 
Interest  During  Construction. 

Fixed  Capital  in  Other  Departments. 

Electric  Capital,  Gas  Capital,  an3  Railroa  1  Capital. 

Land  in  Other  Departments, 

Franchises  in  Other  Departments. 

Patent-rights  in  Other  Departments. 

Other  Intangible  Capital  in  Other  Departments. 

Tangible  Capital  in  Other  Departments. 


SlO.    Materials  and  Supplies. 


1.  Cash. 

2.  Bills  Receivable. 


Floating  Capital. 
Materials  and  Supplies. 

Current  Assets. 


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3.  Accounts  Receivable. 

4.  Interest  and  Dividends  Receivable. 

5.  Other  Current  Assets. 


300.    Investments. 


Investments. 


Special  Deposits. 


311.  Coupon  Special  Deposits. 

312.  Dividend  Special  Deposits. 

313.  Other  Special  Deposits. 


Prepayments. 


321.  Prepaid  Taxes. 

322.  Prepaid  Insurance. 

323.  Prepaid  Rents. 

324.  Other  Prepayments. 

Suspense  Accounts. 

331.  Unamortized  Debt  Discount  and  Expense. 

332.  Other  Suspense. 


Re-acquired  Securities. 


340.    Re-acquired  Securities. 


Debt. 


360. 

Funded. 
Unfunded. 

351. 

Taxes  Accrued. 

352. 

Receiver's  Certificates. 

353. 

Judgments  Unpaid. 

354. 

Interest  Accrued. 

355. 

Dividends  Declared. 

356. 

Bills  Payable. 

357. 

Accounts  Payable. 

358. 

Other  Unfunded  Debt. 
Permanent. 

Reserves 

371. 

Premiums  on  Stocks. 

372. 

Other  Permanent  Reserves. 

Temporary. 

373. 

Contractual. 
Required. 

374. 

Accrued  Amortization  of  Capital. 

375. 

Unamortized  Premium  on 

Debt. 

376. 

Other  Required  Reserves. 
Optional. 

381. 

Casualties  and  Insurance 

Reserve. 

382. 

Other  Optional  Reserves. 

6-SO 


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Cl. 


390.  Stocks. 


451. 

452. 
453a. 
453b. 

454. 

455. 

456. 

457. 

458. 

459. 


461. 
462a. 
462b. 

463. 

464. 
465a. 
465b. 
465c. 
466a. 
466b. 

467. 

468. 


Stocks. 

SCHEDULE  B:  INCOME  ACCOUNT. 

Street  Railroad  Operating  Revenues. 

/.    Revenue  From  Transportation. 


Passenger  Revenue. 

Baggage  Revnue. 

Chartered  Car  Revenue. 

Parlor  and  Chair  Car  Revenue. 

Mail  Revenue. 

Express  Revenue. 

Milk  Revenue. 

Freight  Revenue. 

Switching  Revenue. 

Miscellaneous  Transportation  Revenue. 


//.    Other  Street  Railroad  Revenues. 


Advertising  and  Other  Privileges. 

Parcel  Room  Receipts. 

Storage. 

Car  Service. 

Telephone  and  Telegraph  Service. 

Rent  of  Tracks  and  Terminals. 

Rent  of  Equipment. 

Rent  of  Buildings  and  Other  Property. 

Sale  of  Power. 

Joint  Electric  Power  Revenue. 

Park  and  Resort  Revenue. 

Miscellaneous. 

Revenue  from  Outside  Operations. 


Street  Railroad  Operating  Expenses. 

/.    Maintenance  of  Way  and  Structures. 

701.  Superintendence  of  Way  and  Structures. 

704.  Ballast. 

703.  Ties. 

706.  Rails. 

707.  Rail   Fastenings   and  Joints. 

708.  Special  Work. 

709.  Underground   Construction. 

710.  Roadway   and   Track   Labor. 

711.  Paving. 

712.  Miscellaneous  Roadway  and  Track  Expenses. 

713.  Cleaning  and  Sanding  Track. 

714.  Removal   of   Snow,   Ice,   and   Sand. 

716.  Repairs  of  Tunnels. 

717.  Repairs  of  Elevated  Structures  and  Foundations. 

718.  Repairs  of  Bridges,  Trestles,  and  Culverts. 

719.  Repairs  of  Crossings,  Fences,  and  Signs. 

720.  Repairs  of  Signal  and  Interlocking  Systems. 

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Cl.  American  Business  and  Accounting  Encyclopedia 

721.  Telephone  and  Telegraph  Repairs, 

722.  Other  Miscellaneous  Way  Expenses. 

5522.  Pole  and  Fixture  Repairs. 

5523.  Underground  Conduit  Repairs. 

5524.  Transmission  Systt-m  Repairs. 

5527.  Distribution  System  Repairs. 

724.  Miscellaneous  Electric  Line  Expenses. 

725.  Repairs  of  Buildings  and  Structures. 

726.  Other  Operations — Dr. 

727.  Joint  Way  and  Structures— Dr. 

728.  Other  Operations — Cr. 

729.  Joint  Way  and  Structures — Cr. 

730.  Depreciation  of  Way  and  Structures. 

//.    Maintenance  of  Equipment. 

741.  Superintendence  of  Equipment. 

S500.  Repairs  of  Furnaces,  Boilers,  and  Accessories. 

$509.  Repairs  of  Steam  Engines. 

5510.  Repairs  of  Hydraulic  Power  Plant. 

5511.  Repairs  of  Gas  Power  Equipment. 

5512.  Repairs  of  Power  Plant  Electric  Equipment. 

5513.  Repairs  of  Miscellaneous   Power  Plant  Equipment 
742g.  Repairs  of  Cable  Power  Equipment. 

5528.  Repairs  of  Sub-station  Equipment. 

744.  Repairs  of  Passenger  and  Combination  Cars. 

745.  Repairs  of  Freight,  Express,  and  Mail  Cars. 

746.  Repairs  of  Locomotives. 

747.  Repairs  of  Service  Cars. 

749.  Repairs  of  Electric  Equipment  of  Cars. 

750.  Repairs  of  Electric  Equipment  of  Locomotives. 

752.  Repairs  of  Shop  Machinery  and  Tools. 

753.  Shop  Expenses. 

754.  Repairs  of  Vehicles. 

755.  Other  Miscellaneous  Equipment  Expenses. 

756.  Other  Operations — Dr. 

757.  Maintaining  Joint  Equipment — Dr. 

758.  Other  Operations — Cr. 

759.  Maintaining  Joint  Equipment — Cr. 

760.  Depreciation  of  Equipment. 

///,    Trafflc, 

771.  Superintendence  and  Solicitation, 

772.  Advertising. 

773.  Parks  and  Other  Attractions. 

774.  Miscellaneous  Traffic  Expenses. 

IV.    Ccnducting  Transportation. 
781.    Superintendence  and  Solicitation. 

GROUP  I.      POWEK. 

S501.    Power  Plant  Labor. 

a.  Power  Plant  Superintendence  and  Care. 

b.  Boiler  Room  Labor. 

652 


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410  American  Business  and  Accounting  Encyclopedia 

c.  Producer  Labor. 

d.  Engine  Labor. 

e.  Electric  Labor. 

f.  Cable  Power  Plant  Labor. 

5525.  Sub-station  Labor. 
,S5Q2.    Fuel  for  Power. 
S5p3.    Water  for  Power. 

5504.  Lubricants  for  Power. 

5505.  Miscellaneous  Power  Plant  Supplies  and  Expenses. 

5526.  Sub-station  Supplies  and  Expenses. 

785.  Horse  Power — Revenue  Car  Service. 

786.  Power  Purchased. 

787.  Jointly  Produced  Power— Dr. 

788.  Power  Exchanged — Balance, 

789.  Other  Operations— Dr. 

790.  Other  Operations— Cr. 

791.  Jointly  Produced  Power — Cr. 

t 

GROUP   II,      OPERATION    OF   CARS. 

802a.  Passenger  Motormen, 

802b.  Passenger  Conductors. 

802c.  Horse  Car  Drivers. 

802d.  Other  Passenger  Trainmen. 

803.  Freight  and  Express  Motormen  and  Trainmen. 

805.  Miscellaneous  Car  Service  Employes. 

806.  Miscellaneous  Car  Service  Expenses. 

807.  Station  Employes. 

808.  Station   Expenses. 

809.  Car  House  Employes. 

810.  Car  House  Expenses. 

811.  Operation  of  Signal  and  Interlocking  Systems. 

812.  Operation  of  Telephone  and  Telegraph  Systems. 

813.  Express  and  Freight  Collections  and  Delivery. 

814.  Loss  and  Damage. 

81c.    Other  Transportation  Expenses. 
811.    Joint  Operation  of  Cars — Dr. 
817.    Joint  Operation  of  Cars — Cr. 

V.     General  and  Miscellanea us^ 

5831.  Salaries  and  Expenses  of  General  Officers. 

5832.  Salaries  and  Expenses  of  General  Office  Clerks. 

5833.  General  Office  Supplies  and  Expenses, 

5834.  General  Law  Expenses. 

5835.  Insurance. 

S836a.  Relief  Department  Expenses. 

S836b.  Pensions, 

5838.  Miscellaneous  General  Expenses. 

5839.  General  Amortization. 
SS4G,  Other  Operations — Dr, 
8841.  Joint  General  Expense — Dr, 

5842.  Other  Operations — Cr. 

5843,  Joint  General  Expense — Cr. 
S844a,    Accidents  and  Damages. 

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Cl.  American  Business  and  Accounting  Encyclopedia 

SS44b.  Law  Expenses  Connected  with  Damages. 

S845.  General  Stationery  and  Printing. 

5847.  Store  Expenses. 

5848.  Stable  Expenses. 

5849.  Undistributed  Adjustments — Balance. 


410 


Taxes. 


S860.    Taxes. 


S901C. 
S90ld. 

902. 

903. 

904. 

905. 


910. 


Non-operating  Revenues. 

Rents  Accrued  from  Lease  of  Road. 

Miscellaneous  Rent  Revenues. 

Interest  Revenues. 

Dividend  Revenues. 

Profits  from  Operations  of  Others 

Miscellaneous  Non-operating  Revenues. 

Non-operating  Revenue  Deductions. 

Non-operating  Revenue  Deductions: 
a.    Rent  Expense. 
Interest  Expense. 
Dividend  Expense. 
Others'  Operations  Expense. 
Miscellaneous  Non-operating  Expense. 
Non-operating   Taxes. 
Uncollectible  Non-operating  Revenues. 


921. 

922c. 

922. 


923. 
924. 
925. 
926. 
927. 
928. 
929. 


931a. 
931b. 

932. 

933. 

934. 

935. 

936. 

937. 


b. 
c. 
d. 
e. 
f. 
g- 


Income  Deductions. 

Interest  Deductions. 

Rent  for  Lease  of  Other  Road  and  Equipment 

Other  Rent  Deductions. 

d.  Track  and  Terminal  Privileges. 

e.  Hire  of  Equipment. 

f.  Joint  Facility  Rents. 

g.  Miscellaneous  Rent  Deductions. 
Sinking  Fund  Accruals. 
Guaranties  of  Periodic  Payments. 
Loss  on  Operations  of  Others. 

Other  Contractual  Deductions  from  Income. 
Amortization  of  Landed  Capital. 
Amortization  of  Debt  Discount  and  Expense. 
Amortization  of  Premium  on  Debt — Cr. 

Appropriation  Accounts. 

Bad  Debts  Collected. 
Other  Additions  to  Surplus. 
Expenses  Elsewhere  Unprovided  For. 
Dividends  on  Outstanding  Stocks. 
Amortization  Elsewhere  Unprovided  For. 
Appropriations  to  Reserves. 
Gifts  to  Controlled  Corporations. 
Other  Appropriations. 

654 


410-411  American  Business  and  Accounting  Encyclopedia 

938.  Bad  Debts  Written  OflF. 

939.  Other  Deductions  from  Surplus. 

SCHEDULE  C:  CLASSIFICATION  OF  CAR-MILES,  CAR  SE.-\T-MILES. 

AND  CAR-HOURS. 


Cl. 


Car- MILES  AND  Car  Seat- miles. 


Yl. 
Y2. 
Y3. 
Y4. 
Y5. 
Y6. 
Y7. 
Y8. 
Y9. 


Passenger  Car-miles — Active. 
Passenger  Car-miles — Idle 
Special  Passenger  Car-miles. 
Mail  Car-miles. 
Express  Car-miles. 
Freight  Car-miles. 
Mixed  Car-miles. 
Non-revenue  Car-miles. 
Electric  Locomotive-miles. 


Car- HOURS. 


Car-hours. 


(411)     CLASSIFICATION  OF  DEPARTMENTAL  STORE 

ACCOUNTS. 


Debits. 

Inventory. 
Purchases. 
Expense. 
Gross  Profit. 


Inventory. 
Purchases. 
Expense. 
Gross  Profit. 


Inventory. 
Purchases. 
Expense. 
Gross  Profit. 


Inventory. 
Purchases. 
Expenses. 
Gross  Profit. 


Advertising. 
General  Expense. 
Insurance. 
Bad  Debts. 
Depreciation. 
Net  Profit. 


TRADING   accounts. 


Department  A. 


Sales. 
Inventory. 


Credits. 


Department  B. 


Sales. 
Inventory. 


Department  C. 


Sales. 
Inventory. 


Department  D.,  etc. 

Sales 
Inventorv. 


profit  and  loss  account. 


Debits. 


Credits. 
Gross  Profit — Department  A. 
Gross  Profit — Department  B. 
Gross  Profit — Department  C. 
Gross  Profit — Department  D,  etc. 
Interest  on  Investments. 


655 


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American  Business  and  Accounting  Encyclopedia  411-412 


BALANCE   SHEET. 


Assets. 
Cash. 
Bank. 

Accounts  Receivable. 
Petty  Accounts  Receivable. 
Bills  Receivable. 
Interest  Receivable. 
Real  Estate. 
Furniture  and  Fixtures. 


Liabilities. 
Accounts  Payable. 
Bills  Payable. 
Bad  Debts  Reserve. 
Depreciation  Reserve. 
Partners'  Investment  Account: 


(412)     CLASSIFICATION   OF   BRICK  MANUFACTURING 

ACCOUNTS. 


Debits. 
Cement  Purchases. 
Proportion  of  Labor. 
Proportion  of  Expense. 
Gross  Profit. 


Debits. 
Sand  Purchases. 
Proportion  of  Labor. 
Proportion  of  Expense. 


Debits. 
Cement  Purchase.s. 
Sand  Purchases. 
Labor  mixing  for  bricks. 
Labor  mixing  for  blocks. 
Labor  making  bricks. 
Labor  making  blocks. 
Labor  non-productive. 
Manfg.  Expense. 


Debits. 

Inventory. 

Balance  from  Mfg.  Acct. 

Bricks — 
Quantity  Mfd. 
Cost. 

Blocks- 
Quantity  Mfd. 
Cost. 

Gross  Profit. 


Debits. 
Selling  Expense — 

Advertising. 

Re-loading. 

Carting. 

Stable  Expense. 
General  Expense — 

Salaries. 

Stationery  and  Printing. 

Discount. 

Interest. 


TRADING   ACCOUNT — CEMENT. 


Cement  Sales. 


TRADING   ACCOUNT — SAND. 


Credits. 


Credits. 
Sand  Sales. 


MANUFACTURING  ACCOUNT. 


Credits. 
Balance  carried  to 
General  Trading  Acct 


GENERAL  TRADING  ACCOUNT. 

Brick  Sales. 
Block  Sales. 
Inventory. 


Credits. 


PROFIT  AND  LOSS  ACCOUNT. 


Credits. 
Gross  Profit  from  Trading  Acct 


656 


412-413 


American  Business  and  Accounting  Encyclopedia 


Cl. 


Repairs. 
Depreciation. 
Bad  Debts. 
Office  Expense. 
Net  Profit. 


BALANCE   SHEET. 


Assets. 
Cash. 

Petty  Cash  Fund. 
Accounts  Receivable. 
Notes  Receivable. 
Office  Fixtures. 
Plant  and  Machinery. 
Tools. 

Real  Estate. 
Unexpired  Insurance. 


Liabilities. 
Accounts  Payable. 
Notes   Payable. 
Bad  Debts  Reserve. 
Depreciation  Reserve. 
Capital. 
Surplus. 


(413)     CLOSING  ENTRIES. 

The  charging  of  expenses  and  losses  and  crediting  of  profits  to  the  profit 
and  loss  account  preparatory  to  the  distribution  of  net  profits  or  surplus.  It 
is  usual  to  close  out  these  accounts  at  the  end  of  each  fiscal  year. 

The  method  usually  adopted  in  treating  inventory  is  to  make  an  arbi- 
trary credit  of  the  amount  in  the  merchandise  account,  bringing  same  down 
as  the  new  balance  and  transferring  the  diflference  between  the  debit  and 
credit  side  of  merchandise  account  with  inventory  added  to  the  profit  and 
loss  account.  The  modern  method  is  to  close  out  merchandise  account  in 
the  ordinary  way  and  then  make  a  journal  entry,  charging  new  merchandise 
account  with  the  amount  of  the  inventory,  and  crediting  same  to  profit  and 
loss. 

It  is  well  to  note  that  accrued  wages  should  be  charged  to  Trading 
Account — that  is,  against  gross  profits,  and  accrued  interest,  unearned  insur- 
ance, etc.,  should  be  credited  direct  to  profit  and  loss.  The  question  as  to 
whether  these  classes  of  items  should  be  incorporated  in  the  balance  sheet 
without  opening  temporary  accounts  to  represent  them  in  the  ledger  is  a 
matter  of  opinion.  In  making  an  audit  of  books  the  auditor  frequently  finds 
such  items  entirely  disregarded  and  a  disinclination  to  put  them  through 
the  books.  In  such  cases  the  auditor  will  incorporate  them  in  his  balance 
sheet  with  proper  explanations. 

All  inventories  of  stationery,  stamps,  coal  and  other  supplies  should  be 
deducted  from  expense  accounts  prior  to  their  being  closed  into  profit  and 
loss. 

Expense  and  similar  accounts  should  not  be  closed  at  the  end  of  each 
month  and  balances  brought  down,  as  it  is  important  for  the  preparation  of 
financial  statements  at  the  end  of  the  year  that  the  totals  of  all  such  accounts 
be  readily  accessible. 

657 


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American  Business  and  Accounting  Encyclopedia 


ILLUSTRATION. 


413-414 


Take  an  inventory  of  the  merchandise  on  hand,  classifying  same  under 
the  department  headings  if  any.  Include  any  merchandise  in  transit  on  which 
money  has  been  advanced,  to  the  extent  of  the  part  payment. 

Calculate  unexpired  insurance,  accrued  interest  and  accrued  wages,  as 
well  as  any  other  contingent  assets  and  liabilities  not  already  spread  on  the 
books  of  account. 

Credit  total  inventory  to  merchandise  account,  carrying  the  balance  to 
profit  and  loss.  Close  merchandise  account  and  bring  down  the  amount  of 
the  inventory. 

Credit  unexpired  insurance  to  insurance  account,  closing  the  balance  to 
profit  and  loss.     Close  insurance  account  and  bring  down  the  balance. 

Charge  accrued  wages  and  accrued  interest  on  bills  payable  to  salary 
account  and  interest  account  respectively ;  close  the  balance  of  these  accounts 
into  profit  and  loss  and  bring  down  the  balances  on  the  credit  side. 

Close  income  and  expenditure  accounts  into  profit  and  loss  and  rule  up 
these  accounts. 

Close  profit  and  loss,  carrying  the  balance  to  surplus. 

Balance  and  rule  the  asset  and  liability  accounts,  bringing  down  the 
balances. 

Take  a  trial  balance  to  insure  the  accuracy  of  the  work. 

Close  the  assets  and  liabilities  into  the  proprietor's  capital  account,  and 
rule  up  his  account. 

(414)     CLUB  OR  SOCIETY  ACCOUNTING  METHOD. 

We  illustrate  a  very  simple  form  of  ledger  for  a  club,  society  or  union, 
which  will  cover  a  record  of  payment  of  initiation  fees  and  dues  by  six 
hundred  members  for  ten  years.  Each  member  is  given  only  one  line  in  the 
book,  his  name  and  address  being  entered  but  once. 

It  will  be  noted  that  this  is  a  regular  tabular  short  leaf  ledger.  The 
method  of  keeping  ledgers  of  this  nature  is  fully  described  under  the  heading 
"Tabular  Ledgers." 

The  book  is  made  up  of  10  full  leaves  and  90  half  leaves,  making  200 
pages  in  all,  with  thirty  lines  to  the  page.  It  is  to  be  used  thus :  On  page  1, 
for  instance,  enter  the  member's  name  and  address  and  his  enrollment  num- 
ber. The  30  lines  are  printed  in  alternate  blue  and  purple,  so  that  the  eye 
may  more  easily  follow  the  record  across  the  page.  Next  comes  the  date  of 
his  entrance  or  initiation  and  the  amount  and  date  of  the  payment  of  the 
fee.  Fill  in  the  year  on  the  top  line  over  the  month  columns  and  then,  as 
each  month  passes,  fill  in  the  date  and  amount  oi  each  payment  of  monthly 
dues.  If  he  pays  several  months  in  advance  or  if  he  runs  several  months  in 
arrears  and  then  settles  for  three  months,  fill  in  each  month  separately  thus: 
7/4  .50;  7/4  .50;  7/4  .50,  setting  each  50c  under  the  month  for  which  it  was 

658 


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American  Business  and  Accounting  Encyclopedia 


Cl. 


paid.  The  idea  in  posting  the  payment  this  way  is  to  show  by  a  glance  just 
how  far  he  is  paid  up.  No  charges  are  entered,  a  blank  column  showing  that 
the  month  has  not  been  paid  for. 

The  columns  can  be  headed  to  suit  the  needs  of  the  organization.  If 
there  be  no  entrance  fee,  then  omit  that  column.  If  the  dues  are  paid 
quarterly,  then  head  your  columns  January,  April,  July  and  October  or 
whatever  months  the  dues  are  assessed.  If  it  is  an  assessment  organization, 
don't  print  in  the  titles  of  any  months,  but  enter  them  in  ink  as  required. 
You  may  have  to  make  entries  as  to  deaths  and  expulsions.  If  so  you  will 
find  ample  room  in  the  space  for  "Remarks"  on  the  second  page  of  the  full 
leaf,  corresponding  with  the  columns  for  the  member's  name  and  address  on 
the  first  page. 

Don't  forget  to  have  the  printer  leave  a  space  in  the  top  horizontal  line 
for  the  year.  Each  year  should  be  printed  "190 — "  or,  if  you  prefer,  the  year 
can  be  printed  in  full :  1907  on  the  first  page.  1908  on  the  second  and  so  on. 
This  will  make  a  more  expensive  job  because  there  would  have  to  be  just 
so  many  separate  forms. 

The  finance  or  auditing  committee  can  check  up  the  accounts  any  time 
in  an  evening,  yes,  in  an  hour,  by  merely  footing  up  the  columns  and  "check 
marking"  the  items  they  have  included  in  their  footing. 

It  must  be  borne  in  mind  that  the  operation  of  this  ledger  does  not  re- 
lieve the  treasurer  or  other  financial  officer  from  keeping  a  cash  book.  He 
must  keep  his  cash  account  independently  of  the  ledger,  because  he  has  to 
show  his  disbursements  and  his  deposits  in  bank.  And  he  should  have  a 
voucher  for  every  expenditure.  This  voucher  may  either  be  the  original  bill, 
monthly  statements  not  being  recognized  by  the  auditors,  or  the  check  itself 
may  be  printed  so  that  it  will  include,  on  the  reverse  side,  a  copy  of  the 
original  bill.  If  the  bill  itself  is  used  the  canceled  check,  when  returned  by 
the  bank,  should  be  attached  to  the  bill,  thus  making  a  complete  record  of 
the  transaction. 

A  further  check  on  the  proper  keeping  of  the  accounts  is  to  have  the 
cash  book  balance  with  the  deposit  book.  This,  of  course,  necessitates  the 
payment  of  all  bills  by  check  through  the  bank  no  matter  how  small  they 
be.  Petty  expenditures  may  be  lumped  at  the  end  of  the  month  or  from 
meeting  to  meeting  and  a  check  made  out  for  the  amount  payable  to  the 
disbursing  officer,  his  bill  being  presented  to  the  organization  like  any  other 
bill. 

Treasurers  and  collectors  of  clubs  and  kindred  societies  are  often  puzzled 
as  to  a  convenient  form  of  receipt.  Many  use  a  small  book,  but  this  is 
expensive  as  are  blanks  to  be  used  for  each  payment.  I  have  found  the  form 
shown  to  be  the  most  economical  and  least  troublesome. 

This  form  should  be  printed  on  good  paper  as  it  has  to  last  a  year.  A 
small  leather  case  may  be  furnished  with  it,  the  case  folding  in  the  middle 
with  triangular  holders  in  the  corners,  so  that  the  slip  will  not  fall  out.  These 

659 


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American  Business  and  Accounting  Encyclopedia 


414-415 


THE   DLTROnr     PROTE.CTIVEL    AS5N. 

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cases  can  be  made  up  by  any  local  bookbinder  at  10  to  12  cents  each  or  they 
can  be  purchased  for  seven  to  eight  cents  each  in  lots  of  50,  with  the  name 
of  the  organization  stamped  on  the  outside.  The  members  should  pay  10 
cents  each  for  this  case. — (G.  Brozvn.) 

(415)     COAL   MINING    (BITUMINOUS)    ACCOUNTING   METHODS. 

The  three  most  important  mines  in  the  bituminous  districts  are  the 
slope,  shaft  and  drift. 

The  slope  is  an  incline  opening  in  the  strata  through  which  the  coal  is 
delivered  to  the  surface.  The  coal  is  found  near  the  surface,  but  pitches 
downward  to  the  coal  basin  to  such  a  marked  degree  that  machinery  is 
necessary  in  bringing  the  coal  to  the  surface.  The  coal  is  generally  delivered 
to  the  main  track  by  mule  or  motor  and  the  cars  fastened  to  the  wire  rope 
attached  to  the  surface  machinery,  to  which  point  it  is  drawn. 

660 


415 


American  Business  and  Accounting  Encyclopedia 


Cl. 


The  shaft  is  a  vertical  opening  through  the  strata  through  which  the 
coal  is  brought  to  the  surface.  The  coal  lies  so  far  beneath  the  surface  that 
the  most  feasible  delivery  is  by  elevator  or  cage.  In  some  instances  the 
excavation  goes  down  many  hundred  of  feet  and  penetrates  more  than  one 
vein  of  coai. 


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The  drift  is  the  simplest  form  of  the  three  and  produces  the  coal  at  a 
lower  cost  than  the  others.  The  opening  is  driven  parallel  with  the  coal 
«trata  and  with  the  water  level,  so  that  no  machinery  is  required  to  pump 
the  water  to  the  surface. 


661 


Cl. 


American  Business  and  Accounting  Encyclopedia 


415 


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415 


American  Business  and  Accounting  Encyclopedia 


Cl. 


When  the  vein  of  coal  outcrops  within  the  owner's  property  and  is  flat, 
the  best  method  of  opening  is  by  the  drift,  the  inclination  being  so  sHght 
that  It  forms  a  natural  drainage.  If  there  is  considerable  inclination  not  be- 
yond a  limited  degree,  it  should  be  opened  with  a  slope.  If  the  inward  dip 
is  too  strong  a  shaft  should  be  sunk  in  or  near  the  center  of  the  coal  basin. 
There  are  two  general  systems  of  mining  in  the  United  States,  the  room  and 
pillar  and  the  longwall.  Of  the  two  the  former  is  the  most  popular  in  the 
bituminous  regions  and  in  nearly  every  instance  is  the  system  used.  The 
modifications  to  both  systems  are  too  numerous  and  varied  to  classify  here. 

In  the  pillar  and  room  system  the  coal  is  first  mined  from  places  termed 
rooms,  which  are  driven  either  square  from  or  at  an  angle  to  the  haulageway. 
The  forms  of  rooms  may  be  roadway,  incline  or  chute,  according  to  the  con- 
ditions existing.  When  mining,  the  coal  is  all  taken  out  to  within  the  re- 
quired width  of  the  room,  except  some  pillars  of  coal  which  are  left  for  the 
purpose  of  supporting  the  roof  and  preventing  a  fall  of  rock.  After  the  coal 
is  all  taken  out  in  a  section  of  the  mine  the  pillars  of  coal  are  mostly  drawn 
in  that  section.  Prop  timbering  is  extensively  done  to  aid  in  supporting 
the  roof. 

662 


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In  the  longwall  system  of  mining  the  coal  is  all  taken  out  as  the  work 
proceeds.  To  support  the  roof  walls  arc  built  on  each  side  of  the  roadway 
in  the  waste  area,  and  on  these  the  roof  rests  and  settles  firmly.  This  system 
is  more  adapted  to  veins  of  coal  having  no  faults  and  a  moderate  pitch.  The 
system  is  the  more  economical  of  the  two  in  regard  to  the  timber,  etc. 

Keeping  the  records  and  accounts  of  the  enormous  production  of  coal  is 
a  very  important  branch  of  book-keeping,  and  to  those  not  having  an  under- 
standing of  its  fundamental  principles  is  very  complicated.  There  are  many 
chances  for  errors,  however  slight  they  may  be,  from  an  hundredweight  of 
coal  to  the  dollars  and  cents  on  the  pay  roll  or  ledger.  The  standard  of 
perfection  in  correctness  is  hard  to  attain,  but  there  are  forms  and  systems 
which  if  used  would  add  greatly  toward  the  goal  of  efficiency. 

The  first  aim  is  to  have  the  work  in  such  a  manner  that,  by  balancing, 
the  least  error  that  may  have  been  made  may  be  readily  detected. 

The  second  aim  should  be  to  have  the  books  and  accounts  systematized 
for  use  in  referring  to  in  the  least  time  possible  to  find  the  information 
desired. 

To  this  end  many  forms  have  been  devised  and  are  in  present  use, 
certain  points  in  some  surpassing  that  of  others.    In  the  following  the  record 

663 


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mine  or  form  of  mining  can  apply  the  system  for  its  use,  making  the  name 
of  the  various  accounts  to  suit  the  requirements. 

By  a  glance  the  engineer  sees  that  the  first  train  is  composed  of  six  cars, 
and  having  his  daily  report  before  him  he  quickly  notes  the  amount  thereon, 
and  so  on  until  the  day's  work  is  finished,  the  report  totaled  and  completed 
and  sent  to  the  company's  ofiice  for  recording  and  filing.  Under  the  head 
of  remarks  he  may  give  any  information  ne'cessary  to  inform  the  office  of 
the  supplies  which  he  is  in  need  of.  In  noting  the  number  of  cars  drawn  he 
puts  down  the  total,  irrespective  of  coal  or  rock,  or  any  other  material  which 
they  may  contain,  as  they  are  divided  into  their  proper  classification  at  the 
coal  scales.  The  weighmaster  notes  how  many  cars  of  coal  are  weighed, 
how  many  cars  of  rock  or  debris  dumped,  etc.,  the  total  of  which  should 
balance  with  the  total  number  of  cars  as  found  on  the  engineer's  report. 

The  coal  arriving  at  the  weigh  office  is  weighed  and  the  weight  marked 
to  the  number  of  the  miner  corresponding  with  the  number  of  the  check  or 
ticket  attached  to  the  car.  If  that  particular  car  is  loaded  into  the  railroad 
car  it  is  marked  in  the  railroad  car  column,  and  under  the  number  and  initial 
of  the  car  in  which  it  is  loaded,  or  whatever  disposition  is  made  of  the  coal, 
it  should  be  marked  in  the  column  to  which  it  belongs.  At  the  close  of  the 
working  period  the  coal  sheet  is  totaled  for  each  miner  separately  and  then 
across  the  page,  and  the  result  from  each  section  added  should  balance  to 
the  hundredweight  with  the  total  of  the  disposition  columns. 

Under  remarks  the  weighmaster  may  state  anything  of  importance,  such 
as  a  car  being  wrecked  totally,  or  partially,  and  which  may  be  brought  up 
for  future  adjustment  with  the  miner  loading  the  car.  The  sheet  being 
counted,  balanced  and  completed  in  every  respect,  is  then  ready  for  entry 
in  the  regular  coal  ledger  in  use.  The  total  of  each  miner's  weight  according 
to  his  number  is  entered  from  the  daily  coal  sheet  to  the  correspondino- 
number  on  the  coal  ledger,  on  the  line  dated  and  corresponding  with  the  data 
of  the  daily  coal  sheet. 


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American  Business  and  Accounting  Encyclopedia 


Cu 


The  customary  rule  or  practice  with  many  companies  is  to  pay  their 
laborers  each  half  month,  therefore  the  coal  ledger  is  ruled  for  adding  each 
miner's  coal  and  the  distribution  of  the  total  output  each  half  month,  and 
so  arranged  that  the  monthly  total  of  each  and  all  can  be  ascertained  by 
adding  the  two  half  month's  totals.  By  balancing  to  insure  correctness  be- 
fore transferring  to  the  pay  roll  the  totals  of  each  miner's  coal  added  across 
the  page  of  the  ledger  should  balance  with  the  totals  of  each  day's  output 
added  vertically,  and  this  in  turn  should  balance  with  the  addition  of  the 
different  columns  of  distribution,  totaled. 

The  coal  ledger  balancing  in  every  detail  is  then  ready  for  entry  upon 
the  semi-monthly  pay  roll  of  the  company,  entering  the  sum  total  of  each 
miner's  coal  according  to  name  as  found  on  the  coal  ledger  directly  above 
his  number.  The  pay  roll  column  of  coal  is  then  totaled,  and  the  result 
corresponds  with  the  total  on  the  coal  ledger. 

Each  miner's  weight  of  coal  is  then  multiplied  by  the  rate  of  mining  as 
designated  in  the  column  between  the  column  of  coal  and  that  of  dollars  and 
cents  and  the  result  placed  in  the  column  for  dollars  and  cents.  This  is  then 
totaled  and  the  result  in  dollars  and  cents  should  balance  with  the  total  of 
the  coal  multiplied  by  the  rate  of  mining  paid. 

Before  taking  up  any  further  phase  of  the  subject,  we  will  present  a  form 
of  manifest  by  which  to  ship  the  coal.  There  being  two  required  in  most 
instances,  it  is  best  to  have  them  made  with  carbon  copies. 

When  a  car  is  shipped  to  any  point  the  weight  of  the  coal  loaded  in  the 
car  and  as  weighed  at  the  mine  is  placed  in  the  mine  weight  column.  When 
the  weight  for  the  car  as  weighed  by  the  railroad  is  returned  to  the  coal 
company  it  is  placed  in  the  railroad  weight  column  opposite  that  of  the 
mine  weight,  and  by  carrying  the  total  of  the  weights  forward  the  gain  or 
loss  in  weight  can  be  ascertained  for  each  car,  shipment,  day  or  month. 

The  next  item  on  the  pay  roll  is  then  considered,  which  is  that  of  yard- 
age.    Unless  a  miner  quits  or  is  discharged  it  is  not  customary  for  the  mine 


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foreman  to  measure  the  yardage  until  the  end  of  the  semi-monthly  period. 
It  is  not  necessary  to  have  a  special  form  of  ruling  for  this,  for  the  mine 
foreman,  as  the  record  taken  in  the  mine  on  which  to  note  the  number  of 
yards  is  nearly  obliterated  by  the  coal  dirt.  If  desired  for  the  foreman  to 
have  a  special  form  on  which  to  place  the  yardage,  that  of  the  yardage  book 
may  be  used,  omitting  the  column  for  dollars  and  cents.  The  yardage  being 
given  to  the  book-keeper,  either  written  or  oral,  is  placed  on  the  regular 
yardage  book,  according  to  the  location  in  the  mine  of  the  miner  for  which 
the  measurement  is  taken. 

By  stating  the  location  of  the  mine  you  can  by  small  effort  see  what  the 
amount  in  any  particular  location  is  costing.    The  number  of  yards  multipled 

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by  the  rate  per  yard  gives  the  amount  in  dollars  and  cents  to  be  paid.  This 
column  is  totaled  and  the  result  placed  in  the  yardage  book  and  is  then 
transferred  to  the  pay  roll  in  the  yards,  rate  and  dollars  and  cents  columns 
and  the  total  of  the  latter  column  on  the  pay  roll  should  balance  with  the 
total  of  the  yardage  book. 


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The  next  item  for  consideration  according  to  its  relative  position  on  the 
company  pay  roll  is  the  mine  foreman's  report  of  the  men  performing  labor 
that  is  paid  and  rated  by  the  day.  The  report  is  classified  into  the  different 
accounts,  and  each  man's  name,  the  number  of  hours  worked,  and  the  rate 
to  be  paid,  are  marked  under  the  name  of  the  division  for  which  he  is  em- 
ployed for' that  day.  By  this  method  of  classification  the  abstracting  of  the 
time  book  is  rendered  easy,  so  that  you  can  ascertain  the  cost  for  each  parti- 
cular item.  Under  remarks,  the  mine  foreman  may  give  any  information 
necessary  to  inform  the  office  of  supplies  needed,  or  of  any  cause  for  an  extra 
amount  of  men  required. 

The  report  is  brought  or  sent  to  the  office  and  entered  on  the  time  book, 
which  is  divided  into  the  different  accounts  the  same  as  found  on  the  mine 
foreman's  report.  The  time  book  is  ruled  for  one  month  on  each  sheet,  but 
divided  into  semi-monthly  sections,  one  section  placed  on  each  page.  At 
the  end  of  each  half  month  it  is  counted  up  in  days,  and  multiplying  the 
number  of  days  worked  by  the  rate  per  day  equals  the  amount  of  dollars  and 
cents  to  be  paid.  The  dollars  and  cents  column  on  the  time  book  is  then 
summed  and  the  total  placed  at  the  last  of  the  column  for  the  half  month, 
and  the  name  of  the  laborer,  number  of  days  worked,  rate  per  day,  and  the 
amount  in  dollars  and  cents  placed  in  their  respective  columns  on  the  pay 
roll.  Summing  up  the  dollars  and  cents  column  on  the  pay  roll  for  the  day 
labor  performed,  should  balance  with  the  column  as  found  on  the  time  book. 

At  the  end  of  the  month  each  account  for  the  two  semi-monthly  periods 
is  summed,  and  the  result  placed  under  the  title  of  abstract  as  found  on  the 
time  book.  The  abstract  total  column  should  balance  with  the  sum  of  the 
two  semi-monthly  columns  as  found  on  each  page  of  the  time  book.  The 
totals  of  the  different  accounts  are  then  ready  for  entry  on  the  double  entry 

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American  Business  and  Accounting  Encyclopedia 


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books  of  the  company  and  the  cost  sheet,  an  illustration  of  which  is  given. 

The  pay  roll  is  then  completed  on  the  debtor  side  and  the  total  amount 
for  the  different  kinds  of  labor  performed  by  each  man  placed  in  the  total 
column  on  the  debtor  side  of  the  pay  roll.  The  sum  of  the  totals  should 
balance  with  the  addition  of  the  total  of  the  coal  column,  yardage  column, 
and  day  labor  column. 

We  are  then  ready  to  consider  the  other  phase  of  the  pay  roll  on  which 
the  men's  indebtedness  to  the  company  for  the  various  items  are  placed. 
The  smithing  cost  is  usually  rated  according  to  the  amount  of  coal  mined 
and  the  coal  diggers  are  the  only  ones  charged  with  the  smithing  rate.  The 
column  is  summed  and  the  result  placed  in  the  proper  finis  of  the  column. 

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As  most  companies  own  more  or  less  houses  for  rent  to  their  laborers,  a 
form  of  rent  book  is  required,  on  which  the  number  of  the  house  rented,  the 
name  of  the  renter,  the  date  leased,  date  moved,  and  the  rent  as  paid  each 
half  month  are  found. 

The  rent  totaled  on  the  pay  roll  should  balance  with  the  total  as  found 
on  the  rent  book  for  each  period  of  rental. 

Many  of  the  miners  who  work  for  the  company,  but  live  in  their  own 
homes  or  rented  houses  other  than  those  of  the  company,  buy  their  coal  for 
fuel  from  the  company  for  which  they  are  working  and  desire  it  to  be  de- 
ducted from  the  pay  for  their  labor.  The  keeping  of  this  record  of  the  coal 
purchased  by  the  laborers  is  so  simple  that  a  common  form  of  day  book  may 
be  used  on  which  to  place  the  amount  purchased  as  found  on  the  daily  coal 
sheet  in  the  coal  sold  column. 

This  item  is  counted  at  the  end  of  the  semi-monthly  period  in  which  it 
occurs  and  placed  on  the  payroll,  in  the  coal  sold  column,  the  total  of  which 
should  balance  with  the  total  as  found  on  the  Coal  Sold  Book. 

Where  the  company  has  no  store  for  the  sale  of  general  merchandise, 
they  usually  have  a  supply  house  from  which  the  necessary  supplies  for  use 
in  and  about  the  mine  are  sold  to  the  men.  For  this  the  one  having  charge 
of  the  supplies  should  make  a  daily  report  to  the  office  of  the  amount  of 
each  article  sold  and  to  whom  it  is  sold.  By  using  the  form  of  report  here 
given  and  subtracting  each  sale  from  the  preceding  amount  on  hand  it  can 
be  readily  seen  at  a  glance  how  much  is  on  hand  at  any  time. 

When  an  invoice  of  goods  arrives  the  amount  of  same  is  added  to  the 
amount  on  hand  at  the  time  the  invoice  arrives.  The  daily  report  of  the 
amount  of  supplies  sold  upon  arriving  at  the  office  is  entered  on  the  supply 
ledger  of  the  company  in  amount  of  dollars  and  cents  only  in  the  column  and 
according  to  the  date  on  which  the  sale  is  made.    In  case  of  a  dispute  on  the 

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part  of  the  purchaser  as  to  the  amount  appearing  on  the  pay  roll,  you  would 
first  refer  to  the  supply  ledger  and  see  the  several  amounts  and  date  on 
which  they  appear  and  then  refer  to  the  salesman's  report  for  those  dates  to 
see  the  names  of  the  articles  in  question. 

In  adding  up  the  amount  of  each  day's  sales  on  the  supply  ledger  the 
total  should  balance  with  the  amount  as  totaled  on  the  daily  report.  At  the 
end  of  the  semi-monthly  period  the  ledger  is  totaled  across  the  page  and  the 
result  for  each  man's  purchases  set  forth  in  the  total  column.  The  addition 
of  the  total  column  should  balance  with  the  sum  total  of  the  sales  as  totaled 
each  day.  The  items  are  then  ready  for  entry  on  the  pay  roll.  The  earnings 
of  a  man  mostly  covers  the  amount  of  supplies  purchased,  but  in  case  of 
vice  versa  the  difference  between  the  amount  purchased  and  the  credit  given 
as  being  paid  on  the  pay  roll  is  placed  in  the  balance  column  and  carried  up 
to  the  balance  brought  forward  column  as  found  on  each  half  month's  ruling 
of  the  ledger.  The  total  of  the  supply  column  on  the  pay  roll  should  balance 
with  the  total  of  the  credit  column  on  the  ledger,  and  the  total  of  the  credit 
column  on  the  ledger  and  the  balance  forward  column  of  the  same  should 
balance  with  the  sum  totals  of  the  total  column  on  the  ledger.  The  total 
of  the  balance  brought  forward  column  on  the  ledger  should  balance  with  the 
total  of  the  balance  forward  column. 

In  all  fields  of  organized  labor  the  check  off  or  regular  contribution  to 
the  union  is  collected  through  the  office.  This  is  treated  as  an  indebtedness 
to  the  company  on  the  pay  roll  and  the  total  amount  of  same  added  to  the 
'amount  of  'cash  to  be  paid  out  on  the  pay  day.  The  rate  of  check  off  is 
three  per  cent  of  the  amount  earned  by  digging,  three  per  cent  for  yardage, 
and  two  per  cent  for  day  labor.  The  credit  side  of  the  pay  roll  is  then  added 
across  the  page  according  to  each  man's  indebtedness  and  the  result  placed 
in  the  total  column.  The  sum  total  of  the  total  column  should  balance  with 
the  sum  total  of  the  columns  added.  The  pay  roll  proving  its  correstness 
thus  far,  it  remains  to  figure  the  amount  to  be  paid  out  in  cash.  Subtracting 
the  credit  column  from  the  debtor,  leaves  the  amount  or  balance  to  be  paid. 
By  adding  the  credit  column  and  the  balance  to  be  paid  column  the  result 
should  balance  with  the  total  of  the  debtor  column. 

It  remains,  then,  to  give  an  account  in  writing  to  each  man  of  his  earn- 
ings of  and  indebtedness  to  the  company  and  payment  made  for  the  balance 
due.  The  illustration  of  voucher  or  statement  here  given  is  very  simple  and 
easily  understood.  The  one  for  whom  the  statement  is  issued  in  receiving 
payment  should  sign  his  name  in  full,  and  if  permitting  another  person  to 
draw  his  pay  should  write  the  name  of  the  person  in  the  proper  place,  who 
upon  receipt  of  money  should  sign  his  name  in  his  own  handwriting  or  mark. 

In  many  communities  it  is  necessary  to  pay  in  currency,  not  having 
banking  facilities  in  that  community  to  cash  the  checks  if  the  company  were 
to  pay  by  same.  The  form  of  envelope  should  have  the  number  and  name 
and  amount  corresponding  with  that  on  the  pay  roll  and  statement  placed 

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thereon.  The  currency  being  placed  in  the  envelopes  before  starting  to  pay 
renders  the  paying  of  an  enormous  sum  possible  in  a  short  while,  the  en- 
velope being  handed  out  as  the  signed  statement  is  received. 

There  is  a  certain  form  of  accident  report  required  by  law  to  submit  to 
the  mine  inspector  for  the  district  in  which  the  mine  is  located,  but  by  the 
mine  foreman  filling  in  the  answers  on  the  following  form  and  submitting  it 
to  the  office,  the  answers  on  the  report  of  the  company  to  the  inspector  may 
be  correctly  written  and  delivered  in  a  much  shorter  period  than  otherwise. 

In  the  monthly  cost  sheet  the  amount  expended  for  each  account  less 
any  credits  to  that  account  occurring  is  placed  in  their  respective  columns 
and  divided  by  period  passed,  before  they  are  paid.  To  avoid  any  of  these 
contingencies,  all  in  the  number  of  tons  mined  gives  the  cost  of  the  coal  per 
ton  for  that  particular  account,  and  totaled  gives  the  total  cost  of  the  coal 
per  ton. 

The  debtor  bills,  cost  for  labor  and  cash  paid  out  may  be  added  before 
dividing  to  reach  the  same  result,  but  in  the  accompanying  illustration  each 
is  treated  separately  and  then  added  to  find  the  total  cost.  The  reason  for 
treating  each  separately  is  that  it  gives  a  more  general  idea  of  where  any 
increased  cost  of  production  occurs,  whether  it  is  in  the  labor,  debtor  bills 
or  cash  paid  out.  The  cost  of  production  is  often  increased  by  a  purchase, 
such  as  car  of  feed  for  the  stock,  and  which  will  probably  last  another  month, 
thereby  decreasing  the  next  month's  cost  to  the  extent  of  half  of  the  purchase, 
and  by  this  system  the  place  of  increased  cost  moy  be  seen  at  a  glance. 
— (H.  G.  Mierley.) 


(416)     COAL  BUSINESS— ACTUAL  PROFIT  IN. 

The  profit  is  the  final  test  of  the  prosperity  of  a  business.  While  the 
volume  of  business  transacted  has  its  importance,  the  profit  derived  from 
that  volume  of  business  is  the  actual  test  of  the  condition  of  the  business. 
It  is  therefore  important  to  know  what  actually  constitutes  profits,  and  to 
be  more  concise,  what  actually  constitutes  profits  in  a  coal  mining  or  coal 
producing  company. 

There  has  been  great  improvement  in  past  years  in  the  form  of  account- 
ing for  coal  producing  companies,  especially  among  the  larger  concerns,  but 
there  is  not  the  general  knowledge  of  what  actually  constitutes  cost  and 
what  actual  profit  is  realized  from  the  conduct  of  the  business  that  there 
should  be. 

In  considering  this  particular  line  of  business  it  is  important  to  remem- 
ber that  a  coal  producing  company,  while  it  is  a  producing  or  manufacturing 
company,  is  confronted  with  different  conditions  from  an  ordinary  manu- 
facturing company,  and  the  same  might  be  said  of  any  company  engaged  in 
the  extraction  of  mineral  from  the  earth,  whether  it  be  coal  or  some  other 
formation.  Also  there  are  many  who  will  not  agree  with  the  definition  of 
"manufacturing"  as  applied  to  a  coal  producing  company,  but  it  is  a  manu- 

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facturing  business,  in  the  sense  that  it  is  necessary  to  go  through  a  form  of 
manufacture  or  process  in  order  to  place  the  coal  in  a  marketable  condition. 
A  most  peculiar  fact  is,  that  a  mining  company  consumes  certain  of  its 
fixed  assets  in  producing  its  finished  product,  and  at  the  same  time  depreciates 
certain  other  assets  according  to  the  volume  of  work  done.  The  ordinary 
manufacturing  concern  does  not,  by  the  production  of  its  product,  consume 
any  of  its  fixed  assets,  and  the  plant  depreciation  it  undergoes  is  not  depen- 
dent on  the  life  of  what  might  be  called  its  raw  material. 

To  elucidate  this  a  comparison  can  be  made  between  the  ordinary  manu- 
facturing company  and  the  coal  producing  company. 

In  an  ordinary  manufacturing  business  that  makes  a  certain  product,  or 
certain  products,  for  the  market,  it  is  found  that  its  assets  consist  largely  of 
its  plant  in  which  it  makes  its  product  and'its  working  capital.  While  it  may 
acquire  from  time  to  time  certain  other  assets  in  the  pursuit  of  its  business, 
the  objects  for  which  capital  are  solicited  are  the  erecting  of  buildings 
and  installing  machinery,  viz.,  acquiring  a  plant,  and  the  providing  for  suf- 
ficient working  capital  to  purchase  raw  material  and  pay  the  necessary 
expenses  of  conducting  the  business. 

When  the  plant  is  in  operation,  it  is  found  that  in  the  cost  of  producing 
the  product  there  is  figured  the  cost  of  the  raw  material,  labor,  factory  ex- 
penses and  repairs.  To  this  cost  is  added  general  and  selling  expenses. 
Finally  there  is  the  cost  of  depreciation  charged  periodically  to  cover  the 
decreased  value  and  wasting  of  the  plant.  These  costs  are  all  deducted 
from  revenue  produced  by  sales,  leaving  a  net  profit  for  distribution  among 
the  stockholders  or  owners  of  the  company. 

In  the  items  of  cost  is  contained  the  expense  of  keeping  the  plant  up  to 
a  proper  state  of  efficiency ;  in  other  words,  the  cost  of  maintaining  the  asset. 
This  cost  may  be  handled  in  various  ways;  the  most  universal  is  to  charge 
into  expenses  the  current  repairs.  Such  improvements  and  extensions  as 
may  be  considered  necessary  from  time  to  time  are  not  considered  as  repairs 
but  additions  to  cost  of  plant  and  an  increase  to  the  asset  account.  Deprecia- 
tion charged  on  plant  is  considered  then  as  applying  to  the  whole  assec. 
Sometimes,  under  certain  conditions,  improvements  are  considered  as  an 
expense,  cutting  down  the  increasing  of  the  plant  asset  and  the  corresponding 
charge  for  depreciation. 

It  is  not  necessary  in  this  article  to  consider  the  details  of  handling  the 
accounts  or  how  they  are  handled,  this  being  merely  an  illustration  of  prin- 
ciple. 

It  will  therefore  be  noted  that  available  profit  for  dividend  division  is 
such  only  after  deducting  from  revenue  all  costs,  including  depreciation.  In 
other  words,  the  dividend  is  the  net  profit  paid  on  capital,  after  provision 
is  made  to  keep  that  capital  intact. 

In  considering  a  coal  producing  company  the  method  of  procedure  seems 
somewhat  changed.  It  is  necessary  to  first  purchase  the  raw  material,  then 
build  the  plant  to  produce  the  finished  product.     It  is  found  then  that  the 

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coal  producing  company  invests  its  capital  in  assets  of  coal  lands  or  coal 
rights,  plant  and  working  capital. 

It  is  therefore  found  that  unlike  the  ordinary  manufacturing  company 
the  coal  producing  company  does  not  purchase  its  raw  material  from  time  to 
time,  but  purchases  it  as  an  asset. 

While  all  raw  material  may  be  considered  as  an  asset  to  the  company 
owning  it,  it  is  not  considered  in  that  regard  in  an  ordinary  manufacturing 
business  except  when  inventoried,  as  it  is  bought  for  immediate  use  and 
classed  as  raw  material. 

The  coal  producing  company  is  then  depleting  its  assets  continually  to 
produce  its  finished  product,  consequently  decreasing  its  capital  worth. 

Similar  remarks  apply  to  its  plant.  This  plant  consists  of  juildings, 
tipple,  machinery,  equipment  for  taking  out  the  coal,  haulage,  live  stock, 
ties,  rails,  etc.  No  matter  what  sums  are  put  into  repairs  to  keep  the  plant 
up  to  a  proper  state  of  efficiency,  it  must  deteriorate,  and  that  greatly,  when 
it  is  considered  that  this  plant  must  be  practically  abandoned  and  sacrificed 
when  the  coal  is  exhausted.  Certain  portions  of  it  may  be  sold,  such  as  cars, 
engines,  generators,  live  stock,  rails,  etc.,  but  the  sums  realized  are  small, 
and  there  are  certain  plant  assets,  such  as  buildings,  tipple,  ties,  etc.,  that 
are  useless  when  the  coal  is  gone. 

The  possible  exception  to  this  rule  lies  in  the  possibility  of  purchasing 
additional  coal  that  can  be  hauled  oyer  the  same  tipple  and  with  the  same 
equipment,  which  proves  that  the  life  of  the  plant  may  not  necessarilv  de- 
pend on  the  life  of  the  first  purchase  of  raw  material,  but  this  is  the  exception 
to  the  rule,  and  for  which  proper  adjustment  can  be  made  when  the  case 
occurs. 

Acknowledging  that  practically  all  coal  producing  companies  consider 
labor,  repairs,  mine  expenses,  general  and  selling  expenses  in  their  estimate 
of  cost  of  production,  too  many  of  them  stop  there,  calling  these  expenditures 
the  cost  of  producing  the  coal  for  the  market,  making  no  provision  for 
depletion  of  coal  or  depreciation  of  plant. 

I  wish  to  digress  here  to  remark  that  accounting  authorities,  who  have 
dealt  with  mining  costs  and  properties,  agree  there  are  two  general  methods 
of  treating  them.  One  is  the  payment  of  principal  with  dividends,  making 
no  provision  for  keeping  capital  intact  or  providing  for  the  future  purchase 
of  other  assets  to  take  the  place  of  those  "wasted."  The  other  is  to  reserve 
certain  sums  for  depletion  and  depreciation,  with  the  end  in  view  of  pur- 
chasing additional  assets  or  property  to  take  the  place  of  those  "wasted." 
Or,  if  it  is  decided  later  not  to  make  new  purchases,  to  distribute  the  sums 
so  reserved  to  the  stockholders  pro  rata  with  their  holdings,  as  repayment 
of  capital.  It  is  also  acknowledged  and  held  that  a  mining  proposition  is 
what  is  known  as  a  "wasting  asset." 

Investigation  has  proved  that  many  mining  companies  do  not  properly 
provide  against  the  exhaustion  of  their  property  or  properly  estimate  profits. 

677 


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Some  of  them  have  made  partial  provision  for  depletion  and  depreciation, 
but  there  does  not  seem  to  be  a  clearly  defined  method  of  handling  this,  nor 
a  general  understanding  of  what  it  actually  does  cost  to  produce  bituminous 
coal. 

Many  mining  companies  have  bonded  their  property,  and  the  provision 
to  pay  their  bonds,  naturally  coming  out  of  profits,  makes  a  certain  reserve 
for  depletion  and  depreciation.  Some  make  a  reservation  of  certain  sums 
per  ton  for  all  coal  mined  and  sold,  or  mined,  which  has  practically  the  same 
result. 

However,  too  many  companies  have  not  a  proper  system  of  accounting 
that  provides  for  the  depletion  and  depreciation,  therefore  they  have  not  the 
necessary  elements  to  make  up  their  costs,  and  consequently  do  not  figure 
actual  profits.. 

There  is  a  point  here  that  I  should  like  to  call  to  the  attention  of  the 
reader.  An  ordinary  manufacturing  business  buys  its  raw  material,  the 
coal  producing  company  obtains  it  from  its  assets,  without  considering  at 
the  same  time  that  it  is  its  raw  material.  There  seems  no  good  reason  why 
coal  in  the  ground  should  not  be  considered  as  raw  material,  and  counted  in 
the  cost  of  the  finished  product,  which  is  coal  on  cars  ready  for  transportation. 
In  this  way  coal  mined  would  be  charged  as  raw  material  in  the  costs,  and 
eliminated  from  the  asset  account.  It  is  needless  to  say  that  the  books  of 
the  company  should  show  the  coal  lands  and  coal  rights  purchased  as  a 
distinct  item  from  plant  and  other  assets. 

Under  these  conditions  coal  mined  would  be  classed  as  raw  material  which 
when  the  cost  of  labor,  repairs,  mine  expenses,  general  and  selling  expenses 
was  added,  would  be  the  cost  of  the  finished  product,  after  figuring  in  its 
proper  place  the  charge  for  depreciation  of  plant.  This  places  the  depletion 
of  the  asset  of  raw  material  where  it  seems  to  belong  in  the  cost  of  produc- 
tion»^  and  it  also  shows  that  before  making  up  total  cost  the  depreciation  has 
been  figured,  so  that  profit  shown  would  be  the  actual  profit  on  the  invest- 
ment retained  intact,  though  the  form  of  the  investment  may  have  changed. 

If  these  facts  were  considered  by  all  coal  producing  companies,  the 
basis  upon  which  selling  prices  are  figured  by  some  companies  would  be 
greatly  changed. 

The  fact  also  that  the  cost  of  raw  material  per  ton  would  be  small  when 
it  is  considered  that  this  raw  material  is  bought  by  the  acre  does  not  alter 
the  feasibility  of  this  form  of  accounting.  The  principal  fault  seems  to  be 
the  overlooking  of  the  heavy  plant  depreciation  and  the  failure  to  consider 
the  natural  difficulties  attending  coal  mining  production,  especially  in  certain 
states. 

It  IS  also  a  fact  that  the  cost  of  coal  property  of  all  kinds  is  constantly 
advancing.  Coal  lands  and  coal  rights  purchased  twenty  and  even  ten  years 
ago  cannot  possibly  be  replaced  at  anything  like  the  original  purchase  price, 
and  there  is  no  renewal  by  any  process  of  exhausted  coal. 

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Taking  these  points  into  consideration  it  certainly  seems  wise  for  the 
coal  producing  company  to  see  that  it  does  make  an  actual  profit,  by  putting 
into  eflfect  such  reforms  and  checks  on  costs  that  no  waste  occurs,  and  to 
receive  for  its  product  such  a  price  as  is  commensurate  with  the  value  of  its 
investment  and  its  duty  to  its  stockholders.  In  other  words,  a  coal  producing 
company  is  entitled  to  the  share  of  profit  it  could  have  expected  had  it  placed 
its  capital  in  an  ordinary  manufacturing  business. 

While  it  is  always  well  to  retain  a  good  working  capital  and  to  be  con- 
servative about  repayments  of  capital,  there  is  no  question  raised  here  on 
that  subject.  If  it  is  the  desire  of  the  stockholders  to  receive  repayments  of 
capital  with  dividends  as  often  as  possible,  not  setting  the  sums  so  reserved 
for  depletion  of  raw  material  and  depreciation  of  plant  for  reinvestment,  this 
proper  consideration  of  costs  need  not  interfere  with  that  decision.  How- 
ever it  will  assist  in  showing  clearly  what  are  dividends  and  what  are  repay- 
ments of  capital;  and  this  should  be  shown  just  as  profits  applicable  for 
dividend  division  should  only  be  classed  as  such  after  making  all  allowances 
for  total  costs  and  depreciation. 

If  all  costs  are  not  so  figured  before  declaring  dividends,  they  are  not 
dividends  at  all.  To  class  a  division  of  profit  and  a  repayment  of  capital 
under  the  head  of  dividends  is  clearly  wrong,  and  it  is  evident  that  the  com- 
pany pursuing  this  course  is  acting  to  its  own  disadvantage,  besides  in  all 
probability  sacrificing  its  assets  without  adequate  return.— G.  E.  Hutchison.) 

(417)     COINS.— VALUE  OF  FOREIGN  COINS  IN  UNITED  STATES 

MONEY. 


COUXIRY. 


Austria     

Austria     * 

Austria     [ 

Belgium     " 

Brazil    '. 

Central    America     

Central    America    

Chili    

Columbia  and  South   America  generally 

•Columbia    * 

Columbia    , , 

Columbia    []  [ 

Costa    Rica    '.'.'.*." 

Denmark    

Denmark    

Egypt     .........". 

England     

France     

German    Empire 

Greece     / 

India   (British)    ". 

Italy    

Japap 

Mexico     !!!.!! 

Netherlands    !!!!!! 

New  Grenada    .!!...!. 

Norway     

Peru     .'..'.!'.".!".!!'.'. 

Portugal    ' ' ' 

Russia    [\ 

Spain    '// 

Spain    

Sweden    


DE.\OMiNATION. 


Tunis 
Turkey 


Fourfold     ducat 

4    florins    (new)    

Ducat     

25    francs     

29    milreis    

2    escudos     

4    reals    

10    pesos    (dollar) 

Old    doubloon    

20    pesos,    "Boeota" 

20   pesos.    "Mcdeilin" 

20    pesos    '"Popayan" 

10    pesos    '. 

20    crown    

Old   ten   thaler... 

Bedidlik   (100  piasters) 

Pound   or   sovereign    (new), 

20    francs    

New    20    marks 

20   drachms    

'Mohur,    or    15    rupees 

20    lire    

20    yen    

Doubloon     

10    gilders     

10    pesos    (dollars) 

20    crowns    

20    soles    

Coroa    (crown)     

5     rubles     

100  reals    

80   reals    

Ducat     

Carolin    (10   francs) 

25    piasters    

100    piasters     


Valvk  is 
U.  S.  Money 


$ 

cts. 

m. 

9 

IS 

I 

1 

M 

S 

2 

37 

0 

4 

78 

0 

n 

89 

3 

3 

68 

7 

0 

48 

f 

9 

11 

4 

15 

59 

8 

18 

94 

6 

19 

05 

5 

18 

96 

8 

8 

44 

7 

5 

85 

8 

7 

89 

8 

4 

97 

3 

4 

88 

5 

3 

84 

5 

4 

78 

3 

S 

44 

8 

7 

10 

3 

3 

84 

5 

19 

04 

8 

15 

00 

0 

3 

99 

3 

9 

67 

4 

5 

35 

8 

19 

23 

7 

5 

80 

5 

3 

97 

8 

4 

90 

3 

3 

80 

8 

8 

83 

H 

1 

93 

4 

t 

99 

n 

4 

80 

8 

679 


Co. 


II 


American  Business  and  Accounting  Encyclopedia         417-421 

SIIyVER  COINS. 


Austria    

Austria    

Austria    

Belgium     

Bolivia    

Brazil     

Canada     

Central  America 

Chili     

Chili     

China     

China     

Denmark     

Egypt    

England     

England     

England     

France     

North  German  States. 
North  German  States. 
South  German  States. 
Ge  iman    Empire    . . . .  - 

Greece     

Hindostan     

Italy 

Japan    

Japan    ■ 

Mexico     

Netherlands    

Norway     

New  Grenada    

Peru     

Portugal     

Koumania     

Russia    

Spain    

Sweden    


Tunis     . 
Turkey 


Old    rix-dollar 

New    florin     

New    Union    dollar. . . . 

5    francs    

New    dollar    

Double     milreis     

20    cents     

Dollar     

Old  Dollar   

New    dollar    

Dollar    (English    mint). 

10    cents ■ 

2   rigsdaler    

Piaster    (new)    

Shilling     (new)     

Shilling    (average)     . . . 

plorin     

5   francs    

Thaler,   before    1857... 

(Thaler    (new)    

Florin    

5  marks  (new)    

5     drachms     

Rupee    

5    lire    

1  yen    

50    sen    

Dollar     

2  '/2    gilders    

Specie     daler     

Dollar    of    1857 

Old  dollar    

500    reis    

2   lei    (francs)   new 

Ruble     

5    pesetas    (dollars).... 

Riksdaler    

2   francs    

5    piasters    

20  piasters   


0 

OS 

4 

0 

45 

8 

0 

68 

1 

0 

91 

5 

0 

91 

5 

0 

95 

4 

0 

17 

6 

0 

93 

5 

0 

99 

« 

0 

91 

6 

0 

99 

1 

0 

09 

0 

1 

03 

2 

0 

OS 

• 

0 

21 

4 

0 

20 

• 

0 

42 

9 

0 

91 

6 

0 

67 

8 

0 

68 

0 

0 

38 

9 

0 

91 

9 

0 

82 

2 

0 

43 

4 

0 

91 

7 

0 

09 

1 

0 

40 

8 

0 

99 

8 

0 

96 

4 

1 

93 

9 

0 

91 

1 

0 

99 

0 

0 

46 

8 

0 

84 

1 

0 

74 

1 

0 

91 

4 

0 

26 

0 

0 

33 

9 

0 

58 

3 

0 

81 

1 

(418)  COLLATERALS. 

Negotiable  paper  deposited  to  secure  loans  or  credits,  such  as  deeds  of 
property,  certificates  of  stock,  bonds,  notes  and  accounts  receivable. 

A  memorandum  should  be  made  of  the  disposition  and  location  of  such 
certificates,  notes,  etc.,  but  while  some  accounts  open  a  "collateral  account" 
on  the  ledger,  in  which  to  carry  such  memoranda,  this  is  generally  considered 
unnecessary. 

(419)     COLLECTION  AND  EXCHANGE. 
*        The  amount  charged  by  the  bank  for  collecting  notes  and  drafts  through 
other  banks,  or  clearing  country  or  foreign  checks. 

These  items  are  frequently  carried  in  Interest  and  Discount  account. 
Where  a  separate  account  is  kept  the  cost  of  city  collections  and  those  made 
through  collection  agencies  should  be  included. 

(420)     COLLECTION  SYSTEMS. 

Systems  employed  in  obtaining  payment  of  due  bills ;  customers'  follow- 
up  system ;  due  date  ticklers ;  credit  reports,  etc. 

(421)    COLLECTIONS— FOLLOWING  UP 

The  continued  use  of  the  sales  ledgers  by  the  credit  man  or  collection 
department  is  an  objection  since  the  book-keepers  often  wish  to  use  them 

680 


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Cb. 


while  the  credit  department  is  looking  up  various  accounts,  and  this  system 
was  devised  to  overcome  this  as  well  as  to  increase  collections.  It  has  been 
successful  in  both. 

Form  1  is  the  only  special  form  needed  and  this  means  but  little  extra 
expense  since  statements  of  some  sort  must  be  purchased. 

It  may  be  ordered  in  as  many  lengths  as  required  although  for  most 
houses  two  are  sufficient. 

Where  possible  statements  should  be  made  out  on  the  typewriter,  as 
this  is  a  saving  of  time  for  the  book-keeper,  who  can  arrange  his  work  to 
allow  the  ledger  to  be  used  for  this  purpose. 

This  gives  a  neater  appearing  statement  than  is  possible  where  they  are 
hand  written. 

If  the  typewriter  is  not  available  for  this  work,  however,  it  is  only  neces- 
sary to  secure  a  special  carbon  for  pen  work  and  a  stiff  round-pointed  pen, 
when  it  will  be  possible  to  secure  results  entirely  satisfactory,  if  judgment 
has  been  used  in  selecting  the  paper  on  which  the  statements  are  to  be 
printed. 

The  dummies  for  the  statements  may  be  made  out  at  odd  times  during 
the  month  so  that  on  the  first  of  the  month  there  is  nothing  to  do  but  enter 
the  previous  month's  transactions. 

As  soon  as  the  statements  are  made  out  the  top  part  is  detached  and 
sent  to  the  customer  and  the  remaining  sheet  is  placed  in  a  binder. 

This  binder  is  used  by  whoever  follows  up  collections  and  in  making  out 
statements  all  old  charges  should  be  itemized.     This  tells  the  customer  just 


Name 

.\cct.  No. 

AiWrcss 

I.iiiiil  of  Crolil     5 

Kills  of 

Matiire<l 

Anil     Diif  >. 

Sent 

ll.U 

Vtnt 

Replies  to  ..t.itcniciils  niui  ri-aMiiis  for  i 

..I  iKi>iiiK>::  'l_i- 

Ki.-.l 

Wt-v.vi 

i«t  Mnt 

iM  Draft 

'IkI  Mnt 

till  Dm  It 

ird  Stnt 

:r<l  I II  a  ft 

;-'<ir  Coll 

w  nil 

Terms  of  ColUctuui 

Roiiiarks 

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1 

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1      ' 

681 


■  I 


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American  Business  and  Accounting  Encyclopedia 


421-422 


what  old  amounts  are  unsettled  and  gives  the  credit  man  an  absolute  knowl- 
edge of  how  long  these  balances  have  been  carried,  something  that  the 
regulation  "balance"  sometimes  printed  at  the  head  of  a  statement  does  not 
show. 

It  also  enables  him  to  get  after  the  claim  department  should  it  be  neces- 
sary, as  it  frequently  is. 

It  is  labor  wasted  to  pore  over  an  account  on  the  ledger  every  month 
to  dig  out  items  unpaid  or  carried  in  abeyance,  as  the  amounts  unsettled  on 
any  statement  may  be  drawn  off  on  the  next  statement  made  out.  The  total 
of  course  will  agree  with  the  ledger  balance  if  the  work  has  been  done  prop- 
erly. 

All  items  of  cash  paid  and  credit  memos  affecting  the  accounts,  should 
be  noted  on  the  duplicate  statement  daily  from  the  cash  and  credit  books 
so  that  only  live  matter  is  shown. 

A  line  is  simply  drawn  through  any  item  disposed  of  as  the  date  paid  or 
credited  is  of  no  consequence  for  this  record. 

In  taking  up  an  account  the  credit  man  thus  has  before  him  everything 
he  desires  to  know  regarding  it  and  caash,  etc.,  to  the  statements  is  a  small 

The  time  required  in  posting  the  en  write  as  strong  a  letter  as  necessary, 
item  and  if  it  is  done  daily  the  value  of  the  record  is  much  enhanced. 

Very  few  houses  are  able  to  keep  their  ledgers  posted  as  close  as  this 
and  if  the  ledger  must  be  depended  on  to  furnish  information  regarding  over- 
due accounts  many  of  them  are  apt  to  be  neglected,  except,  perhaps,  at  the 
first  of  the  month  or  whenever  statements  are  sent  out. 

If  the  practice  in  an  establishment  is  to  send  a  statement  whenever  an 
account  is  due  this  record  is  of  even  more  value  but  the  general  rule  among 
wholesalers  seems  to  be  to  send  statements  as  soon  after  the  first  of  the 
month  as  possible  and  to  allow  a  discount  on  any  month's  purchases  if  paid 
on  or  before  the  tenth  of  the  following  month. 

The  correspondence  regarding  accounts  may  be  kept  in  the  binder  with 
the  statements  as  the  carbon  copies  of  the  letters  may  be  on  sheets  punched 
for  the  purpose,  making  it  unnecessary  to  look  in  the  files,  for  a  letter  or  to 
see  if  one  has  been  written. 

If  the  account  in  question  is  an  old  one  or  much  overdue  each  letter  on 
the  subject  should  as  a  general  thing  be  a  little  stronger  than  the  one  pre- 
ceding it. 

Form  letters,  even  though  typewritten,  are  in  the  opinion  of  the  writer 
a  poor  proposition. — (L.  Unckless). 

(422)     DRAFTS  ON  CUSTOMERS  MADE  IN  TRIPLICATE. 

We  illustrate  a  draft  system  which  may  be  used  by  any  business  in 
which  it  is  necessary  to  make  drafts  on  customers  in  order  to  obtain  settle- 
ment of  accounts. 

Drafts  of  this  nature  usually  consist  of  three  parts;  the  draft  proper, 
which  is  sent  to  the  bank  and  which  is  presented  by  the  bank  to  the  cus- 

682 


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tomer,  the  letter  or  note  of  explanation  accompanying  the  draft  to  the  bank 
advising  them  what  is  to  be  done  with  the  draft,  and  the  voucher  or  notation 
kept  in  the  office  as  a  memorandum  of  the  transaction. 

I  show  a  sample  draft  properly  filled  out  and  showing  how  it  is  used. 
The  draft  proper,  the  explanatory  note,  and  the  office  record  are  made  with 
one  writing,  and  by  having  the  office  record  a  sheet  of  tissue  paper  and 
placing  a  double  carbon.  Only  one  sheet  of  carbon  is  necessary,  thus  saving 
the  cost  of  the  carbon  and  the  extra  time  required  to  place  two  sheets  instead 
of  one. 

The  explanatory  note  to  the  bank  serves  the  same  purpose  as  a  letter 
would,  as  it  practically  contains  all  that  would  be  written  in  a  letter.  The 
draft  and  explanatory  note  are  both  signed  by  the  proper  people  in  the  office. 
The  office  records  enable  one  to  keep  track  of  all  drafts  out,  and  if  they  are 
not  paid  promptly  to  follow  them  up.  When  paid,  these  may  be  destroyed 
or  filed  away. — (G.  M.  Bonncll.) 


(423)     COLLEGE  CLUB  ACCOUNTING. 

There  are  seven  departments,  viz.: 
Restaurant, 
Bar, 

Initiation  Fees, 
Dues, 

683 


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American  Business  and  Accounting  Encyclopedia 


423 


Absence  from  Meetings, 
Fines  for  Non-payment  of  Dues, 
Library. 
Receipts  in  bar  and  restaurant  are  shown  by  checks. 
Dinners  given  either  fortnightly  or  monthly,  for  which  there  is  a  fixed 
charge. 

Steward  summarizes  his  accounts  pn  last  day  of  month.    See  Form  1. 
Members  not  in  attendance  at  monthly  business  meetings  are  fined,  as 
also  those  not  paying  their  bills  at  the  end  of  each  month. 

Sie^M,rd's  Statement. 


Anson,  E.  B. 
Armstrong,  F,  C* 
Burgess,  K.  F. 
Comstock,  F.  R. 
Durand,  S.  P. 
Duzenberg,  K.  C. 


js^oi   Nason,  B.  D 


7^ 


Noonan,  V.  0. 

Olsson,  J.  M. 

Pemberton,  C.  C* 

Rankin,  J.  a. 

Ruskln,  L.  U. 


^o  So 


Form  2  is  a  bound  five  or  six-column  book,  which  can  be  obtained  from 
any  manufacturing  stationer.  Count  oflf  25  pages  for  this  book  to  run  two 
years, — or,  37  pages  for  three  years.  It  is  not  practicable  to  use  a  larger 
book,  as  it  is  too  bulky.  With  a  sharp  knife  cut  24  pages  down  on  the 
double  line  separating  the  explanation  column  from  the  money  columns. 
Do  this  as  many  times  as  required.  For  a  club  of  250  members,-  five  times 
is  enough. 

Now,  beginning  on  the  first  long  leaf,  which  will  bear  the  printed  num- 
ber "2"  after  it  is  cut,  write  the  names  of  the  members  in  alphabetical  order. 


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423-425         American  Business  and  Accounting  Encyclopedia 


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and  also  grouped  by  classes.  That  is,  write  the  names  of  members  gradu- 
ating with  the  class  of  1908  from  A  to  Z,  class  of  1909  from  A  to  Z,  and  so 
on.  In  the  date  column  write  the  ledger  folios,  which  will  begin  with  a  page 
or  two  after  the  folio  of  the  last  income  account — about  page  25 — and  carry 
them  consecutively  down  the  page.  Of  course  the  ledger  is  made  up  to 
agree  with  this  special  journal,  one  page  to  a  member.  At  the  top  of  each 
column  place  the  proper  heading.  The  book  will  then  appear  as  per  the 
illustration. 

The  journal  is  self-proving.  Add  each  money  column  across,  and  place 
sum  in  "total"  column.  Then  add  down,  placing  the  sum  of  each  column  in 
its  proper  place.  To  prove,  add  bottom  totals  and  then  find  sum  of  ''total'* 
column.    They  should  be  the  same. 

Posting  is  made  to  members'  accounts,  debiting  the  sum  in  the  "total" 
column  for  each  member.  This  done,  credit  the  footing  of  each  income 
account  to  its  respective  account. 

There  will  be  two  or  three  columns  in  the  special  journal  to  spare. 
usually;  but  these  will  all  be  used  occasionally,  when  such  accounts  as 
breakage,  photographs,  punch-night,  baseball  tickets,  football  tickets,  etc., 
are  used.  The  "total"  column  is  generally  added  in  pencil  for  the  sake  of 
convenience,  and  the  sum  of  this  column,  of  course,  is  not  credited  to  any 
account. 

The  book-keeper  can  generally  make  his  entries  in  this  journal  and  get 
out  his  bills  in  three  hours,  with  the  help  of  the  treasurer  of  the  club,  who 
usually  assists  on  this  occasion. 

The  treasurer's  duty  is  to  call  oflf  from  the  steward's  statement  the 
charges  against  members;  while  the  book-keeper  enters  them.  Then  he  takes 
the  ledger  and  scans  each  account,  fining  delinquent  members,  which  the 
book-keeper  enters.  Then  the  treasurer  calls  oflf  from  the  special  journal 
to  the  book-keeper  the  member's  name  and  the  charge  against  him  for  each 
account  (the  names  of  accounts  being  printed  on  the  bill).  This  done,  he 
again  takes  the  ledger  and  calls  oflf  the  "bills  rendered."  Then  the  bills  are 
added,  and  that  task  completed. — (C.  A.  Chessman.) 

(424)     COLLIERY  ACCOUNTING. 

See  Coal  Mining;  Gold  Mining. 

(425)     COLOR. 

At  first  sight  this  subject  does  not  seem  to  have  much  to  do  with 
accounting,  and  yet  it  appears  to  be  quite  important  to  many  who  have  to 
keep  books  of  account. 

1.  Paper.  Many  book-keepers  assert  that  white  paper  is  injurious  to 
the  eyes  and  insist  on  yellow  or  amber  tinted  paper. 

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2.  Ruling.  Too  many  red  down  lines  are  supposed  to  dazzle  the  eye- 
sight, and  the  more  modern  books  of  account  are  studies  in  harmonious 
colors  so  far  as  down-ruling  is  concerned. 

3.  Binding.  When  ledgers  are  divided  into  sections,  such  as  City- 
Country,  Indiana-Illinois,  lowa-^Michigan,  etc.,  it  is  convenient  to  bind  them 
in  different  colors  of  leather — the  usual  distinguishing  colors  being  Red, 
Black,  Green.  In  the  same  way,  where  canvas  covers  are  used  the  ledgers 
can  be  covered  in  White,  Gray,  or  Black  canvas. 

4.  Departments.  The  same  method  is  adopted  with  a  view  to  readily 
distinguish  the  various  blanks  of  different  departments.  They  are  printed  on 
sheets  or  cards  of  dift'erent  colors. 

(426)     COLUMNAR  BOOKS. 

A  title  applied  to  books  of  account  in  which  separate  columns  are  pro- 
vided for  accounts  to  which  there  are  a  large  number  of  charges  or  credits 
per  month.  The  totals  of  these  columns  are  posted  at  the  end  of  the  month, 
thus  saving  the  time  and  labor  of  posting  the  items  in  detail  day  by  day. 
The  columnar  arrangement  is  now  largely  used  on  cash  books,  journals, 
department  sales  books,  voucher,  records  and  all  books  of  statistical  record. 

For  illustrations  see  Cash  Books,  Journals,  Purchase  Records,  etc. 

(427)     COMMISSION. 

The  percentage  paid  by  one  person  to  another  as  remuneration  for 
goods  sold  as  agent,  or  services  performed. 

The  sum  charged  for  buying  and  selling  on  behalf  of  another  person. 
whether  arrived  at  by  percentage   or  otherwise. 

(428)     COMMISSION  ACCOUNT. 

A  ledger  account  representing  commissions  paid   or  payable. 

The  book-keeper  will  find  it  necessary  to  keep  close  watch  of  this 
account  in  order  to  secure  his  principals  against  paying  commission  on  un- 
reliable accounts,  deductions  for  claims  and  allowances,  rescinded  orders, 
etc.  It  is  therefore  usual  to  carry  a  memorandum  commission  account, 
agents  or  salesmen  being  paid  commission  only  as  same  is  earned. 

Commission  paid  is  a  selling  expense  and  is  charged  against  gross  profit 
brought  from  the  trading  account,  when  there  is  a  credit  balance.  When 
goods  are  bought  "on  sale"  the  sales  are  not  usually  included  in  the  trading 
accounts,  but  are  treated  separately.  Commissions  paid  and  commissions 
received  should  not  be  mixed  in  one  account. 

(429)     COMMISSION  AND  BROKERAGE. 

See  Brokerage. 

The  charges  made  by  brokers  are  usually  on  the  par  value  of  stocks 
dealt  in,  no  matter  what  the  market  price  might  be.  The  broker,  therefore, 
makes  no  more  if  the  stock  is  at  a  premium  and  gets  no  less  if  the  stock  is 
at  a  discount, 

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(430)     COMMISSION  PRODUCE  ACCOUNTING. 

The  daily  sales  and  summarized  record  is  a  very  useful  form,  especially 
in  provision  businesses  where  all  grades  of  merchandise  are  separated.  After 
the  distribution  of  the  grades  is  made  from  the  sales  tickets,  the  total  of 
each  grade  or  kind  of  goods  can  be  posted  to  the  stock  ledger. 

If  the  commission  house  does  a  very  large  business,  it  is  best  to  run  a 
separate  consignment  ledger. 

In  a  branch  house  report  it  is  supposed  that  the  branch  house  i  uys 
and  ships  its  own  merchandise,  but  returns  are  to  be  made  to  the  home 
office. 


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American  Business  and  Accounting  Encyclopedia 


4.^ 


DAILY  SALES  AND  SUMMARIZING  RECORD 

SALE.  5 

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I  would  suggest  in  a  large  establishment  that  a  killing  or  slaughtering 
account  be  carried  and  the  poultry  purchased  alive  be  first  charged  to  this 
account.  After  they  have  been  dressed  and  tagged,  each  lot  having  been 
kept  separate,  take  their  weight  and  charge  poultry  merchandise  and  credit 
killing  or  slaughtering  account.  This  will  allow  the  shrinkage  to  show 
where  it  belongs  in  killing.  This  account  to  be  given  credit  for  any  sales 
for  feathers  or  refuse  of  any  kind.  Close  the  loss  in  this  account  to 
expense. 

The  shrinkage  after  poultry  is  dressed  is  very  small  in  the  sales  and 
an  error  in  returns  can  be  located  very  quickly  if  the  shrinkage  in  dressing 
is  not  carried  in  the  merchandise  account.  This  same  idea  can  be  carried 
with  eggs  by  carrying  an  tgg  candling  account. 

SALES  TICKET. 

This  ticket  is  printed  in  duplicate,  the  original  to  be  white  and  the 
duplicate  yellow;  both  tickets,  original  and  duplicate,  to  have  the  same 
number.  Each  set  of  tickets  to  be  numbered  numerically  from  1  to  10,000 
or  more.  No  ticket  must  be  destroyed,  every  ticket  must  be  accounted 
for.  If  any  error  is  made  it  must  be  marked  void  and  kept  in  its  place, 
and  the  next  ticket  used.  The  original  (white  ticket)  is  to  be  kept  by 
the  business  house  as  their  record.  The  duplicate  (yellow  ticket)  is  sent 
to  the  party  to  whom  the  merchandise  is  sold  or  consigned. 

The  charge  on  the  sales  ticket  is  the  original  and  only  charge,  the 
posting  to  the  customers'  accounts  to  whom  the  charges  are  made,  is  done 
direct  from  the  sales  ticket,  posting  the  date,  ticket  number,  lot  number, 
and  amount.  (If  no  cost  price  is  carried  on  the  sales  ticket  for  the  goods 
shipped  on  consignment  post  date,  ticket  number,  lot  and  pound.) 

688 


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American  Business  and  Accounting  Encyclopedia 


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Each  day's  sales  tickets  are  arranged  in  numerical  order,  noting  that 
the  first  ticket  is  the  next  number  following  the  last  ticket  of  the  previous 
day,  and  put  up  in  a  package  with  heavy  cardboard  for  fronts  and  backs 
labeled,  sales  tickets,  month,  date,  and  year.  When  the  tickets  are  printed 
have  holes  cut  about  half  an  inch  from  the  bottom  edge  and  one  inch 
from  each  side,  also  the  fronts  and  backs  and  in  this  way  brass  staples 
can  be  put  through  and  clinched  on  the  under  side  and  filed  away. 

daily  sales  and  summarizing  record. 

The  entire  day's  work  is  .balanced  on  this  form.  Note  on  the  left  a 
column  for  entering  the  sales  ticket  for  the  day.  The  original  charge  having 
been  made  on  No.  1  (sales  ticket),  enter  the  ticket  in  numerical  order  first 
ticket  number  and  the  total  amount  of  the  ticket  opposite  in  the  credit  or 
cash  column  as  the  sale  may  be  (consignment  sales  and  credit  sales  being 
the  same).  After  all  tickets  are  entered  add  the  cash  and  credit  sales  and 
carry  totals  over  in  the  summary  as  shown  on  this  form.  The  cash  sales 
of  the  day  must  balance  with  this  daily  balance  sheet  and  also  the  total 
proof  posting  sheet  with  the  charge  sales.  I  have  shown  on  this  balance 
sheet  the  five  items  on  the  sales  ticket  the  same  as  five  separate  tickets. 

After  the  tickets  are  entered  we  separate  the  merchandising  sales  so 
they  can  be  credited  to  the  diflferent  accounts  as  classified.  Eggs  are  en- 
tered in  one  column  and  poultry  in  another  and  totaled  cases,  pounds,  and 
amount.  Carry  the  totals  over  in  the  summary  and  the  grand  total  of 
these  must  equal  the  total  of  the  cash  and  credit  sales.  Then  post  from 
the  daily  balance  sheet,  as  a  credit  to  the  different  merchandise  accounts, 
the  total  sales  of  each  class,  posting  the  number  of  cases,  pounds  and  the 

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amount.  Any  charge  at  all  can  be  made  on  these  sales  tickets,  such  as 
express,  freight,  barrels,  etc.,  and  separated  on  this  daily  balance  sheet 
and  credited  to  the  proper  account.  If  no  cost  price  is  carried  on  consign- 
ment sales  only  enter  in  your  sales  column  the  ticket  number,  and  in  mer- 
chandise distribution  the  cases  and  weight,  balancing  the  total  cases  and 
weight,  balancing  the  total  cases  and  weight  and  crediting  merchandise  in 
this  way. 

EGG    AND    POULTRY     MERCHANDISE    ACCOUNT. 

This  merchandise  account  does  not  differ  from  any  other  merchandii^e 
account.  The  merchandise  having  been  purchased,  a  journal  entry  is  made 
as  shown  in  Form  5,  and  charged  to  the  proper  merchandise  account,  enter^ 
ing  the  weight  as  well  as  the  money,  the  credits  are  derived  from  the  daily 
sales  and  summarizing  record.     Take  an  inventory  at  any  time  and  make 


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the  proper  entry  to  profit  and  loss  and  close  the  account  as  shown  on  Form 
3.  Charge  shrinkage  to  expense  in  this  account  because  it  is  a  necessary 
cost  in  dressing. 

MILLER    AND    COMPANY    CONSIGNMENT    ACCOUNT. 

The  debit  to  this  account  comes  from  the  sales  ticket.  After  the  goods 
are  consigned  to  the  party  and  it  has  been  sold  and  returns  made,  the' 
check  is  credited  to  the  account,  then  a  journal  entry  is  made  charging 
commission  account  and  crediting  the  party,  thus  showing  a  credit  to  the 
account  of  the  gross  consignment  sales.  To  close  this  account  make  a 
journal  entry  for  the  difference  between  the  cost  amount  charged  and  the 
gross  amount  received  and  credit  or  charge  merchandise  account. 

690 


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CONSIGNMENT     ACCOUNT     SALES. 

Have  these  blank  forms  and  send  one  with  every  shipment  of  con- 
6igned  goods.  Instruct  the  party  to  whom  goods  are  consigned  to  make 
returns  on  this  form  for  each  shipment  of  goods.  Attach  this  blank  to 
the  duplicate  ticket,  this  will  enable  the  party  to  make  the  returns  correctly; 
have  them  deduct  the  commission  as  shown  on  Form  6  and  mail  check 
with  each  account  sale  for  the  net  amount. 

DAIL\    REPORT    PURCHASING    AGENT. 

An  account  is  opened  at  the  home  office  with  the  purchasing  agent. 
charging  his  account  with  all  moneys  advanced  to  him. 

Each  day  he  is  to  report  on  Form  7  of  all  goods  purchased.  This  daily 
report  is  used  as  a  voucher  for  journal  entry  charging  merchandise  account 
and  crediting  the  purchasing  agent  with  merchandise  bought  for  cash,  and 
crediting  the  party  from  whom  the  goods  are  bought  on  credit.  The  pur- 
chasing agent  should  have  a  blank  receipt  in  book  form  and  with  each 
cash  purchase  he  should  fill  out  a  receipt  and  have  the  party  to  whom 
the  money  is  paid  sign  it.  This  he  should  keep  for  his  own  record  to  check 
against  his  daily  report. 

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CONSIGNMENT 

ACCOUNT  SALES 

POULTRY  AND  EGGS 

AMERICAN  POULTRY  CO.,  DETROIT.  MICH. 

RETURNS  FROM                                               Njiller  flr^d  Cor^pflr^y 

Chicfl60  III. 

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430 


American  Business  and  Accounting  Encyclopedia 


Co. 


daily  report  branch  house. 

An  account  is  opened  at  the  home  office  with  the  branch  house  charging^ 
the  branch  with  all  moneys  advanced. 

The  branch  houses  are  to  use  the  same  system  on  merchandise  pur- 
chased as  the  purchasing  agent,  except  the  merchandise  purchased  and  sales 
reports  arc  combined  in  one. 

On  Form  8,  beginning  at  the  left,  is  the  report  of  merchandise  pur- 
chased. We  will  consider  that  this  has  been  handled  the  same  as  Form  7, 
we  will  now  take  the  report  on  sales. 

First,  the  branch  house  is  to  have  the  duplicate  sales  tickets  the  same 
as  the  home  office,  keeping  the  original  for  their  records  and  sending  the 

692 


DAILY  REPORT 

PURCHASING  AGENT 

I^o-O^ 

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Add'-ffss          fSorjds 

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DAILY  REPORT 

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duplicate  to  the  purchaser  along  with  the  merchandise,  also  sending  Form 
6  along  with  duplicate  ticket  to  all  parties  to  whom  merchandise  is  con 
signed  with  instructions  to  make  returns  to  the  home  office. 

The  branch  must  enter  each  sales  ticket  on  this  daily  report,  separating 
the  sales  according  to  this  form. 

If  consigned,  under  the  consignment  column. 

If  sold  at  a  fixed  price  for  credit  or  cash,  to  be  entered  under  regular 
sales. 

Use  a  carbon  and  make  a  duplicate  of  this  daily  report  and  file  along 
with  the  tickets,  or  use  an  indelible  pencil  and  take  tissue  copy  for  a  record. 
When  this  report  is  received  at  the  home  office  first  make  a  journal  entry 
charging  merchandise  with  the  merchandise  purchased  the  same  as  with 
Form  7  purchasing  agent,  then  take  sales  ticket  and  make  a  charge  to 
each  party  as  shown  on  this  report,  charging  the  cash  sales  to  the  branch 
house  as  money  advanced.  These  tickets  are  run  through  on  Form  2,  the 
same  as  though  the  sales  were  made  from  the  home  office,  merchandise  get- 
ting credit  from  Form  2.  Do  not  send  the  duplicate  ticket  or  Form  6  out 
on  these  charges  as  this  has  already  been  done  by  the  branch  house. — 
(Elzvood  Hubbs.) 

693 


Co. 


American  Business  and  Accounting  Encyclopedia         431-433 


See  Stock. 


See   Corporations. 


(431)     COMMON  STOCK. 


(432)     COMPANY. 


I 


(433)  COMPARATIVE  STATEMENTS. 

In  a  manufacturing  business  exhibit : 

Details  of  Cost  of  Product. 
Manufacturing  Expense. 
Indirect  Expense. 
Sales  of  Product. 


Conpnrntivc  Stflfcncpto/"  RcvcpucS*  Expcpdituro. 

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433 


American  Business  and  Accounting  Encyclopedia 


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Inventory. 
Gross  Profit. 
General  Expense. 
Administrative  Expense. 
Net  Profit. 

In  this  way  data  may  be  obtained  as  to  increase  or  decrease  of  any 
item  and  the  causes  therefor. 

In  a  business  dealing  with  manufactured  products  only,  the  compara- 
tive statement  will  exhibit  the 

Purchases. 
Labor 
Freight. 

Amount  of  Sales. 
Gross  Profit. 
General  Expense. 
Net  Profit. 


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American  Business  and  Accounting  Encyclopedia         433-438 


fiAi>^E   OfiloB 

^■^^" 

D/rA»¥iNOa 

Comparative  ^o^t  h'ECOf^: 

>SHOf  Ofroef? 

DcPfiffTMEMT  Cost 

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(434)     COMPARATIVE  STATISTICS. 
The  details  necessary  for  the  compilation  of  a  coin^iarative  statement. 

(435)     CONDITIONAL   ENDORSEMENT    (Notes,  Checks,  Etc.) 

An  endorsement  which  specifies  some  condition  which  must  be  ful- 
filled prior  to  payment  being  made. 

(436)     CONSIDERATION. 

The  benefit  to  be  derived  by  the  party  making  a  contract  for  the  per- 
formance of  some  obligation.     The  following  is  a  standard  definition : 

''Some  right,  interest,  profit  or  benefit  accruing  to  the  one  party  or 
some  forbearance,  detriment,  loss  or  responsibility  given,  suffered  or  under- 
taken by  the  other." 

(437)     CONSIGNMENT. 

A  shipment  of  goods  on  sale,  i.  e.,  to  be  sold  on  behalf  of  the  owners 
at  an  agreed  commission  or  remuneration,  the  party  to  whom  the  goods  are 
consigned  being  liable  to  the  consignor  only  for  goods  sold,  the  ownership 
of  the  goods  unsold  remaining  in  the  consignor. 

(438)     CONSIGNMENT  ACCOUNT. 

The  accounts  of  consignees  of  the  goods  received  for  sale  on  consign- 
ment should  be  carried  in  a  separate  consignment  book,  from  which  the 
account  sales  can  be  made  to  the  consignor  when  required,  showing  amount 
of  goods  sold  and  commission  gained  on  same.  The  value  of  goods  sold 
only  should  be  entered  on  the  regular  books  of  account  as  a  liability  to  the 
consignor,  thus  avoiding  complications. 

The  actual  forms  of  consignment  records  and  consignments  ledger 
vary  with   different  businesses,  but  the  following  method  combines  both 


438-4^0         American  Business  and  Accounting  Encyclopedia 


Co. 


sales  book  and  ledger  and  stock  book  features  obtained  on  ordinary  ledgers 
with  double  columns  on  each  side.  In  the  outer  column  on  the  credit  side 
enter  value  of  goods  received  on  consignment  and  state  quantities  in  the 
"particulars"  column.  As  goods  are  sold  enter  same  on  the  debit  side, 
giving  quantities,  date,  folio  of  sales  book,  and  value  in  inner  column.  When 
account  sales  is  made  enter  date  and  amount  in  outer  column  on  debit  side. 
On  rendering  account  sales  enter  quantity  of  goods  on  hand  in  "particulars** 
column  and  value  in  inner  column  on  credit  side,  which  will  thus  be  the 
balance  of  account  at  that  date.     This  'account  will  then  always  show: 

Amount  of  sales. 

Amount  on  hand, 

Total   value   of   consignment. 

Amount  accounted  for  to  consignor. 

Where  the  business  is  large  a  consignment  account  should  be  opened, 
not  only  with  each  consignor,  but  with  each  kind  of  goods  consigned. 

As  stated  above,  the  amount  due  consignor  should  be  transferred  to  the 
main  books  of  account  as  each  account  sales  is  rendered,  thus  entering  on  the 
books  only  the  actual  liabilities,  the  debit  being  to  purchases,  the  sales  of 
goods  to  customers  being  charged  in  the  usual  way,  crediting  sales  account. 

In  large  consignment  or  commission  businesses,  the  use  of  columnar 
sales  books  will  be  found  of  great  advantage,  one  column  being  provided 
for  charges  to  customers,  and  separate  columns  for  the  distribution  of  the 
different  kinds  of  goods  purchased,  separate  trading  accounts  being  kept 
with  each  class  of  goods.  Those  trading  accounts  will  include  both  sales 
and  purchases,  being  debited  with  the  value  of  goods  sold,  and  credited 
with  the  amounts  charged  to  customers.  In  this  way  each  trading  account 
will  exhibit  the  profit  made  on  each  kind  of  goods  carried  on  consignment. 
All  charges  and  expense  connected  with  the  consignment  are  also  charged 
to  the  trading  account  so  that  it  may  exhibit  net  proceeds.  When  account 
sales  are  rendered  commission  account  will  be  credited  with  the  commission 
earned,  which  will  be  charged  to  the  consignors. 

Where  the  consignment  business  is  carried  on  in  connection  with  a 
regular  mercantile  business,  it  is  useful  to  provide  a  separate  column  in  the 
sales  book  for  consignment  sales,  thus  distinguishing  them  from  regular 
sales. 

(439)     CONSIGNEE. 
One  to  whom  a  consignment  is  made. 

^440)     CONSIGNOR. 

One  who  ships  goods  on  consignment  for  sale.  Sometimes  applied  to 
regular  shippers. 

697 


Co. 


American  Business  and  Accounting  Encyclopedia        441-447 


(441 )     CONSOLIDATIONS. 
See  Amalgamations — Par 

(442)     CONSTRUCTION  ACCOUNT— CONSTRUCTION  AND  EQUIP- 
MENT ACOUNT. 

An  account,  or  series  of  accounts,  carrying  the  cost  of  erecting  and 
equipping. 

See   Account,   and   Classification   of   Accounts. 

(443)     CONTINGENT  ASSETS  OR  LIABILITIES. 

A  possible  source  of  value  or  liability  dependent  on  the  fulfillment  of 
certain  conditions. 

Bills  discounted  are  liabilities  contingent  on  their  being  paid  by  the 
acceptors  when  due.  Some  accountants  incorporate  contingent  assets  and 
liabilities  in  the  balance  sheet  by  providing  special  columns  for  same. 

(444)     CONTINGENT  FUND. 

A  fund  set  aside  to  cover  anticipated  expenses.  In  municipalities  a  fund 
frequently  established  to  defray  expenses  not  included  in  public  estimates 
or  legally  authorized. 

(445)     CONTRA. 

Against.  A  buying  account  with  a  customer.  A  selling  account  with  a 
creditor. 

(446)     CONTRACT. 

An  agreement  enforceable  at  law,  made  between  two  or  more  persons, 
which  rights  are  required  by  one  or  both  to  act,  or  forbearance  on  the  part 
of  the  other  or  others. 

(447)     CONTRACTS  UNFINISHED. 

In  most  factories  where  goods  are  manufactured  for  the  general  trade 
it  is  customary  to  include  the  cost  6i  work  in  progress,  with  a  proper  pro- 
portion of  factory  expense  added  as  an  asset,  and  it  is  considered  entirely 
incorrect  to  attempt  to  add  any  proportion  of  profit,  although  the  articles 
may  be  in  process  of  manufacture  by  special  order  or  contract. 

When  profits  are  added  either  to  work  in  progress  or  to  completed 
goods  not  yet  sold,  the  inventory  is  being  taken  at  selling  price,  and  conse- 
quently income  is  being  inflated  with  profits  unearned. 

It  should  always  be  borne  in  mind  that  the  annual  financial  statement 
should  make  an  accurate  presentment  of  the  condition  of  the  business,  and 
that  any  speculative  or  unjustifiable  inflation  of  income,  by  the  inclusion  of 
over-estimated,  anticipated  or  prospective  profits,  will  but  react  upon  the 
showing  of  the  business  for  the  following  year,  and  throw  discredit  upon  the 
judgment  of  the  person  responsible  for  the  inaccurate  statement  of  the 
previous  year. 

698 


448 


American  Business  and  Accounting  Encyclopedia 


Co. 


(448)     CONTRACTORS'  ACCOUNTS. 

General  principles  to  be  followed. 

The  Contract  accounts  should,  as  far  as  possible,  be  treated  the  same  as 
factory  accounts  in  a  manufacturing  business.  In  the  first  place  all  material 
purchased  and  labor  performed  should  be  debited  to  separate  material  and 
labor  accounts.  Material  and  time  cards  will  be  issued  to  the  foreman  in 
charge  of  the  jobs.  When  the  job  is  completed  the  customer  is  debited  with 
the  amount  to  be  charged,  and  Contract  Sales  account  credited.  This  Con- 
tract Sales  account  represents  the  same  purpose  as  the  ordinary  Sales  account 
of  a  commercial  business. 


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1 

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In  a  business  of  this  kind,  it  is  frequently  desirable  to  make  shop  orders 
in  duplicate,  the  duplicate  being  of  some  stout  material  which  is  given  to 
the  foreman  having  the  work  in  charge.  The  time  occupied  and  material 
used  on  the  contract  should  be  recorded  on  the  back  of  the  shop  order. 
When  the  contract  is  completed,  the  shop  order  is  turned  into  the  office, 
and  the  totals  of  material  and  time  transferred  to  the  original  shop  order  on 
which  the  percentage  of  indirect  expense  is  added. 

A  completed  contract  summary  is  a  very  useful  provision,  as,  if  properly 
arranged,  it  will  furnish  the  amounts  to  be  credited  to  material,  supplies, 
labor  and  expense  accounts  at  the  end  of  each  period.    When  such  a  record  is 


Contract      Co<st    Sum/^ary                                                1 

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American  Business  and  Accounting  Encyclopedia         448-451 


JOB  No.       . 

DAILY  REPORT  OF  WORK                       ^^^^  ^^ 

952 

NAMeOF  1 
WORK      f 

DATE 

CHARGE  TO 

STREET  OR) 
lOCATION    ) 

HOURS  LABOR 

@ 

i                                                                 MATERIAL  AND  REMARKS 

tl                  •! 

IB 

i| 

tt                  If 

IS) 

1 

(1                  •» 

IS 

r 

1 

HOURS  TEAMING 

& 

EXTRA  WAGON 

Iff 

Foreman 

maintained  it  is  not  necessary  to  carry  individual  accounts  with  each  con- 
tract in  the  ledger.  All  ordinary  small  contracts  may  be  carried  in  one 
account.  It  would,  however,  always  be  advisable  to  carry  accounts  with 
large  contracts.    See  illustration. 

Where  extras  are  found  necessary  and  have  to  be  charged  in  addition  to 
the  contract  price,  it  is  very  desirable  to  open  a  separate  account  for  same, 
contiguous  to  the  Contract  account,  as  considerable  confusion  is  liable  to 
result  from  mixing  charges  for  extras  with  regular  contract  chaiges. 

In  some  manufacturing  businesses  a  part  of  the  accounting  system  is  to 
have  estimate  blanks  made  in  duplicate  so  arranged  that  when  the  estimate 
is  accepted  it  may  constitute  the  order  for  the  work.  This  involves  the  mak- 
ing of  a  sufficient  number  of  copies  of  the  estimate  if  the  duplicate  is  not 
sufficient. 


See  account. 


(449)     CONTROLLING  ACCOUNT. 


(450)     CONVEYANCE. 


The  transfer  of  the  title  of  land  from  one  person,  or  class  oi  persons,  to 
another.     The  instrument  for  effecting  such  transfer. 

(451)     CO-PARTNERSHIP. 

An  association  of  two  or  more  persons  in  business  governed  by  a  partner- 
ship agreement  and  not  by  articles  of  incorporation. 

700 


li:'<, 


452-455         American  Business  and  Accounting  Encyclopedia  Co. 

(452)     CO-PARTNERSHIP  ACCOUNTING. 

See  partnership. 

(453)     COPYRIGHT. 

The  exclusive  privilege,  secured  according  to  certain  legal  forms,  of 
printing  or  otherwise,  multiplying,  publishing,  and  vending  copies  of  certain 
literary  or  artistic  productions. 

(454)     COPYRIGHT  ACCOUNT. 

The  treatment  of  copyrights  on  books  of  account  is  an  important  part 
of  the  detail  of  a  publisher's  business,  and  is  very  similar  in  principle  to  the 
treatment  of  good  will,  especially  when  a  lump  sum  has  been  paid  for  the 
copyright.  A  copyright  expires  in  accordance  with  law  within  a  specified 
period,  and  while  the  value  of  the  book  or  publication  as  a  selling  article  may 
continually  increase  during  the  life  of  the  copyright,  it  is  the  wisest  course 
to  gradually  write  off  the  copyright  account,  so  that  at  the  expiration  of  the 
copyright  the  extinguishment  of  the  asset  will  not  fall  entirely  upon  one 
year's  profits. 

It  often  happens  that  on  account  of  the  popularity  of  a  book  the  copy- 
right actually  appreciates  during  its  life,  but  unless  for  purposes  of  sale  no 
real  benefit  accrues  from  increasing  the  value  of  the  asset  on  the  books  of 
the  business.     An  authority  on  the  subject  states: 

*Tt  should  be  mentioned  that  there  are  items  on  the  books  of  a  private 
firm  or  joint-stock  company  to  which  no  general  rule  of  writing  off  is 
applicable.  Such  are  the  cost  of  good-will,  patents,  trade  marks,  copyright 
designs,  etc.;  for  although,  as  in  the  case  of  patents,  the  life  of  the  asset  i^ 
clearly  defined,  the  incidental  advantages  derived  from  the  possession,  for  a 
term  of  years,  of  a  valuable  monopoly  do  not  necessarily  cease  upon  the 
expiration  of  the  term  of  the  patent.  On  the  contrary,  the  value  of  the  good- 
will may  increase  although  the  term  of  the  patent  is  expiring.  Assets  such 
as  those  should  be  considered  as  having  a  combination  value  differing 
altogether  from  their  value  per  se.  The  obvious  rule,  therefore,  is  that  in  the 
balance-sheet  such  assets  should  appear  at  their  cost  value,  and  need  not  be 
written  down  unless  their  realizable  value  as  integral  parts  of  a  going 
concern  falls  below  their  cost  value." 

(455)  CORPORATION  NOMENCLATURE. 

There  are  various  kinds  of  corporations  which  have  been  distinguished 
as  follows: 

Aggregate  Corporations  are  those  which  are  comopsed  of  two  or  more 
members  at  the  same  time. 

Corporations  Charitable  are  those  organized  for  charitable  or  benev- 
olent purposes,  such  as  associations  for  the  aid  of  reformed  criminals,  or  for 
the  aid  of  the  blind,  hospitals,  etc.     These   corporations  are  also   termed 

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Eleemosynary  Corporations,  as  they  relate  to  charity  or  the  distribution  of 
alms. 

Civil  Corporations  are  those  which  are  created  to  facilitate  the  trans- 
action of  business. 

Corporations  Domestic  are  those  transacting  business  within  the  limits 
of  the  State  in  which  incorporated. 

Double  Liability  Corporations  are  those  whose  stockholders  are  liable 
for  twice  the  amount  of  their  stock  subscriptions.  The  United  States 
National  Banks  are  double  liability  corporations,  the  double  liability  being 
in  the  nature  of  a  safeguard  to  the  depositors. 

Ecclesiastical  Corporations  are  those  which  are  created  to  secure  the 
public  worship  of  God. 

Eleemosynary  Corporations  are  those  which  are  created  for  the  pur- 
poses of  charities,  such  as  schools,  hospitals,  and  the  like. 

Corporations  Foreign  are  those  transacting  business  in  one  State  but 
incorporated  under  the  laws  of  another. 

Lay  Corporations  are  those  which  exist  for  secular  purposes. 

Limited  Liability  Corporations  are  those  in  which  the  stockholders  are 
liable  only  for  the  amount  of  stock  subscribed  for. 

Municipal  Corporations  are  those  created  for  the  purpose  of  administer- 
ing some  portion  of  the  government  in  a  political  subdivision  of  the  State, 
as  a  city,  county,  etc. 

Corporations  Private  are  those  formed  by  voluntary  association  for  the 
transaction  of  any  lawful  business,  such  as  industrial  or  manufacturing 
corporations,  banks,  insurance  companies. 

Corporations  Public  are  those  organized  for  purposes  of  local  govern- 
ment. 

Counties,  Cities  and  Towns  are  defined  by  some  as  public  corporations, 
and  by  others  as  quasi  corporations. 

Corporations  Sole  consist  of  a  single  individual  possessing  corporate 
powers.  There  are  no  such  corporations  in  the  United  States,  but  the  Bishops 
of  the  Established  Church  of  England  each  constitute  a  sole  corporation,  in 
order  to  establish  a  direct  succession  from  one  holder  to  another  without  the 
intervention  in  any  way  of  executors  or  administrators. 

(456)     CORPORATION,  THE 

The  corporation  is  an  association  of  individuals  authorized  by  law  to 
act  as  a  whole  under  a  corporate  name  for  some  particular  purpose  or  pur- 
poses. It  has  been  defined  as  an  artificial  person.  Chief  Justice  Marshall's 
famous  definition  styled  it  "an  artificial  being,  invisible,  intangible,  and 
existing  only  in  contemplation  of  the  law."  Corporations  are  of  many  kinds, 
designated  according  to  their  objects,  as  social,  financial,  business,  manu- 
facturing, municipal,  transportation,  religious,  charitable,  educational  and  the 
like.  Corporations  may  be  divided  into  two  general  classess, — (1)  member- 
ship corporations  and  (2)  stock  corporations. 

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Membership  corporations  are  the  original  form  and  include  churches, 
colleges,  municipalities,  stock  exchanges,  mutual  insurance  companies,  and 
all  incorporated  associations  for  other  than  business  purposes.  In  a  mem- 
bership corporation,  when  corporate  action  is  taken,  each  member  has  but 
one  vote  without  regard  to  the  amount  of  his  financial  interest,  if  any,  in 
the  corporation.  Curious  questions  sometimes  arise  as  to  the  rights  and 
interests  of  members  of  such  corporations,  but  the  subject  is  not  of  sufficient 
general  interest  to  justify  its  discussion  here. 

Stock  corporations  are  those  in  which  the  authorized  capital,  known 
as  the  "capital  stock,"  is  divided  into  shares,  usually  equal,  and  these  shares, 
designated  as  "stock,"  represent  the  respective  interests  of  the  owners  or 
stockholders  in  the  corporation.  The  owners  of  stock  are  entitled  to  vote  at 
corporate  meetings  and  to  participate  in  proportion  to  their  interests  in  any 
corporate  profits  and  in  the  assets  of  the  corporation  on  its  dissolution.  The 
word  "company"  is  commonly  used  as  a  synonym  for  "corporation."  At 
the  present  day,  all  of  the  largest  business  enterprises  are  conducted  as  stock 
corporations. 

Stock  corporations  may  be  divided  into  three  general  classes, — 

L  Corporations  for  general  purposes,  such  as  mining,  manufactur- 
ing and  trading. 

2.  Corporations  formed  to  carry  on  banking,  insurance  and  the  like, 
which  are  termed  "financial"  corporations. 

3.  Corporations  for  public  services,  such  as  railroad,  telegraph, 
telephone,  ferry  and  other  like  companies,  which  are  called 
"public  utilities"  corporations  and  usually  exercise  the  right  of 
eminent  domain. 

Financial  corporations  and  public  utilities  corporations  are  usually 
subject  to  much  stricter  legal  supervision  than  the  ordinary  business  cor- 
poration, but  they  enjoy  certain  special  privileges. 

A  joint  stock  company  is  not  a  corporation  but  is  a  partnership  in  which 
the  partners'  shares  are  represented  by  stock  certificates.  In  other  respects 
it  is  a  partnership  and  not  a  corporation  and  the  members  are  liable  as 
partners. 

The  amount  of  the  authorized  capital  stock  of  a  corporation  and  the 
face  or  par  value  of  its  shares  are  fixed  by  the  charter  of  the  company.  Save 
where  limited  by  the  laws  of  the  particular  state,  shares  of  stock  may  have 
any  par  value.  One  hundred  dollars  is  the  most  common  and  most  con- 
venient value.  The  real  value  of  shares,  which  may  be  many  times  more  or 
much  less  than  the  par  value  of  the  stock,  depends  usually  upon  the  value 
of  the  corporate  property  or  franchise,  and  the  rate  of  dividends.  At  times 
other  considerations  affect  the  value. 

It  is  to  be  noted  that  theoretically  the  capital  stock  of  a  corporation  and 
its  actual  capital  are  equal  at  the  time  of  issue,  bu  later  may  and  usually  do 
differ  grealy  in  amount.     For  instance,  the  capital  stock  of  the  Chemical 

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Bank  of  New  York  is  but  $300,000  while  its  actual  capital  is  over  $7,500,000. 
Where  stock  is  sold  on  the  general  market,  the  quoted  price  is  an  index  to 
the  prosperity  and  dividend-paying  power  of  the  corporation,  though  into 
the  quoted  value  many  other  factors  may  enter.  Steel  Common  is  less  than 
par  and  Standard  Oil  is  far  above  par.  There  are  practical  rejisons  for  both 
these  conditions. 

The  interest  of  any  stockholder  in  a  corporation  is  measured  by  the 
amount  of  stock  he  owns  in  it.  One  person  may  own  any  amount  of  stock 
in  a  corporation,  even  to  the  entire  capital  stock?  For  convenience,  the 
shares  of  stock  of  a  corporation  are  represented  by  "transferable"  stock 
certificates,  which  are  issued  to  the  subscribers  or  purchasers  to  evidence 
their  ownership  of  stock  acquired.  Such  stock  certificates  are,  as  a  matter  of 
convenience,  commonly  referred  to  as  "stock."  They  are  not  really  stock  but 
are  only  evidences  of  the  ownership  of  stock  as  a  deed  is  evidence  of  land 
ownership  but  is  not  the  land  itself. 

Issued  stock  is  stock  for  which  subscriptions  have  been  accepted  or  which 
have  been  exchanged  for  property.  Unissued  stock  is  a  nullity  until  issued.  It 
is  merely  the  right  to  issue  stock.  A  corporation  may  have  the  right  to  issue 
stock  to  the  amount  of  $100,000  and  may  issue  but  $50,000.  Then  the  un- 
issued stock  is  merely  excess  capitalization,  representing  nothing  unless 
issued. 

If  the  corporation  has  received  the  full  face  value  for  issued  stock,  such 
stock  is  full-paid.  If  it  has  not  received  its  full  face  value,  the  stock  is  not 
full-paid,  and  the  purchaser  of  such  stock  may  be  held  liable  for  the  amount 
necessary  to  render  his  stock  full-paid.  Often  on  the  organization  of  a  cor- 
poration it  will  take  over  a  mine,  a  patent,  a  factory,  or  established  business 
and  issue  the  entire  authorized  stock  for  the  property,  thus  theoretically 
receiving  payment  in  full  for  all  the  stock.  The  stock  certificates  are  then 
marked  "Full-paid  and  Non-assessable,"  and  where  the  transaction  has  been 
conducted  in  good  faith,  such  stock  is  held  full-paid  by  the  courts;  and 
subsequent  purchasers  are  not  liable  further.  Frequently,  however,  promoters 
issue  the  stock  cf  a  company  for  a  manifestly  inadequate  consideration, 
whereby  the  whole  transaction  becomes  tainted  with  fraud.  In  such  case 
the  stockholders  may  be  held  liable  for  the  diflference  between  the  value  of 
the  property  received  and  the  face  value  of  the  stock  issued.  Any  stock 
issued  as  full-paid  for  which  the  corporation  has  not  received  full  payment 
in  cash,  services  or  property,  is  termed  ''watered"  stock.  Stock  is  said  to  be 
more  or  less  watered  according  to  the  diflference  between  the  face  value  and 
the  real  value  represented  by  it. 

The  common  stock  of  a  corporation  is  the  general  or  ordinary  stock, 
'having  neither  special  privileges  nor  restrictions.  If  any  portion  of  the 
stock  is  given  special  privileges  or  is  restricted  in  any  way,  that  portion 
is  thereby  removed  from  the  class  of  common  stock  and  only  the  remainder 
is  common  stock.    This  makes  the  stock  a  classified  stock.    Any  statements 

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made  concerning  stock  are  usually  understood  to  apply  to  common  stock 
unless  otherwise  specified. 

Preferred  stock  is  that  which  has  some  preference  as  to  dividends  o^ 
assets  or  both,  over  other  stock  of  the  same  corporation.  This  preference 
is  usually  secured  by  special  provision  in  the  charter,  although  in  some  cases 
it  may  be  done  by  by-law  provision.  The  usual  preferred  stock  receives,  say 
six,  seven  or  eight  per  cent,  from  the  profits  before  any  dividends  are  paid 
to  the  common  stock.  If  preferred  stock  is  cumulative,  its  preferred  annual 
dividend,  if  unpaid  in  any  year,  becomes  a  permanent  charge  on  the  profits 
of  the  corporation  until  satisfied.  If  a  seven  per  cent,  cumulative  preferred 
stock  were  unpaid  for  five  years,  the  preferred  stock  would  have  to  receive 
thirty-five  per  cent,  of  dividends  before  the  common  stock  would  receive 
anything.  Preferred  stock  is  usually  restricted  to  its  named  "preference," 
i.  e.,  a  seven  per  cent,  stock  would  receive  seven  per  cent,  of  the  profits  for 
each  year,  and  then,  if  the  further  profits  for  the  year  amount  to  ten,  fifteen 
or  twenty  per  cent.,  this  would  belong  to  the  common  stock,  the  preferred 
stock  having  no  claim  upon  it. 

Dividends  must  be  paid  from  profits  alone.  If  there  are  no  profits,  neither 
preferred  nor  common  stock  receives  dividends.  To  pay  dividends  out  of  the 
capital  instead  of  from  profits,  is  in  most  states  a  crime.  In  all  states  it 
would  be  held  fraudulent  and  would  make  the  parties  responsible  therefor 
liable  for  all  moneys  so  paid  out. 

A  corporation  is  a  creation  of  the  law.  A  partnership  is  formed  by 
contract  between  two  or  more  parties  and  is  governed  by  the  stipulations 
of  the  articles.  A  corporation  cannot  be  formed  save  as  authorized  by  law  or 
special  legislative  enactment.  In  former  days  application  was  made  direct 
to  a  state  legislature  when  a  charter  was  desired.  Usually  such  charters 
conferred  some  franchise  or  special  privilege,  as  the  right  to  erect  a  toll 
bridge,  establish  a  bank,  construct  a  railroad  or  build  a  dam. 

The  abuses  resulting  from  this  method  of  granting  charters  have  resulted 
in  the  prohibition  of  special  charters  in  most  states.  Instead,  general  laws 
have  been  provided,  under  which  corporations  for  any  legitimate  purpose 
may  be  formed  by  any  qualified  persons  by  compliance  with  prescribed  for- 
malities and  the  payment  of  certain  fixed  fees. 

The  form  of  application  for  a  charter  under  these  general  laws  is  usually 
a  copy  of  the  charter  desired,  or  in  other  words,  the  charter  application  itself, 
when  allowed,  becomes  the  charter.  The  parties  applying  for  a  charter  must 
be  natural  persons  of  full  age.  Ordinarily  one  or  more  of  them  must  be 
citizens  of  the  state  in  which  the  application  is  filed.  Minors,  firms  or  cor- 
porations, or  persons  not  able  to  contract,  are  not  competent  parties  to  form 
a  corporation,  though  they  may  usually  hold  stock  after  the  corporation  is 
formed.  The  minimum  number  of  incorporators  required  in  most  states 
is  three  and  each  is  ordinarily  required  to  subscribe  for  one  or  more  shares 
of  stock. 


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Almost  any  name  may  be  taken  as  the  corporate  name,  if  it  is  not  like 
or  nearly  like  that  of  some  corporation  already  rightfully  doing  business  in 
the  particular  state.  In  some  states  all  corporate  names  must  begin  with 
"The"  and  end  with  "Company."  In  many  states  firms  may  be  incorporated 
under  the  partnership  name  without  any  change. 

The  purposes  for  which  the  corporation  is  to  be  formed  must  be  set 
forth  in  the  application  and  must  be  such  as  are  permitted  by  the  laws  of  the 
particular  state.  These  purposes  are  usually  set  forth  at  great  length  and 
elaboration.  A  corporation  has  no  legal  right  to  do  any  business  not 
permitted  by  its  charter.  The  insertion  of  illegal  purposes  is  ground  for  the 
rejection  of  the  charter  application.  When  corporations  were  first  formed, 
they  were  confined  to  one  specified  purpose,  and  in  some  states  today  the 
same  restriction  exists.  In  those  states  which  have  modern  and  liberal 
corporation  laws,  great  latitude  is  allowed  in  stating  the  business  purposes 
of  a  corporation,  and  then  the  corporation  has  power  of  itself  to  do  all 
things  incidental  to  these  specified  purposes.  In  addition,  corporations  are 
in  some  states  specially  incorporated  with  power  to  hold  the  stock  of  other 
corporations,  by  means  of  which  the  great  industrial  combinations  have  been 
rendered  possible. 

The  capital  stock  of  the  proposed  corporation  must  be  specified  in  the 
application  and  may  be  changed  thereafter  only  by  amendment  of  the 
charter.  Also  the  par  value  of  the  shares  of  stock  must  be  fixed  at  the  same 
time,  and  if  the  stock  is  to  be  classified,  i.  e.  divided  into  preferred  and 
common,  it  must  be  done  in  the  application. 

The  corporation  must  have  a  principal  office  in  the  state  in  which  it  is 
incorporated,  and  the  location  of  this  office  must  be  specified  in  the  application 
for  its  charter.  In  the  state  of  its  incorporation  the  company  is  a  "domestic" 
corporation ;  elsewhere  it  is  a  "foreign"  corporation. 

The  duration  of  the  corporation  is  fixed  in  the  charter.  In  many  states 
it  may  be  unlimited  or  perpetual. 

The  number  of  directors  of  the  corporation  must  in  most  states  be 
specified  in  the  charter  application.  It  is  usually  an  odd  number  for  con- 
venience. In  some  states  the  directors  for  the  first  year  are  named  in  the 
charter  application. 

The  application  having  been  made  out  in  due  form,  is  then  acknowledgeJ 
by  the  incorporators  before  some  officer  authorized  to  take  acknowledgment 
to  deeds,  and  it  is  then  ready  for  filing.  Under  the  general  procedure,  the 
application  accompanied  by  the  proper  fees,  is  sent  to  the  office  of  the 
Secretary  of  State  and  a  copy  is  filed  with  the  county  clerk  of  the  county  in 
which  the  proposed  corporation  is  to  have  its  principal  office.  Each  state 
has  its  own  minor  variations  of  procedure  which  will  be  found  in  its  statute 
law.  In  some  states  the  application  must  be  approved  by  the  judge  of  a 
specified  court  before  it  will  be  filed.  The  fees  also  vary  widely.  They  are 
usually  proportionate  to  the  amount  of  authorized  capital. 

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After  the  charter  has  been  filed,  the  stockholders  hold  their  first  meeting 
and  adopt  by-laws  and,  if  the  directors  have  not  been  named  in  the  certificate 
of  incorporation,  they  are  elected  at  this  first  meeting.  Thereafter  the  stock- 
holders meet  annually  and  elect  directors  for  the  ensuing  year. 

After  the  stockholders  have  met,  the  board  of  directors  holds  its  first 
meeting  and  elects  officers  of  the  corporation.  The  necessary  officers  of  a 
corporation  are  the  president,  the  treasurer  and  the  secretary.  In  small 
corporations  these  two  last  offices  are  often  filled  by  one  person.  In  the 
larger  corporations  vice-presidents  and  assistant  treasurers  and  secretaries 
are  elected.  The  directors  are  sometimes  and  not  improperly  referred  to  as 
"officers"  of  the  company. 

By-laws  are  the  permanent  rules  of  corporate  action,  as  distinguished 
from  motions  and  resolutions  passed  by  the  directors.  As  has  been  stated, 
by-laws  are  enacted  by  the  stockholders,  who  alone  have  power  to  make 
and  amend  by-laws,  unless  by  statute,  by  charter  provision  or  by  action  of 
the  stockholders  themselves,  such  authority  is  delegated  to  the  directors.  By- 
laws usually  regulate  the  issue  and  transfer  of  stock ;  the  holding  of  regular 
and  special  meetings  of  the  stockholders  and  directors;  define  the  duties  of 
directors  and  officers  of  the  corporation,  and  may  limit  their  usual  powers. 

Thus  a  corporation  is  controlled  (1)  by  the  corporation  laws  of  the  state 
in  which  it  is  incorporated  or  may  be  doing  business,  (2)  by  the  provisions 
of  its  charter  and  (3)  by  its  by-laws.  These  three  rank  in  the  order  in  which 
they  are  given ;  hence  by-laws  must  conform  to  both  the  statute  law  and  the 
charter  of  the  particular  corporation,  and  where  not  in  accord  with  these 
higher  authorities,  would  be  void. 

The  board  of  directors  has  the  actual  management  and  control  of  the 
property  and  business  of  the  corporation.  Its  authority  may  be  limited  by 
the  charter  and  by-laws,  but  otherwise  its  action  is  conclusive,  and  it  directs 
the  business,  disposes  of  the  property,  instructs  the  officers  and  meets  each 
business  situation  as  it  comes  up.  Certain  routine  duties  of  the  officers  are 
usually  set  out  in  the  by-laws. 

The  board  of  directors  will  further  prescribe  particular  duties  and  give 
special  powers  to  the  diflferent  officers  by  motions  and  resolutions.  Also, 
certain  duties  fall  to  certain  officers  by  usage  without  any  formal  author- 
ization. Agents,  salesmen  and  other  employees  will  be  employed  as  needed, 
under  the  officers  appointed  directly  by  the  board. 

The  directors  can  only  act  as  a  board,  in  meeting  duly  assembled.  An 
individual  director  has  no  authority,  unless  the  board  has  empowered  him 
as  its  agent.  Usually  directors  meet  regularly  once  a  month.  If  matters 
come  up  between  meetings  that  demand  immediate  attention,  a  special  meet- 
ing is  called  to  meet  the  emergency.  Special  meetings  must  be  carefully 
called ;  each  member  must  be  duly  notified  and  the  time,  place  and  object  of 
the  meeting  must  be  specified  both  in  the  call  and  notice.  No  other  business 
can  be  transacted  than  that  specified  in  the  call  and  notice.  The  by-laws 
should  prescribe  the  details  of  calling  and  notifying  special  meetings.    Owing 

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to  the  difficulty  of  calling  such  board  meetings  where  the  board  is  large 
and  scattered,  it  is  customary  under  such  circumstances  for  the  board  to 
delegate  its  authority  in  the  interim  between  meetings  to  a  standing  com- 
mittee or  to  standing  committees,  composed  of  members  of  the  board.  Where 
there  is  but  one  standing  committee,  it  is  called  the  executive  committee; 
where  an  additional  committee  is  added,  it  is  given  charge  of  the  corporate 
finances  and  is  called  the  finance  committee.  The  charter  may  provide  for 
standing  committees  or  they  may  be  prescribed  in  the  by-laws. 

An  individual  or  firm  doing  business  may  do  anything  that  is  not  for- 
bidden by  the  law ;  but  a  corporation  may  legally  do  only  those  things  that 
are  expressly  authorized  by  its  charter.  All  other  things  are  beyond  its 
power,  or  in  legal  parlance  are  ultra  vires.  Contracts  involving  matters  ultra 
vires  cannot  be  enforced  by  the  corporation,  though  other  parties  to  such 
contracts  may,  if  they  have  done  their  part,  enforce  them  against  the  cor- 
poration. Such  comprehensive  purposes  and  such  broad  powers  are  now 
allowable  and  so  commonly  claimed  in  modern  charters  that  the  doctrine  oi 
ultra  vires  has  not  the  importance  it  once  had.  Large  corporations  have 
such  broad  charters  that  it  would  be  difficult  to  find  anything  their  charters 
do  not  authorize,  and  smaller  corporations,  particularly  "close  corporations." 
i.  e.  where  all  the  stock  is  owned  by  two  or  three  persons,  are  allowed  such 
a  laxness  of  operation,  that  they  have  practically  all  the  freedom  of  action 
that  is  enjoyed  by  a  partnership. 

The  great  advantages  of  the  corporate  form  and  the  reason  for  its 
adoption  by  all  important  enterprises  at  the  present  day  are  as  follows: 

(1)  It  limits  the  liability  of  those  engaging  in  the  business.  A  sub- 
scriber to  the  stock  of  a  corporation  must  pay  the  par  value  of  his  stock  but 
after  that,  if  the  company  becomes  insolvent,  he  is  not  liable  for  any  more. 
He  may  lose  his  investment  but  he  risks  only  that.  This  is  the  great  advan- 
tage of  corporate  investment.  In  a  partnership  each  partner,  no  matter  how 
small  his  interest,  is  liable  for  every  debt  of  his  firm,  and  its  failure  may 

take  all  of  his  property. 

(2)  The  legal  entity  of  a  corporation  or  its  distinct  legal  existence  under 
its  corporate  name,  is  of  great  advantage.  It  can  sue  and  be  sued  in  the 
corporate  name  without  its  stockholders  joining  or  being  joined,  while  in  a 
partnership  every  partner  must  be  named.  Also  it  may  contract  with  its 
stockholders  and  bring  suit  against  them  or  be  sued  by  them.  A  partner- 
ship cannot  contract  with  its  members  and  cannot  bring  suit  against  them. 

(3)  It  is  permanent.  By  means  of  the  corporate  system  of  stock 
divided  into  transferable  shares,  the  members  of  a  corporation  may  continu- 
ally change,  while  the  company  remains  unaflfected.  In  a  partnership,  on 
the  contrary,  any  disagreement,  the  bankruptcy  or  death  of  a  partner  requires 
at  least  the  reorganization  of  the  partnership.  Neither  contingency  would 
affect  a  corporation,  which  goes  on  indefinitely  unless  it  is  voluntarily  dis- 
solved, becomes  bankrupt  or  reaches  the  period  of  existence  fixed  by  its 
charter. 

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(4)  The  convenience  of  stock.  The  transferable  certificates  which 
represent  the  investment  of  a  stockholder  can  be  sold,  used  as  collateral,  or 
divided  by  will.  In  a  partnership,  a  partner  cannot  sell  his  interest  without 
lireaking  up  the  firm  and  it  is  impossible  to  use  it  as  collateral.  It  is  hard 
to  exaggerate  the  great  business  advantage  of  having  corporate  stock 
represented  by  negotiable  certificates. 

(5)  The  business  management  of  a  corporation  by  a  board  of  directors 
elected  by  the  stockholders  is  a  practical  system  and  very  satisfactory^.  The 
directors  at  regular  meetings  and,  in  event  of  any  special  business,  at  special 
meetings,  consult  and  plan  as  to  the  proper  course  of  the  corporation.  They 
elect  permanent  officers  to  carry  out  their  behests  and  have  wide  powers  as 
to  the  appointment  of  other  agents  to  carry  out  their  plans. 

(6)  The  ease  of  securing  capital  by  reason  of  the  advantages  recited. — • 
which  is  the  great  inducement  to  incorporate  all  large  enterprises.  It 
is  possible  to  get  many  people  to  invest  in  the  stock  of  a  corporation, 
who  would  be  afraid  to  risk  investment  in  a  partnership.  A  mine,  a  rail- 
road, or  an  invention,  can  frequently  secure  capital  under  the  corporate  form 
when  otherwise  it  would  be  impossible. 

Corporation  law  and  practice  are  treated  in  many  text  books.  In  each 
of  the  larger  states  the  statute  law  alone  makes  a  fair  volume,  while  the 
decisions  on  this  subject  would  make  a  library.  A  business  man  can  inform 
himself  fairly  by  having  a  cop}-  of  Commercial  Law  Simplified,  B.  M.  P.  Co., 
containing  the  corporation  laws  of  his  own  state. — (Thos.  Conyington.) 

(457)     A  FEW  CORPORATION  POINTERS. 

One  of  the  principal  advantages  of  the  corporate  business  organization 
is  its  provision  for  limited  liability. 

A  partner  who  does  not  actively  engage  in  the  business  in  which  he  is 
financially  interested  is,  nevertheless,  responsible  for  the  acts  of  the  man- 
aging or  active  partners,  and  jointly  responsible  for  the  liabilities  incurred 
on  behalf  of  the  partnership ;  consequently,  many  business  men  who  assist 
others  in  establishing  business  enterprises  find  it  very  convenient  to  limit 
their  responsibilities  by  shielding  themselves  with  the  corporation  cloak. 

FROM   partnership  TO   CORPORATION. 

The  author  of  a  commercial  text  book  quotes  an  example  of  this  kind 
which  he  terms  "A  legerdemain  performance"  from  the  fact  that  a  barely 
solvent  partnership  was  transferred  into  a  corporation  with  a  paid-up  capital 
of  $10,000,  without  involving  the  investment  of  any  additional  capital  or 
the  transfer  of  actual  cash,  while  the  capitalist  exchanged  his  position  of 
unrestricted  liability  for  the  acts  of  another,  to  a  liability  simply  for  the 
amount  of  his  original  investment. 

How  was  this  done? 

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A  capitalist  subscribed  for  $5,000  of  stock.  The  managing  partner  sub- 
scribed for  an  equal  amount,  giving  his  note  for  same  to  the  capitalist  with 
the  stock  attached  as  collateral  security. 

As  the  assets  and  liabilities  were  about  equal  the  partnership  offered 
the  assets  to  the  corporation  for  the  nominal  sum  of  $1,  in  consideration  of 
the  latter  assuming  the  liabilities.  The  capitalist  then  drew  his  personal 
check  for  $10,000  in  favor  of  the  corporation  for  the  stock  subscribed.  The 
corporation  drew  its  check  for  $10,000  to  cancel  the  partnership  note,  which 
was  one  of  the  liabilities  assumed.  The  capitalist  signed  another  note  which 
was  placed  to  the  credit  of  the  corporation  to  be  used  for  working  capital. 

WHAT   OUTSIDE   INVESTORS    GET. 

The  details  of  incorporation,  particularly  when  outsiders  are  permitted 
to  subscribe  for  stock  in  an  old  established  business  and  are  as  interesting  as 
they  are  various.  Thus— we  read  that  the  great  catalog  house — Sears,  Roe- 
buck &  Co.— have  incorporated  for  $40,000,900— $10,000,000  preferred  and 
$30,000,000  common,  the  promotors  taking  the  whole  of  the  preferred  and 
about  $10,000,000  of  the  common  in  order  to  possess  the  controlling  interest. 
The  preferred  stock  will  receive  seven  per  cent  dividends,  which  is  good 
enough  in  these  days  of  three  and  four  per  cent  savings  banks. 

INFORMATION  DESIRED. 

Generally  speaking,  there  seems  to  be  a  greater  desire  for  information 
in  regard  to  the  procedure  of  mining  companies  in  connection  w4th  their 
stock,  and  the  transfer  from  partnerships  to  corporations,  than  along  any 
other  allied  line. 

Recently  w^e  received  an  account  of  a  book-keeper  who  attempted  to 
make  a  profit  out  of  Unsubscribed  Treasury  Stock  account,  and  this  indicates 
that  a  perfect  understanding  of  the  subject  is  not  universal. 

The  treatment  of  donations  of  stock  to  a  corporation  by  the  owners 
thereof  is  responsible  for  many  inquiries,  and  the  redemption  of  bonds 
within  a  stipulated  period  is  surrounded  by  doubt. 

THE   MODUS  OPERANDI   OF  TRANSFERS. 

In  transferring  the  interests  from  a  partnership  to  a  corporation,  it  used 
to  be  considered  the  simpler  and  better  plan  to  pass  a  check  in  purchase  of 
the  business  by  the  corporation,  and  in  purchase  of  the  corporation  stock  by 
the  subscribers.  Some  authorities,  however,  now  consider  this  useless 
detail  and,  no  doubt,  this  is  true  so  far  as  the  legal  aspect  of  the  case  is 
concerned.    However,  it  makes  a  clear  record  on  the  books. 

Thus — a  corporation  is  organized  with  a  capital  stock  of  $100,000.  It 
is  proposed  to  take  over  the  business  of  Jones  &  Brown,  which  is  offered 
at  a  price  equivalent  to  the  value  of  the  net  assets.  Jones  and  Brown  sub- 
scribe for  $48,000  each,  and  a  third  person  subscribes  for  the  balance  of 
$4,000.  Jones  &  Brown  hand  their  check  to  the  new  corporation  for  $96,000 
in  purchase  of  the  stock,  and  the  corporation  hands  Jones  &  Brown  its  check 
in  payment  for  the  net  assets,  same  being  properly  recited  in  a  bill  of  sale. 

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The  assets,  as  above  indicated,  can  be  transferred  without  the  passing  of 
checks,  and  the  transfer  will  be  equally  legal. 

paying  for  stock  out  of  dividends. 
The  remaining  $4,000  of  stock  is  subscribed  for  by  Smith,  the  factory 
superintendent.  He  is  to  pay  for  same  out  of  dividends  earned  by  the  stock. 
Smith's  promissory  note  is  taken  in  payment  for  the  stock  and  Accounts 
Receivable  debited;  or,  if  the  stock  is  to  be  donated  in  acknowledgment  for 
services  rendered,  debit  promotion  or  incorporation  expense,  or  some  simi- 
lar account. 

SALE  OF  STOCK  AT  A  DISCOUNT. 

A  mining  corporation  that  sells  stock  at  a  discount  of  75  per  cent  is  not 
compelled  either  to  make  good,  or  to  pretend  to  make  good,  this  discount 
out  of  the  profits — the  profits  are  earned  by  the  actual  capital  invested  and 
should  be  distributed  accordingly.  (Most  mining  corporations  have  quite 
enough  to  do  to  provide  a  reserve  against  depreciation,  or  wasting  of  the 
mine,  so  as  to  prevent  impairment  of  the  capital  actually  invested.)  The 
value  of  unsubscribed  treasury  stock  is  nil  and  is  offset  by  equally  fictitious 
capital  on  the  liability  side.  There  is  no  law  requiring  the  entry  of  author- 
ized capital  on  the  regular  books  of  account  whether  disposed  of  or  not, 
and  the  most  reasonable  plan,  and  best  accounting  practice,  is  to  include  in 
the  regular  books  only  that  stock  that  has  actually  been  subscribed. 

REAL  TREASURY  STOCK. 

This  recommendation  does  not  relate  to  stock  in  the  treasury  purchased 
by  a  corporation  from  the  original  holders— such  stock  is  usually  an  asset 
to  the  amount  of  the  price  paid  for  it.  Sometimes  stockholders  donate  to  a 
corporation  stock  they  have  purchased  and  paid  for  with  a  view  to  increasing 
the  working  capital  of  the  business.  This  stock,  also,  can  be  carried  in 
Treasury  Stock  account  until  resold.  The  credit  may  be  made  to  Working 
Capital  account. 

ISSUE   AND   SALE  OF   BONDS. 

A  very  common  method  of  providing  a  sufficient  working  capital  for 
development  and  other  purposes  is  the  issue  and  sale  of  bonds.  The  re- 
demption of  these  bonds  is  usually  provided  for  by  the  establishment  of  a 
sinking,  reserve  or  redemption  fund,  this  consisting  of  sums  set  aside,  or 
invested  periodically,  sufficient,  together  with  interest  earned  on  same,  to 
pay  the  bonds  as  they  mature. 

ESTABLISHMENT   OF   SINKING    FUND. 

In  order  to  establish  a  sinking  fund  it  is  necessary  first— to  set  aside  a 
sum  sufficient  for  the  purpose  from  the  profits.  The  procedure  on  the  books 
of  account  is  a  transfer  from  the  Profit  and  Loss,  or  Surplus  account,  to  a 
Reserve  account,  after  which  the  necessary  amount  is  invested  and  debited 
to  Sinking,  or  Redemption  Fund  account.  After  the  bonds  have  been  re- 
deemed the  Reserve  account  should  be  closed  by  a  re-transfer  to  Profit  and 
Loss  as  the  amount  involved   represents  profits  on  hand  in  the  business, 

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while  the  sinking  fund  represents  the  cash  received  from  the  purchasers  of 
the  bonds,  same  being  included  in  the  Habilities,  i.  e.,  the  money  thus 
obtained  was  debited  to  cash  after  which  it  was  gradually  withdrawn  from 
cash  and  placed  in  the  sinking  fund. 

The  transfer  from  Profit  and  Loss,  or  Surplus,  to  the  Reserve  account 
is  merely  for  the  purpose  of  demonstrating  that  this  amount  of  profits 
earned  is  not  available  for  present  distribution. 

is  stock  sold  at  a  discount  "full  paid?" 

There  is  considerable  discussion  as  to  the  legal  status  of  stock  sold  at  a 
discount,  judging  from  the  inquiries  constantly  received  by  us.  Can  stock 
sold  at  50  per  cent  discount  be  guaranteed  by  the  selling  corporation  as 
"full  paid  and  non-assessable 

In  some  states  the  corporation  laws  expressly  provide  that  purchasers 
of  stock  must  pay  the  par  value  or  be  liable  to  an  assessment  for  the  balance. 
Where  stock  is  purchased,  however,  at  a  certain  price  below  par  and  the 
stock  has  printed  on  it  the  words  "full  paid  and  non-assessable"  the  innocent 
purchaser  will  not  be  held  liable  for  the  difference  between  the  purchase 
and  nominal  prices. 

It  would  appear  to  be  equity  that  if  a  purchaser  buys  stock  at  the 
price  set  upon  it,  whether  par  or  below  par,  he  has  paid  the  full  price  asked 
and  should,  therefore,  be  entitled  to  consider  the  stock  as  full  paid,  and 
where  the  words  "full  paid  and  non-assessable"  are  printed  on  the  stock 
certificate  it  should  be  considered  as  an  agreement  entered  into  between 
the  purchaser  of  the  one  part,  and  the  corporation  of  the  other,  that  he 
should  be  relieved  from  all  further  liability  in  respect  of  the  stock  purchased. 
Evidently,  however,  the  question  must  be  considered  separately,  according 
to  the  particular  corporation  laws  of  the  state  in  which  the  question  may 
arise. 

THE   SUPPRESSION   OF  THE    MINORITY   STOCKHOLDERS. 

One  of  the  principal  objections  to  the  modern  corporation  appears  to 
be  the  powerlessness  of  the  minority  and  the  growing  disregard  of  any 
rights  the  minority  is  supposed  to  possess. 

When  an  alien  presumes  to  criticize  the  free  and  glorious  institutions 
of  this  great  country  he  is  promptly  invited  to  return  to  the  place  from 
whence  he  came;  and,  in  like  manner,  when  the  minority  stockholder 
attempts  to  criticize  the  management  of  a  corporation,  or  to  voice  his  dis- 
approbation of  the  managerial  policy,  he  is  promptly  invited  to  sell  his 
stock  and  get  out. 

None  of  the  standard  text  books  on  corporation  management,  etc., 
appear  to  be  able  to  suggest  how  this  condition  may  be  improved,  with  the 
exception  that  a  public  accountant's  periodical  audit  will  furnish  the  informa- 
tion that  might  be  obtained  by  that  personal  inspection  of  the  books  by  a 
minority  stockholder  which  the  majority  stockholders  will  not  permit.  The 
enactment  of  u  law,  making  such  audits  compulsory,  would,  undoubtedly, 

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have  a  most  beneficial  effect,  not  only  in  protecting  minority  stockholders 
generaly,  but  in  preventing  the  manipulation  of  the  books  of  account  for 
unlawful  or  inequitable  purposes. 

CAPITALIZATION  BASED  ON  FUTURE  EARNINGS. 

Where  the  capitalization  of  a  corporation  is  based  on  the  prospective 
earnings  of  the  business  it  is  usual  for  the  stock  to  be  divided  into  preferred 
and  common,  the  preferred  stock  being  covered  by  the  actual  assets  of  the 
corporation,  and  the  common  stock  being  held  by  the  promotors  of  the 
enterprise,  a  provision  being  included  in  the  articles  of  association  debarring 
the  holders  of  preferred  stock  from  voting  at  any  meeting  of  stockholders, 
or  for  the  election  of  directors,  unless  there  has  been  default  in  paying  the 
dividends,  on  the  preferred  stock.  This  is  an  excellent  plan  for  keeping  the 
minority,  or  outside  stockholders,  in  their  proper  places. 

Many  excuses  are  made  in  reference  to  capitalization  on  the  basis  of 
estimated  earnings,  but  in  not  a  few  cases  it  is  sufficient  to  say  that  the 
intention  of  excessive  capitalization  is  to  milk  the  public  to  the  extent  of 
the  amount  paid  for  the  stock,  whether  preferred  or  common;  dividends 
being  kindly  permitted  to  look  after  themselves  on  both  preferred  and  com- 
mon. 

(458)     CORRESPONDENCE— FILING  OF. 

The  least  practical  method  is  the  combination  of  the  card  index  and  of 
the  numerical  folder.  No  one  can  file  cards  or  numbered  folders  all  day  long 
without  making  errors,  and  when  a  card  or  folder  is  filed  wrong  it  means 
hours  of  search. 

The  Vertical  filing  cabinet  is,  without  a  shadow  of  doubt,  the  best  for 
practical  use. 

A  good  system  is  as  follows :  For  each  document  is  provided  an 
envelope  with  the  Form  1  shown  in  the  illustration  printed  upon  the  front. 

The  documents,  each  in  its  envelope,  are  filed  in  numerical  order  in  a 
filing  cabinet  or  drawer  similar  to  those  used  by  banks  for  filing  checks.  A 
single  drawer  will   hold   several   hundred   envelopes. 

When  a  contract  has  been  made,  or  a  paper  of  value  received,  it  is 
turned  over  to  the  man  in  charge  of  the  document  files,  who  makes  out 
an  envelope  with  the  next  highest  number  not  yet  used  in  his  file. 

For  the  purpose  of  indexing  the  document  drawers  two  forms  of  3  x  5- 
inch  cards  are  used,  one  being  printed  especially  for  that  purpose,  and  the 
other  with  the  regular  standard  ruling.  These  cards  are  indexed  by  guides 
classifying  the  different  kinds  of  documents — a  guide  card  for  contracts,  one 
for  deeds,  one  for  insurance  policies,  one  for  miscellaneous,  and  so  on. 
The  cards  representing  each  particular  kind  of  documents  can  be  further 
indexed  by  the  use  of  alphabetical  guides,  should  the  number  of  papers  of 
any  one  kind  warrant. 

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One  card  (Form  2)  is  used  for  each  document,  and  is  numbered  the 
same  as  the  paper  and  its  envelope.  This  suffices  for  the  finding  of  a  paper 
—a  contract,  for  instance,  when  the  name  of  the  contracting  party  is  known. 
To  provide  for  easy  access  to  any  paper  when  this  knowledge  cannot  be 
had,  a  card  (Form  3)  with  the  standard  ruling  is  used  to  represent  each 
class  of  papers ;  all  papers  of  a  certain  kind  in  the  files  are  listed  upon  this 
one  card.  If  necessary,  two  or  more  cards  are  used  to  hold  the  list  of  one 
kind  of  documents,  in  which  case  the  cards  are  numbered  serially.  Thus  a 
ready  cross  index  is  given  to  every  paper  in  the  file,  and  as  the  special  cards 
are  white,  and  the  others  are  buff,  they  are  not  likely  to  be  confused. 

While  the  documents  themselves  are  kept  under  lock  and  key,  the  card 
index  is  accessible  to  any  employe  having  need  of  it,  and  the  time  of  the 
keeper  of  the  documents  can  be  saved  by  making  it  a  rule  that  any  person 
desiring  a  ceftain  paper  first  find  the  proper  card  in  the  index  and  then  call 
for  the  document  by  its  number.  When  a  paper  is  given  out,  the  envelope 
is  signed  upon  the  front  by  the  person  receiving  it,  the  date  is  marked  upon 
the  envelope,  and  it  is  then  placed,  empty,  back  into  its  proper  position  in  the 
file.  Should  the  same  paper  be  wanted  by  another  person  before  it  has 
been  returned  to  the  file,  the  envelope  will  of  course  tell  who  has  the  paper 
at  the  time. 


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The  names  of  the  months  are  printed  across  the  top  of  the  special  cards. 
At  the  beginning  of  the  year  the  cards  are  examined,  and  a  small  clip  is 
placed  on  each  card,  representing  a  document  which  expires  during  that 
year,  the  clip  being  directly  over  the  name  of  the  month  in  which  the  paper 
expires.  The  first  of  each  month  it  is  a  simple  matter  to  take  from  the 
cards  a  memorandum  of  the  papers  expiring  during  that  month,  so  that  they 
can  be  given  the  attention  required. 

To  keep  the  files  clear  of  all  dead  matter,  expired  papers  are  removed 
from  the  main  file  drawers  and  placed  in  numerical  order  in  a  transfer  case; 
the  special  card  representing  the  document  is  also  removed  from  the  card 
file  and  placed  in  a  cardboard  transfer  box.  On  the  buf¥  card  a  red  ink  line 
is  drawn  across  the  memorandum  of  the  expired  paper,  but  these  cards 
remain  in  the  regular  file  indefinitely,  thus  affording  not  only  a  complete 
list  of  the  documents  still  in  effect,  but  also  all  of  those  which  have  been 
in  effect  and  have  expired. — (E.  C.  Blomeyer.) 

(4.59)     ACCOUNTING  METHODS  FOR  THE  WHOLESALE 

CREAMERY  BUSINESS. 

The  receiving  clerk  keeps  a  record  similar  to  the  following  of  each  can 
received  and  of  all  cans  sent  out,  showing  the  patron  number,  how  and 
when  received  and  returned : 

LFFT    HAND   PAGE. 

Received  from  J.  Galvin,  Route  3,  248,  34,  426,  42,  127,  672,  430,  246,  146, 
1072,   1462,  4,  76,  1532,  1269. 

Received  from  8:45  train,  1242,  725,  846,  574,  642,  1376,  1431,  84,  746^ 
?27,  1001,  1145,  677,  1233,  1745. 

Weigh  Station  No.  8  on  10:05  train,  12  ten  gallon  cans. 

RIGHT    HAND   PAGE. 

Empty  cans  out  H.  Adams,  Route  4,  1367,  428,  536,  973,  647,  1068,  349,  1131, 
1246,  1166,  1392. 

Out  on  10  :05  train,  243,  1262,  1427,  263,  89,  554,  333,  765,  134,  1076,  987. 

Weigh  Station  No.  3.  Out  on  6:15  train,  15  ten  gallon  cans,  1  five  galoln 
can. 

Each  can  of  cream  is  then  weighed  and  a  record  made  on  report  blank 

(Form  2),  showing  patron  number,  size  of  can,  gross  tare  and  net  weights. 

This  record  together  with  a  sample  of  cream  from  each  can  is  sent  to  the 

testing  room  where   the   sample  is  tested  and  the  test  entered  on  blank. 


715 


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From  this  the  amount  of  the  butter-fat  is  figured  and  entered.  Each  of 
these  sheets  contain  a  record  of  twenty-four  cans  of  cream ;  and  about  five 
of  them,  lettered  a-b-c-d-e  make  a  churn  full.  These  five  sheets  are  pinned 
together  and  the  total  amount  of  butter-fat  represented  is  entered  in  the 
blank  space  at  the  top  of  sheet  a.  When  the  cream  is  churned  and  the 
butter  weighed,  the  amount  of  butter  is  also  recorded. 

From  these  report  blanks  a  ledger  record  (Form  3),  is  copied;  also  a 
statement  made  and  mailed  to  each  patron  with  his  remittance.^  It  has 
been  found  quite  practical  to  employ  two  persons  in  posting  this  work. 
One  to  make  the  statements  and  the  other  to  post  the  ledger  record,  which 
may  be  a  duplicate  statement,  showing  the  date,  net  weight  of  cream,  test, 
pounds  of  butter-fat,  price  per  pound,  and  the  amount.  If  this  system  is 
used  and  a  remittance  made  to  each  patron  one  a  month,  the  ledger  record 
showing  each  patron's  account  for  the  month  is  filed  in  numerical  order  in 
a  loose  leaf  binder. 

The  weigh  station  plan  seeks  to  lessen  the  expense  of  shipping  cans 
only  part  full  of  cream  over  long  distances,  as  the  railroad  companies  charge 
so  much  per  can,  varying  with  the  size,  regardless  of  the  amount  of  cream 
they  contain.  These  stations  are  established  in  distant  towns  where  there 
are  enough  patrons  to  make  up  two  or  more  gatherers  routes.    The  weigh 

716 


459 


American  Business  and  Accounting  Encyclopedia 


Cr. 


MERCHANDISE  AND  SALF.S  BOOK 

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Station  cream  gatherer  makes  out  a  daily  report  card  the  same  as  Form  1. 
This  is  checked  in  by  the  station  agent,  who  weighs  each  patron's  cream, 
takes  out  a  test  sample,  tests  it  and  makes  out  a  report  blank  the  same  as 
Form  2.  This  report  together  with  the  gatherer's  card  is  mailed  to  the 
office  each  day.  He  empties  the  cream  from  the  patron's  cans  into  other 
cans — usually  ten  gallon  cans — marked  with  his  weigh  station  number,  fill- 
ing each  can  full,  and  then  ships  it  to  the  creamery. 

The  process  of  butter-making  is  an  article  of  itself,  so  suffice  it  to  say 
that  as  soon  as  churned  the  butter  is  packed  into  tubs  and  stored  in  cold 
storage  rooms  or  frozen  solid  and  cut  into  pound  cakes,  wrapped  and  stored, 
awaiting  sale  or  shipment. 

When  an  order  for  butter  or  buttermilk  is  received,  an  order  blank 
(Form  4)  is  made  out  and  when  the  order  is  filled  it  is  handed  in  to  the 
office  as  a  merchandise-out  slip.  From  these  slips  a  record  is  made  on  the 
right-hand  page  of  the  merchandise  and  sales  book  (Form  5),  showing  the 
date,  name  of  buyer  or  consignee,  pounds  of  butter  and  the  amount,  or  if 
buttermillc,  gallons  of  same  and  the  amount,  invoice  number  and  car  num- 
ber; and  also  a  place  for  the  records  of  the  account  of  sales  in  case  of  con- 
signments, showing  the  date  of  sale,  selling  price,  and  the  net  amount 
received. 


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The  left  hand  page  of  this  merchandise  and  sales  book  is  a  record  of 
the  cream  received  and  of  the  butter  made,  showing  the  total  pounds  ol 
cream  in  each  churnful,  the  average  test,  the  pounds  of  butter-fat,  the  pounds 
of  butter  churned,  and  the  per  cent  of  the  over-run. 

After  closing  the  expense  accounts  for  the  month,  there  may  also  be 
entered  on  this  page  the  cost  of  cream ;  transportation  charges ;  cost  of 
supplies  including  tubs,  pound  packages,  salt,  etc.,  operating  expense,  in- 
cluding salaries,  rent,  fuel,  light,  etc.,  and  other  general  expense.  The  total 
of  these  items  will  represent  the  cost  of  butter.  On  the  opposite  page  after 
entering  the  sales  and  shipments  for  the  month  add  the  inventory  of  amount 
of  butter  on  hand  at  its  market  value,  then  add  the  shrinkage  to  balance 

718 


459-460         American  Business  and  Accounting  Encyclopedia  Cr. 

the  butter  account.    The  difference  between  these  totals  and  the  total  cost 
is  the  profit  or  loss. 

The  sales  are  posted  direct  from  the  sales  book  to  the  general  ledger, 
and  only  the  totals  for  the  month  are  journalized.  The  only  other  books 
required  for  this  system  besides  the  general  ledger  are  an  eight  column 
cash  book  and  an  eight  column  journal.-(C.  H.  Washburn.) 

(460)     KEEPING  THE  ACCOUNTS  OF  A  SMALL  CREAMERY. 

The  following  is  a  description  of  an  accounting  system  for  a  medium 
sized  creamery.  Form  1  is  roughly  drawn  on  a  large  sheet  of  tough  paper, 
and  tacked  to  the  wall  near  where  the  raw  material  (milk  and  cream)  is 
received.  As  each  patron  brings  his  supply  the  receiving  clerk,  after  weigh- 
ing and  taking  out  a  sample  for  testing  purposes,  records  the  number  of 
pounds  received  on  the  sheet  on  the  wall  under  the  patron's  number. 

The  advantage  of  having  the  sheet  on  the  wall  is  that  notations  can 
be  made  without  the  sheet  becoming  milk  stained.  The  clerk  does  not 
touch  the  sheet  except  with  the  point  of  his  pencil. 

The  patrons  are  numbered  and  the  milk  cans  are  marked.  This  is  so 
that  when  a  driver  brings  in  the  cans  of  a  dozen  patrons  the  receiving  clerk 
can  weigh  the  milk  and  give  each  his  due  credit  without  asking  a  question. 
Furthermore,  it  is  quicker  to  find  numbers  than  names. 

At  the  end  of  the  month  the  sheet  on  the  wall  comes  down  to  be  replaced 
by  another.  The  columns  of  the  filled  sheet  are  added,  the  footings  being 
the  number  of  pounds  of  milk  received  from  the  different  patrons. 

The  accounts  with  the  patrons  are  kept  in  a  loose  leaf  ledger.  The 
leaves  are  arranged  in  numerical  order,  patron  No.  1  first;  patron  No.  2 
second.  On  the  sheet  is  noted  the  total  number  of  pounds  of  milk  received 
for  the  month,  also  the  result  of  the  test  of  the  samples  taken  out  daily.  The 
result  of  the  test  is  expressed  as  a  percentage  and  this  multiplied  by  the 
number  of  pounds  of  milk  gives  the  number  of  pounds  of  butter-fat  received 
for  the  month;  and  the  number  of  pounds  of  butter-fat  multiplied  by  the 
average  price  for  the  month  gives  the  credit,  which  is  placed  in  the  columi> 
headed  "Monthly  Total." 


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The  debits  for  the  month  are  the  number  of  pounds  of  butter  taken  by 
the  patron  for  home  consumption  multiplied  by  the  price  charged  the  patron. 
The  difference  between  the  "Monthly  Total"  and  the  "Debit"  is  the  "Bal- 
ance" which  is  generally  paid  the  patron  by  check  about  the  10th  of  the 
succeeding  month.  The  number  and  date  of  the  check  are  noted  in  the 
column  headed  "Date  Paid." 

The  sum  of  the  monthly  totals  gives  the  yearly  total  and  the  sum  of 
the  "Debits"  plus  the  sum  of  the  "Balances"  also  gives  the  yearly  total.  If 
these  are  the  same,  the  account  is  proved. 

The  bookkeeping  for  the  customers  to  whom  sales  are  made  is  also 
taken  care  of  in  a  loose  leaf  ledger.  Each  customer  has  a  leaf,  and  these 
leaves  are  arranged  alphabetically.  The  sheet  is  6x9  inches  and  is  ruled  as 
shown  in  Form  3,  which  .form  explains  itself  with  sufficient  detail. 

Form  4  is  also  on  a  6x9  inch  loose  leaf.  It  is  kept  in  the  back  of  the 
customers'  ledger  and  is  used  for  bringing  together  the  factors  that  enter 
into  the  business  of  the  month.  On  this  sheet  are  recorded  the  number  of 
pounds  of  butter  produced  for  the  different  days  of  the  month,  also  the 
sale  to  customers  in  the  order  in  which  they  occurred.  At  the  end  of  the 
month  there  is  added  to  the  sales  side  the  number  of  pounds  of  butter  sold 
to  patrons  and  the  total  amount  charged  for  the  same.  The  total  of  these 
represents  the  receipts  of  the  creamery.  The  total  amount  of  the  sales 
divided  by  the  number  of  pounds  sold  gives  the  average  selling  price. 

720 


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The  items  on  the  cost  side  of  the  sheet  are  secured  from  two  sources. 
First  the  cost  of  the  butter-fat  is  the  sum  of  the  "Monthly  Totals"  in  the 
patrons'  ledger.  The  monthly  totals  are  listed,  added  and  only  the  grand 
total  recorded.  The  other  items  come  from  a  blotter  which  serves  as  a  day 
book,  cash  book,  sales  book,  journal,  etc.  The  total  cost  divided  by  the 
number  of  pounds  produced  for  the  month  gives  the  cost  per  pound. 


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Cr-  American  Business  and  Accounting  Encyclopedia         460-466 

Of  course  the  difference  between  the  total  sales  and  the  total  cost  is 
only  the  approximate  profit.  To  secure  the  exact  profit  inventories  of  the 
supplies  on  hand  and  the  stock  of  unsold  butter  at  the  end  of  each  month 
are  taken  into  consideration.  But  these  factors  are  fairly  constant  and  ar^ 
not  noted  except  at  the  ends  of  the  business  years. 

When  the  volume  of  business  becomes  several  times  its  present  dimen- 
sion a  ledger,  kept  on  double  entry  principles,  will  be  substituted  instead 
of  the  "Monthly  Summary"  and  an  attempt  will  be  made  to  charge  and 
credit  to  each  month  exactly  the  items  that  belong  to  that  month.— (R.  H. 
Ellsworth.) 

(461)     CREDIT  REPORTS. 

Reports  made  by  customers  to  the  concerns  from  whom  they  desir^i 
credit.     A  statement  of  assets  and  liabilities. 

(462)     CREDIT  SALES. 

Sales  to  customers  who  do  not  pay  cash. 

(463)     CREDIT  VOUCHERS. 

Vouchers  issued  by  managers  of  departments  for  the  refund  of  money 
to  customers  who  have  returned  goods  purchased,  or  who  have  obtained 
allowances  on  account  of  defects  in  goods  purchased. 

(464)     CROSS  ADDITION. 

Adding  horizontally  instead  of  perpendicularly.  A  good  example  is 
the  total  column  in  a  columnar  cash  book  in  which  are  entered  the  totals 
of  the  columns  provided  and  obtained  by  cross  footings  or  additions. 

(465)     CUSTOMER. 

One  who  enters  into  transactions  with  an  owner  of  property  for  the  pur* 
chase  of  commodities  or  something  of  value. 

(466)     CUSTOMERS  LISTS  AND  RECORDS. 

It  is  the  writer's  experience  in  devising  customers'  follow-up  systems 
that  it  is  better  to  have  too  much  information  printed  on  the  record  card 
than  too  little,  and  the  card  here  illustrated  is  arranged  with  the  idea  of 
covering  any  contingencies  that  may  arise. 

As  soon  as  an  inquiry  is  received  the  date  relative  to  the  "prospect"  is 
placed  upon  the  card  and  "the  follow-up  is  on." 

While  form  letters  can  be  used  it  should  be  borne  in  mind  that  the 
average  business  man  can  see  through  a  mimeographed  letter,  and  there- 
fore it  will  pay  to  have  all  letters  typewritten ;  post  cards  are  effective  means 
of  attracting  attention,  providing  they  are  short  and  to  the  point;  you  can't 

722 


466 


American  Business  and  Accounting  Encyclopedia 


Cr 


possibly  land  a  customer  on  the  first  letter,  so  why  not  make  them  short 
and  easily  read? 

In  keeping  track  of  literature  and  form  letters  sent  out,  it  will  not  be 
necessary  to  mark  up  each  card  separately,  simply  put  the  date  on  the  card 
when  it  was  started,  and  keep  a  card  in  front  of  each  drawer  showing  the 
date  and  kind  of  each  piece  of  advertisement  sent. 

The  question  features  of  this  card  is  a  valuable  one,  and  a  person  selling 
a  staple  or  standard  article  can  see  when  he  has  made  four  or  five  quotations 
to  a  particular  prospect  are  marked  "lost"  in  the  quotation  column  that  his 
chances  of  selling  the  party  in  question  are  not  extremely  bright. 

The  carrying  of  a  sales  summary  on  the  reverse  of  a  card  is  a  feature 
that  should  not  be  overlooked.  Don't  depend  upon  going  through  your 
ledger  at  certain  periods  and  jogging  up  those  customers  who  have  not  been 
buying,  but  have  your  bookkeeper  or  a  clerk  call  off  the  amount  of  each 
customer's  purchases  at  the  end  of  the  month,  and  put  it  on  the  cards. 

On  the  lower  left  hand  corner  of  the  card  you  will  notice  printed,  "Clip 
upper  right  hand  corner  when  party  has  been  sold." 

This  is  a  good  feature  to  incorporate  in  a  follow-up  system,  as  it  will 
enable  you  to  keep  customers  and  prospect  in  the  sample  drawer  and  send 
different  mail  matter  to  each,  all  of  the  cards  with  cut  corners  representing 
customers. 

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Cr,  American  Business  and  Accounting  Encyclopedia 


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American  Business  and  Accounting  Encyclopedia  Cr. 


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725 


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American  Business  and  Accounting  Encyclopedia 


467-472 


I 


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(467)     DAILY  STATEMENT. 

To  those  who  desire  to  obtain  a  daily  financial  statement  of  their  affairs 
we  suggest  a  summary  distributed  as  may  be  desired,  which  will  exhibit  the 
daily  condition  of  everything  in  which  the  proprietor  or  business  man  may  be 
interested.  This  daily  summary  may  also  include  inventory,  provided  it  is 
possible  to  obtain  the  actual  cost  easily  and  to  estimate  a  fairly  accurate 
profit  on  the  sales.  We  do  not  recommend  this  plan  unless  on  account  of 
special  conditions  the  figure  required  may  be  ascertained  without  great 
trouble.  In  some  businesses  the  plan  is  used  with  great  success.  (See  Cash 
Balance  Record). 

(468)     DATE. 

The  designation  or  indication  in  an  instrument  of  writing  of  the  time  and 
place,  when  and  where  it  was  made. 

(469)     DAY  BOOK. 

A  record  used  for  various  purposes,  but  eliminated  as  far  as  possible  by 
up-to-date  concerns  who  endeavor  to  prevent  useless  duplication  of  work. 
The  use  of  a  scratcher  or  memorandum  book  cannot  in  some  cases  be  pre- 
sented, but  all  orders  received  over  the  counter  should  be  entered  as  received 
on  duplicate  order  blanks,  no  day  book  or  scratcher  then  being  required.  In 
some  cases  a  record  of  this  kind  appears  to  be  necessary ;  thus  when  articles 
are  brought  for  repair  it  is  impossible  to  fix  at  that  time  the  cost  of  such 
repairs,  and  the  order  is  therefore  entered  in  the  Day  Book  as  a  memorandum 
and  there  remains  until  the  job  is  completed  and  the  cost  can  be  computed. 

(470)  DAYS  OF  GRACE. 

The  ancient  custom  of  allowing  three  days  before  protesting  an  unpaid 
note,  interest  being  usually  charged  thereon.  In  most  states,  however,  the 
commercial  laws  provide  that  a  note  shall  become  due  and  payable  without 
taking  days  of  grace  into  account,  and  this  will  doubtless  ere  long  be  the 
general  practice  in  the  United  States.  Even  in  Great  Britain  it  is  stated  that 
the  custom  serves  no  practical  use  and  unnecessary  complicates  bill  trans- 
actions. 

(471)  DEAD  ACCOUNT. 
A  closed  account.     A  non-active  account. 

(472)     DEAD  RENT. 

A  term  used  in  mining  transactions  to  signify  the  minimum  rent  to  be 
paid  by  the  lessee  to  a  mine,  whether  covered  by  stipulated  royalties  or  not. 
The  object  of  such  rent  is  to  satisfactorily  arrange  for  the  working  of  the 
mine.  In  some  cases  the  dead  rent  is  included  in  the  royalty  charge,  and  in 
other  cases  dead  rent  and  royalty  are  both  payable  together. 

•  726 


473-480         American  Business  and  Accounting  Encyclopedia 


De. 


(473)     DEATH  OF  PARTNER. 

At  the  decease  of  a  partner  the  partnership  business  is  wound  up,  an 
inventory  of  the  assets  and  liabilities  being  taken  and  the  share  of  the  estate 
of  the  deceased  partner  determined. 

In  case  of  unfinished  orders  and  contracts,  it  is  usual  to  appraise  the 
value  of  the  uncompleted  work  and  include  same  in  the  settlement.  Where, 
however,  such  appraisement  cannot  be  equitably  made,  the  final  adjustment 
of  accounts  will  be  delayed  until  the  result  can  be  ascertained. 


(474)  DEBENTURES. 


(See  Bonds). 


(475)     DR. 
An  abbreviation  of  the  term  "Debtor." 

(476)     DEBITS. 

Consist  of  assets,  expenses,  negatives  and  losses,  and  are  posted  to  the 
left-hand  side  of  ledger  accounts.  The  original  use  of  the  word  "debit"  in- 
dicated something  of  value  parted  with,  the  party  receiving  the  benefit  being 
a  debtor  to  the  party  from  whom  the  benefit  was  received,  and  accordingly 
being  debited.  In  books  of  account,  however,  debits  now  cover  all  kinds  of 
what  may  be  called  interchangeable  transactions,  i.  e.,  transactions  within  a 
business  in  which  values  are  shifted  from  one  department  to  another  without 
really  parting  with  anything. 

(477)     DEBIT  LEDGER. 

A  term  sometimes  used  to  signify  a  customers'  ledger. 

(478)     DEBIT  NOTE. 

A  memorandum  authorizing  a  debit  journal  entry  O.  K.'d  by  some  re- 
sponsible official  and  afterwards  used  as  a  voucher.    A  journal  voucher. 

(479)     DEBT. 

An  obligation.  Something  due  from  one  person  to  another,  whether  in 
money,  goods  or  service. 

A  sum  of  money  due  by  certain  and  express  agreement. 

All  that  is  due  a  man  under  any  form  of  obligation  or  promise. 

Any  claim  for  money. 

(480)     DEBTOR. 

One  who  owes  or  is  indebted. 

Applied  also  to  impersonal  accounts,  as  "expense  debtor  to  cash,"  mean- 
ing that  expense  is  debited  and  cash  credited  with  an  amount  paid  out. 


727 


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481 


It 


(481)     DECIMAL  WEIGHTS  AND  MEASURES. 

The  Metre  is  represented  by  the  distance  marked  by  two  fine  lines  on 
the  iridio-platinum  standard  bar  numbered  16,  when  at  the  temperature  of  0^ 
centigrade.  The  metre  is  the  only  unit  of  metric  measure  of  extension  from 
which  all  other  metric  measures  of  extension,  whether  linear,  superficial,  or 
solid,  shall  be  ascertained. 

The  Kilogram  is  represented  by  the  cylindrical  iridio-platinum  standard 
kilogram  weight  numbered  18.  The  kilogram  is  the  only  unit  of  metric  weight 
from  which  all  other  metric  weights,  and  all  measures  having  reference  to 
metric  weight,  shall  be  ascertained. 

The  Litre  is  represented  by  the  capacity  at  0°  centigrade  of  the  cylindrical 
brass  measure  marked  "Litre,  1897,"  and  having  a  diameter  equal  to  one-half 
its  height.  This  litre  at  0°  centigrade  when  full  contains  one  kilogram  of 
distilled  water  at  the  temperature  of  4°  centigrade,  under  an  atmospheric 
pressure  equal  to  that  represented  by  a  columri  of  mercury  760  millimetres 
high  at  0°  centigrade,  at  sea-level,  and  at  latitude  45°,  the  weighing  being 
made  in  air,  but  reduced  by  calculation  to  a  vacuum.  It  is  the  only  unit  of 
metric  measure  of  capacity  from  which  all  other  metric  measures  of  capacity, 
as  well  for  liquids  as  for  dry  goods,  shall  be  ascertained. 

ORDINARY  TO  METRIC. 

Linear  Measure. 

1  Inch    =  25.400  Millimetres 

1  Foot  (12  Inches).. .=    0.30480  Metre. 

1  Yard  (3  Feet) -     0.914399  Metre. 

1  Fathom    (6    Feet)..=     1.8288  Metres. 
1  Pole  (SVz  Yards)...—     5.0292  Metres. 
1  Chain   (22  Yards)..  =  20.1168  Metres. 
1  Furlong  (220  Yards=201.168  Metres. 
1  Mile    (8   Furlongs). =    1.6093  Kilo. 


Square  Measure. 

1  Square    Inch =     6.4516  Sq.  c.  m. 

1  Sq.  Foot  (144  Sq.  ^      , 

Inches)    =     9.2903  Sq.  d.  m. 

1  Sq.  Yard   (9  Sq. 

Feet)    =    0.836126  Sq.  m. 

1  Perch    (30^4    Sq. 

Yards)    =  25.293  Sq.  m. 

1  Rod    (40    Perches).  =  10.117  Ares 
1  Acre   (4,840  Sq. 

Yards)    =    0.40468  Hectare 

1  Sq.  Mile  (640  Acres)  =259.00  Hectares 

Cubic  Measure. 

1  Cubic  Inch =16.387  Cu.  c.  m. 

1  Cubic  Foot  (1,728 

Cubic  Inches)   =  0.028317  c.  m. 

1  Cubic  Yard  (27 

Cubic  Feet)    =  0.764553  c.  m. 

728 


481 


American  Business  and  Accounting  Encyclopedia 


Measures  of  Capacity. 


Gill    

Pint    (4    Gills) : 

Quart  (2  Pints)...: 
Gallon  (4  Quarts).; 
Peck  (2  Gallons)..; 
Bushel  (8  Gallons).; 
Quarter  (8  Bushels); 


=1.42    Decilitres 
rO.568  Litre 
:1.136  Litres 
=4.5459631  Litres 
r9.092  Litres 
=  3.637  Decilitres 
:2.909  Hectolitres 


Apothecaries   Measure. 

1  Minim    =0.059  Millilitre 

1   Fluid  Scruple  =L184  Millilitres 

1  Fluid    Drachm     (60 

Minims)    =3.552  Millilitres 

1  Fluid  Ounce   (8 

Drachms)    =2.84123  Centilitres 

1  Pint    =0.568  Litre 

1  Gallon  (8  Pints  or 

160  Fluid  Ounces)..  =4.5459631  Litres 

Avoirdupois  Weight. 

1  Grain    =  0.0648  Gramme 

1  Dram h=  1-772  Grammes 

1  Oz.   (16  Drams) =28.350  Grammes 

1  Pound  (16  Ozs.  or 

7,000  Grains)   =  0.45359243  Kilog. 

1  Stone  (14  Lbs.) =  6.350   Kilograms 

1  Quarter  (28  Lbs)..,  =12.70  Kilograms 
1  Hundredweight  50.80  Kilograms 

(cwt.)    (112  Lbs.)...  0.5080  Quintal 

1  Ton  (20  Cwt.) =r  1.0160  Tonnes  or 

1016  Kilograms 

Troy  Weight. 

1  Grain    =  0.0648  Gramme 

1  Pennyweight       (24 

Grains)     =  1.5552  Grammes 

1  Troy      Ounce      (20 

Pennyweights) :=31.1035  Grammes 

Apothecaries  Weight. 

1  Grain    =  0.0648  Gramme 

1  Scruple  (20  Grains)  =  1.296  Grammes 
1  Drachm    (3    Scru- 
ples)      =  3.888  Grammes 

1  Oz.   (8   Drachms).. =31. 1035  Grammes 


METRIC  TO  ORDINARY. 

Linear  Measure. 

1  Millimetre    (mm) 

(1/1000  m.) =    0.03937  Inch 

1  Centimetre    (1/100 

m.)    =    0.3937  Inch 

1  Decimetre  (l/lO  m.)  =    3.937  Inches 

39.370113  Inches 

1  Metre   (m.)    3.280843  Feet 

1.0936143  Yards 
1  Decametre  (10  m.).=  10.936  Yards 
1  Hectometre  (100  m)  =109.36  Yards 

729 


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American  Business  and  Accounting  Encyclopedia 
1  Kilometre  (1000  m.)=    0.62137  Mile 

Square  Measure. 

1  Sq.  Centimetre  =    0.15500  Sq.  In. 

1  Sq.  Decimetre  (100 

Sq.  Centimetres)   ..=  15.500  Sq.  Ins. 
1  Sq.  Metre  (100  Sq.  10.7639  Sq.  Feet 

Decimetres)    1.1960  Sq.  Yds. 

1  Are   (100  Sq.  M.) ..  =119.60  Sq.  Yardf 
1  Hectare  (100  Ares 

or  10,000  Sq.  M.)...=    2.4711  Acres 

Cubic  Measure. 

1  Cubic  Centimetre...  =  0.0610  Cu.  Inch 
1  Cubic  Decimetre 

(c.  d.)  (1000  Cubic  =61.024  Cu.  Inches 

Centimetres)    =r 

1  Cubic  Metre   (1000  35.3148  Cu.  Feet 

Cubic  Decimetres)=  1.307954  Cu.  Yds. 

Measure  of  Capacity. 

1  Centilitre  (l/lOO 

Litre)    =0.070  Gill 

1  Decilitre  (l/lO 

Litre)    =0.176  Pint 

1  Litrel    =1.75980  Pints 

1  Decalitre  (10 

Litres)    =2.200  Gallons 

1  Hectolitre   (100 

Litres)    =2.75  Bushels 

Weight. 

Avoirdupois. 

1  Milligram    (1/1000 

Grm.)    =  0.015  Grain 

1  Centigram  (1/100 

Grm.)    =  0.154  Grain 

1  Decigram  (1/10 

Grm) =  1.543  Grains 

1  Gramme  (1  Grm.). .=15.432  Grains 
1  Dekagram  (10 

Grm.)    =  5.644  Drams 

1  Hectogram  (100 

Grm.)    =  3.527  Ounces 

1  Kilogram  (1,000        =2.2046223  Lbs.  or 

Grm.)    15432.3564  Grains 

1  Myriagram    (10 

Kiloir.^    =22.046  Lbs. 

1    Quintal  (100  Kilog.)=  1.968  Cwt. 
1  Tonne  (1,000 

Kilog.)   =  0.9842  Ton 

Troy. 

1  Gramme  (1  Grm.)..  0.03215  Oz.  Troy 

15.432  Grains 

Apothecaries. 

0.2572  Drachm 
1  Gramme  (Grm.) —  0.7716  Scruple 

15.432  Grains 

730 


481 


482-484  American  Business  and  Accounting  Encyclopedia  De. 

(482)  DEFERRED  BONDS. 

'See  Bonds. 

(483)  DEFERRED  STOCKS. 

See  Stock. 

(484)     DEFICIENCY  ACCOUNT. 

A  term  used  to  describe  an  account  showing  in  detail  how  the  deficit 
exhibited  by  the  balance  sheet  of  an  insolvent  trader  or  corporation  was 
caused.  Inasmuch  as  a  deficit  is  also  incurred  over  and  above  the  amount  of 
capital  invested,  it  is  apparent  that  Deficiency  account  must  be  charged  with 
both  capital  invested  and  deficit,  and  credited  with  all  losses  and  impairments 
of  values  which  make  up  the  that  amount. 

Or,  it  may  be  that  on  a  given  date  there  was  a  surplus  which  would  also 
have  to  be  accounted  for. 

We  append  a  sample  of  such  an  account. 

STATEMENT  OF  AFFAIRS,  1st  JULY,  1905. 
Liabilities — 

Unsecured  Creditors   $144,480  00 

Fully  secured  Creditors  $11,760  00 

Hold  securities  values  (at  cost)  at 13,150  00 

Estimated  Surplus,  per  contra  , 1,390  00 

Partly  secured  Creditors   188,485  00 

Less  value  of  securities  (estimated  at  cost) 90,490  00  97,995  00 

Liability  on  Bills  Receivable  discounted 29,165  00 

Estimated  to  rank  for  dividend  at  (say) 5,000  00 

Preferential  Creditors  for  salaries  and  wages 4,110  00 

Deducted  per  contra   

$247,475  00 

Assets — 

Cash— At    bankers    $-100  00 

Cash— In   hand    20  00  $420  00 

Office  furniture  (cost  $1,445)  estimated  at 1.000  00 

Accounts    Receivable — Good    6,705  00 

Accounts    Receivable— Doubtful    ($850    estimated 

at)    425  00 

Accounts  Receivable— Bad  ($62,090.00  estd.  of  no 

value)     7,130  00 

Stock    in    trade    Main    Office    (cost    $6,530,    esti- 
mated at)    ,.. 6.000  00 

Stock  in  trade  and  (less  sundry  liabilities)  at 
branches  cost  $171,110,  less  $28,190  estimated 
loss  or  realization   142,920  00 

Buildings,    plant,    steamers,    and    carrying    craft 

craft  (cost  $154,71.1)  estimated  at 54.715  00 

Estimated  surplus  from  securities  (per  contra)...  1.390  00 

$213,575  00 
Less  preferential  creditors   4.110  00 

731 


I ;; 


li 


De.            American  Business  and  Accounting  Encyclopedia 
Deficiency    


484-488 


$209,465  00 
38,010  00 


DEFICIENCY  ACCOUNT,  FROM  1st  JULY.  1900.  TO  1st 

Dr. 

To  Capital— July  1,  1900 

To  Profits,  as  per  books,  viz.-. 

1900-1    *. .   $35,000  00 

1901-2     30,000  00 

Cr. 

By  losses  as  per  books,  viz.: 

1902-3    $500  00 

1903-4     3,000  00 

1904-5     5,155  00 

Drawings  (at  the  rate  of  $22,500  per  annum) 

Bad   debts • 

Estimated  losses  on  realization,  viz.: 

Stock  at  main  office 530  00 

Stock  at  branches  28,190  00 

Branch   buildings,   paint,   etc 100,000  00 

Office   furniture    445  00 

Deficiency    


(485)     DEFICIT. 


$247,475  00 
JULY,  1905. 

$210,000  00 

65,000  00 
$275,000  00 


8,655  00 

112,500  00 

62,690  00 


129,165  00 

$313,010  00 
38,010  00 

$275,000  00 


The  excess  of  expenditure  over  income.  The  balance  of  a  Deficiency 
Account  as  shown  in  illustration — paragraph  484. 

(486)     DELIVERY  RECEIPT. 

A  receipt  for  goods  delivered.  Many  business  houses  have  adopted  a 
system  of  triplicate  forms,  one  copy  being  given  to  the  customer  as  a  bill,  a 
duplicate  to  the  teamster,  who  returns  it  to  the  office  as  a  receipt  for  delivery 
after  the  goods  have  been  delivered,  and  the  third  copy  being  turned  over 
to  the  book-keeper,  from  which  the  amount  of  the  bill  is  posted  to  the  ledger. 


(487)     DEMAND  NOTE. 


Sec  NOTES. 


(488)     DEMURRAGE. 

In  all  bills  of  lading,  and  similar  agreements,  a  clause  is  inserted  provid- 
ing that  a  certain  number  of  days  be  allowed  for  unloading,  or  removing,  the 
cargo,  or  freight,  after  receipt  and,  that  should  said  cargo,  or  freight,  be  de- 
tained after  this  legal  time  the  consignee,  or  freightee,  will  be  liable  for  a 
certain  fixed  charge  per  day.    This  charge  is  termed  "demurrage." 

732 


489-490 


American  Business  and  Accounting  Encyclopedia  De. 

(489)     DEPARTMENTS. 


The  subdivisions  of  a  business  in  which  different  classes  of  goods  are  sold 
or  services  performed. 

(490)  DEPARTMENTALIZATION  OF  GENERAL  STORES. 

In  almost  every  small  town  will'  be  found  that  useful  and  convenient 
institution,  "the  general  store."  In  this  store  may  be  obtained  ever>'thing 
the  ordinary  habitant  desires  to  buy — groceries,  hardware,  boots  and  shoes, 
dry  goods,  furniture,  carpets,  ready-made  clothing,  etc.  The  proprietor  is 
usually  a  man  of  considerable  ability  and  local  influence,  but  he  doesn't  know 
for  certain  which  of  his  departments  is  paying  the  best,  whether  some  depart- 
ment is  being  so  badly  managed  as  to  be  a  steady  loser  or  whether  he  is  get- 
ting all  the  money  his  merchandise  is  sold  for. 

He  probably  doesn't  keep  his  books  by  double  entry  because  it  entails 
too  much  book-keeping,  and  all  the  business  records  are  kept  by  a  young  lady 
who  has  too  much  to  do  already. 

He  keeps  no  record  of  goods  on  hand,  either  in  packages  or  on  shelf,  and 
if  his  sales  clerks  are  in  the  habit  of  carrying  something  home  with  them 
every  night  he  remains  in  blissful  ignorance  of  the  fact. 

He  carries  an  old-fashioned  ledger  for  customers'  accounts,  into  which 
his  book-keeper  posts  each  day  the  items  of  customers'  charges  from  the  credit 
sales  tickets.  His  accounts  payable  are  hung  on  a  file  as  they  come  in  and 
the  due-dates  entered  in  a  diary. 

At  the  end  of  the  year  he  inventories  all  of  his  assets  and  liabilities — 
deducts  the  inventory  of  the  preceding  year,  and  in  this  way  arrives  at  the 
profit  made  on  the  year's  transactions;  but  if  he  has  less  on  hand  this  year 
than  last  he  doesn't  know  how  it  happened  or  what  to  blame  for  it.  There 
is  a  leak  somewhere,  but  he  is  like  a  man  looking  for  a  needle  in  a  haystack 
in  the  dark.  He  is  bewildered,  uneasy,  suspicious,  and  gropes  blindly  for 
omissions  from  his  balance  sheet,  personally  checks  over  his  inventory  of 
merchandise  with  a  great  expenditure  of  time  and  trouble — accuses  his  book- 
keeper of  neglect  to  enter  up  customers'  charges — but  after  all  gets  no  satis- 
faction except  a  confirmation  of  the  fact  that  he  is  losing  money  instead  ol 
making  it. 

A  simple,  economical  and  well  arranged  system  of  accounting  would  put 
an  end  to  all  the  unsatisfactory  conditions  above  described,  and  would  enable 
the  merchant  to  know  at  any  time  just  how  much  he  is  making,  or  losing, 
and  in  which  department  of  his  business.  It  would  also  enable  him  to  ascer- 
tain the  reason  why  he  is  making,  or  losing  money  in  any  department,  or 
why  he  made  money  last  year  in  a  department  and  lost  money  this  year  in 
that  department  . 

It  will  enable  him  to  check  up  his  department  heads,  his  individual  sales- 
men, and  account  for  the  disposition  of  everything  that  has  been  purchased. 

733 


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I 


De. 


American  Business  and  Accounting  Encyclopedia 

purchases. 


490 


In  order  to  be  able  to  ascertain  the  record  of  the  transactions  of  any 
department  it  is  necessary  to  know  what  has  been  purchased  for  each  depart- 
ment and  its  cost.  There  are  several  ways  of  recording  purchases,  but  we 
recommend  the  following  method  as  being  simple,  efficient  and  easily  under- 
stood by  the  person  keeping  the  books : 

Purchase  orders  should  be  written  on  a  special  form  with  carbon  dupli- 
cate, the  latter  to  be  retained,  and  from  it  the  invoices  of  goods  received  will 
be  checked ;  after  which  the  duplicate  should  be  attached  to  the  invoice,  thus 
making  a  complete  voucher,  together  with  the  receipt  for  the  amount  paid, 
or  the  returned  check. 

It  will  be  noted  in  the  form  of  purchase  record  attached  (Diagram  1) 
that  a  separate  column  is  provided  for  each  department  and  a  "total,"  or 
"accounts  payable"  column.  At  the  end  of  each  month  the  footing  of  the 
"accounts  payable"  column  is  to  be  posted  to  the  credit  of  an  accounts  pay- 
able account,  and  the  footing  of  each  departmental  column  will  be  posted  to 
the  debit  of  accounts  to  be  opened  with  each  department  .  These  accounts  will 
be  carried  in  the  general  ledger,  the  arrangement  of  which  will  be  hereafter 
described. 

DUE  DATES. 

At  the  right  of  the  departmental  column  will  be  found  a  record  of  maturi- 
ties, or  due  dates,  so  arranged  that  the  bills  payable  in  any  month  may  be 
seen  at  a  glance  and  their  payment  provided  for. 


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CASH  BOOK. 


In  the  form  of  cash  book  illustrated  will  be  seen  an  "accounts  payable" 
column  on  the  cash  paid  side  .  In  this  column  will  be  entered  all  payments 
made  on  account  of  goods  purchased,  whether  by  cash  or  check,  and  the  total 
of  this  column  will  be  posted  at  the  end  of  each  month  to  the  debit  of  accounts 
payable  in  the  general  ledger,  which  will  then  show  as  follows: 

734 


490-491  American  Business  and  Accounting  Encyclopedia  De. 

ACCOUNTS  PAYABLE  ACCOUNT. 

Dr. 
Jan.  31.     Payments  (from  cash  book) $1,000  00 

Cr. 
Jan.  31.     Purchases  during  month   $1,800  00 

Bal. 
Jan.  31.    Cr $  SOO  00 

This  account,  therefore,  always  exhibits  the  amount  of  accounts  payable 
unpaid,  or  outstanding. 


(491)     DEPARTMENTAL  EXPENSK 

In  order  to  show  the  net  result  of  the  transactions  of  each  department 
it  is  necessary  to  charge  those  departments  not  only  with  goods  purchased 
but  also  with  the  expense  of  running  the  departments.  This  expense  will 
consist  of  direct  and  indirect  charges.  Salesmen's  salaries  and  departmental 
supplies  are  direct  expenses.  Rent,  light,  heat,  janitor  service,  etc,,  are  indi- 
rect expenses. 

indirect  expense. 

This  can,  as  a  rule,  be  equitably  distributed  on  the  basis  of  amount  of 
floor  space  occupied  by  the  department,  but  if  the  proprietor  draws  a  certain 
proportion  of  the  profits  as  a  weekly  or  monthly  salary,  this  salary  should  be 
charged  to  the  department  account  on  the  basis  of  turnover  (actual  cost  of 
goods  sold),  and  the  book-keeper's  salary  should  be  distributed  in  like  man- 
ner. In  this  way  the  grocery  and  hardware  departments,  which  are  usually 
the  busiest  and  require  the  largest  amount  of  supervision,  will  bear  the  largest 
proportion  of  cost  supervision  and  management,  and  of  the  book-keeping. 

All  indirect  expense  of  the  business  will  be  debited,  as  paid,  to  a  general 
expense  account,  and  when  the  adjustments  are  made  this  account  will  be 
credited  and  the  separate  department  expense  accounts  debited. 

The  salesmen's  salaries  will  be  debited  direct  to  the  department  expense 
account  (a  separate  departmental  expense  account  being  carried  with  each 
department  in  the  general  ledger)  each  week  as  paid.  The  indirect  expenses 
will  be  computed  and  charged  to  the  respective  departmental  accounts  at 
the  end  of  the  year,  or  whenever  the  books  are  closed.  (The  average  general 
store  proprietor  will  not  care  to  close  his  books  oftener  than  once  a  year.) 

The  adjustments  of  indirect  expense  will  be  made  by  journal  entry  as 
follows: 

Debits. 

Department  A.     (Groceries)   $200  00 

B.     (Hardware)     160  00 

"  C.     (Boots  and  Shoes)    140  00 

*  D.     (Dry  Goods)    200  00 

*•  E.     (Furniture  and  Carpets)    150  00 

"F.     (Clothmc)     150  00 

735 


In 


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491  American  Business  and  Accounting  Encyclopedia 

Credits. 
Rent    $1,000  00 

The  other  indirect  expense  will  be  distributed  in  a  similar  manner,  it 
being  understood  that  if  separate  accounts  are  kept  with  any  particular  indi- 
rect expenses  those  accounts  will  be  credited,  and  if  the  charges  are  all  in- 
cluded ixi  a  general  expense  account,  general  expense  account  will  be  credited. 

sales. 

To  complete  the  departmental  statistics  it  is  now  necessary  to  arrange  to 
give  each  department  credit  for  the  amount  of  its  sales. 

CASH  sales. 

With  regard  to  the  cash  sales,  the  merchant  has  the  choice  of  two  meth- 
ods, the  use  of  the  cash  register,  or  the  cash  sales  ticket  system. 

CASH  REGISTERS. 

The  installation  of  cash  registers  for  each  department  is  somewhat  expen- 
sive. In  many  cases  they  are  used  in  the  grocery,  hardware  and  dry  goods 
departments,  while  the  cash  sales  ticket  system  is  retained  in  the  others. 

A  retail  establishment,  or  general  store,  can  use  the  multiple  drawer 
cash  register  system  very  economically  in  the  saving  of  time,  viz.,  waiting 
for  change,  possible  stoppage  of  the  entire  cash  system  (not  infrequently  for 
a  whole  day),  busy  cashier  or  many  other  such  reasons.  It  is  a  great  improve- 
ment over  the  best  carrier  system  and  this  saving  of  time  allows  of  more 
trade  being  taken  care  of  and  does  away  with  any  impatience  on  the  part  of 
the  customer  occasioned  by  these  delays.  The  operating  expense  of  such  a 
system  is  much  less,  doing  away  with  the  cashier,  no  power  cost  to  operate 
motors  or  blowers,  and  no  repair  costs  such  as  found  with  the  carrier  systems. 

In  installing  such  a  system  it  is  first  necessary  to  plan  out  your  depart- 
ments, studying  out  what  register  could  be  used  to  advantage  in  each  par- 
ticular department,  for  instance,  the  grocery  department  employs  at  all  times 
three  salesmen  and  in  the  busy  season  possibly  two  additional.  For  this 
department  you  would  want  a  five  multiple  drawer  register,  and  so  on  through 
the  entire  store;  it  is  always  better  to  provide  a  little  more  accommodation 
than  is  absolutely  necessary  for  any  change  that  might  possibly  be  made  in 
a  department. 

When  more  than  one  department  is  using  registers  it  is  customary  to 
number  each  consecutively,  as  groceries  department  number  one,  hardware 
department  number  two,  and  so  on;  these  should  be  placed  consecutively, 
which  would  make  the  work  of  taking  details  much  simpler. 


736 


De. 


American  Business  and  Accounting  Encyclopedia 


491 


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REFUND  VOUCHER 
Front.  Reterw. 


REFUND  VOUCHES 

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CLERK'S  DAILY  STATEMENT 


The  clerk  will  first  remove  the  •mount  ol 
change  (  10.00  )  placed  in  the  drawer  at  the 
beginning  of  the  day's  business,  putting  it  in  the 
smallest  purse  and  list  the  balance  as : 


Cash  in  drawer 

Mo  of  dipt 

1 

Paid  out        


Cash  Sales. 


Credit  Sales. 


Noofallpt 

4 


Total  Sales. 


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I  hereby  certify  the  above  is  correct  to  the 
best  ef  my  knowledge. 

Reg.  No Letter No 

Sept.  10  _ 

Date 190  * 


Fig.  7. 


Fxc.  6 


7.38 


491 


American  Business  and  Accounting  Encyclopedia 


De. 


WHEN   CREDIT  TICKETS  ARE  USED. 

At  the  close  of  each  day  a  recapitulation  must  be  made  of  the  credit 
tickets  of  each  department,  the  footings  made,  and  the  totals  entered  on  a 
daily  summary  book;  or,  the  totals  may  be  posted  direct  to  the  credit  of  the 
departmental  sales  accounts  in  the  general  ledger,  a  separate  sales  account 
being  opened  there  with  each  department.  If  a  daily  summary  book  is  used 
the  totals  are  posted  at  the  end  of  each  month  from  this  book  to  the  credit  of 
the  departmental  sales  accounts. 

CASH  BOOK. 

In  the  cash  book,  form  of  which  is  submitted,  it  will  be  noted  that  separate 
columns  are  provided  for  the  entry  of  receipts  from  customers  who  have 
made  their  purchases  on  credit,  and  receipts  from  cash  sales.  The  reason  for 
providing  the  separate  columns  for  accounts  receivable  is  explained  later  on. 
The  totals  of  the  departmental  cash  sales  columns  will  be  credited  to  the 
departmental  accounts  in  the  general  ledger  at  the  end  of  each  month. 

TRADING  ACCOUNT. 

We  have  now  provided  for  the  purchases,  the  expenses  and  the  sales  of 
each  department,  and  are  ready  to  assemble  these  items  in  a  trading  accounts 
that  shall  show  exactly  how  much  a  department  has  made,  or  lost,  in  a  given 
period.     This  trading  account  will  be  arranged  as  follows: 

GROCERY  DEPARTMENT  TRADING  ACCOUNT. 
For  year  ending  December  31,  1906. 

Debits. 

Merchandise  Inventory,  Jan.  1,  190G $  3,790  00 

Purchases  during  year  24,050  00 

Direct   expense    4  000  00 

Indirect   expense    2,750  00 

Credits. 

Sales— Credit     $19,800  00 

Sales — Cash     20.400  00 

Merchandise  Inventory,  Dec.  31,  190G 4,250  00 

Department    Profit    9,860  00 

$44,430  00    44,450  00 


' 


ii 


I 


The  department  profits  are  transferred  by  journal  entry  at  the  end  of 
each  year  to  the  general  profit  and  loss  account,  which  will  then  show  the 
total  revenue  derived  from  the  business. 


739 


|i"5't 


.»' : 


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11 


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De.  American  Business  and  Accounting  Encyclopedia  491-492 

DEPARTMENTAL  EXPENSE. 

The  proper  basis  of  comparison  of  expense  of  running  a  department,  or  a 
business  is  not  the  gross  sales,  but  the  actual  cost  of  the  goods  turned  over. 
If  tcos^s  ^oS)  to  sdl  ?100.000  worth  of  goods  last  year,  it  should  not  under 
ordinary  circumstances,  cost- $6,000  to  sell  the  same  amount  of  goods  this  , 
year  If  the  books  sho;  that  the  cost  of  running  a  department  m  proportion 
C  the  volume  of  business  done  is,  say  20  per  cent  higher  this  year  than  last, 
here  shol  be  some  good  reason  for  such  an.  increase  and  consequent  diminu- 
tion o  profit  It  may  be  accounted  for  by  bad  management,  or  by  the  cut  mg 
of  prSut  whatever  the  cause,  it  should  be  investigated  and  an  explanation 

found. 

TURNOVER. 

The  cost  of  goods  turned  over  is  found  as  follows: 

GROCERY  DEPARTMENT. 

Turnover  for  year  ending  Dec.  31,  1906. 

..        ,  T         i     -lonr  $  3.790  00 

Merchandise  Inventory,  Jan.  1,  19Ub 24,050  00 

Purchases 6J50  00 

Expense     ,        , 

$34,590  00 

Less  Merchandise  Inventory,  Dec.  31,  1904 •     ^>^^Q  Q° 

.  ,  $30,340  00 

Cost  of  goods  turned  over 

Percentage  of  Indirect  Expense  computed  on  Turnover 

Percentage  of  Direct  Expense  computed  on  Turnover 

Percentage  of  Gross  Profit  computed  on  Turnover 

(Gross  Profit  is  the  balance  of  the  Trading  account  exclud- 
ing items  of  indirect  expense,  viz.:  $12,610). 

Percentage  of  Net  Profit  computed  on  Turnover 

As  this  comparative  record  and  the  percentage  will  be  needed  only  once 
a  yefr  it  will  be  an  easy  matter  to  rule  up  a  sheet,  exhibiting  all  the  depart- 
ments  one  underneath  the  other,  and  having  money  columns  in  which  to 
enter  the  amounts,  etc.,  year  by  year. 

(492)     SECTIONALIZATION  OF  LEDGERS. 

The  system  of  accounting  here  described  provides  for  a  sectionalization 
of  ledgers,  i.  e..  accounts  receivable  will  be  carried  as  a  separate  ledger  section 
and  all  special  personal,  representative,  departmental  and  nominal  accounts 
will  be  carried  in  a  general  ledger.     In  the  latter  the  accounts  should  be 
arranged  after  the  following  order: 

First— Special  Personal  Accounts. 
Second— Asset  Accounts: 
Cash 

740 


492-493  American  Business  and  Accounting  Encyclopedia  De. 

Bank 

Accounts  Receivable  Account 

Petty  Accounts  Receivable 

Bills  Receivable 

Real  Estate 

Furniture  and  Fixtures 

Interest  Receivable. 

• 

Third — Liability  Accounts: 

Accounts  Payable  * 

Bills  Payable 

Reserves  for  Depreciation,  ef. 
Partners'  Investment  Accounts. 

Fourth — Department  Trading  Accounts: 

Department  A.  Purchases:  Expense;  Sales 
Department  B.  Purchases;  Expense;  Sales 
Department  C.  Purchases;  Expense;  Sales 
Department  D.  Purchases;  Expense;  Sales 
Department  E.  Purchases;  Expense;  Sales 
Department  F.  Purchases;  Expense;  Sales 

Fifth — Expense   Accounts: 
Insurance 
General  Expense 
Advertising 
Etc. 

From  this  ledger  the  monthly  trial  balance  will  be  obtained. 

(493.     CUSTOMERS'  ACCOUNTS. 

A  labor-saving  system  for  dealing  with  accounts  receivable  will,  undoubt- 
edly, be  welcomed  by  those  who  have  been  accustomed  to  carrying  individual 
accounts  with  customers  in  ledger  form. 


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741 


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De. 


American  Business  and  Accounting  Encyclopedia 


493 


We  recommend  a  duplicate  bill  and  charge  system,  using  a  statement 
blank  similar  to  the  attached  sample  (Fig.  8).  It  will  be  noted  that  this  is  a 
folded  blank  intended  for  use  in  a  loose  leaf  binder,  and  that  it  provides  foi 
a  second  copy  to  be  made  by  means  of  carbon  paper. 

In  operating  this  system  the  book-keeper  would  start  a  new  blank  the 
first  of  each  month  for  every  customer  having  a  charge  account.  These  blanks 
would  be  arranged  alphabetically  in  a  loose  leaf  binder,  and  where  purchases 
are  made  charges  would  be  entered  direct  on  the  statement  blank  form  the 
sales  tickets.  At  the  end  of  the  month  there  would,  therefore,  be  a  complete 
statement  in  duplicate;  the  original  to  be  mailed  to  the  customer  and  the 
duplicate  to  be  retained  as  the  office  record. 

It  would  be  unnecessary  to  post  the  daily  sales  to  the  customers'  accounts 
each  day;  it  would  be  sufficient  to  post  the  total  amount  at  the  end  of  each 
month.  This,  of  course,  refers  to  those  customers'  accounts  it  was  considered 
desirable  to  carry  in  a  ledger. 

PETTY  accounts  RECEIVABLE. 

For  petty  accounts  usually  settled  within  the  month  and  not  considered 
necessary  to  carry  in  a  ledger,  the  above  described  method  would  also  be 
found  a  great  labor-saver.  The  sheets  for  those  accounts  could  be  carried  in 
a  separate  binder;  then,  at  the  end  of  the  month,  or  at  any  other  time,  instead 
of  having  one  copy  of  the  charges,  the  book-keeper  would  have  it  in  duplicate, 


493  American  Business  and  Accounting  Encyclopedia  De. 

and  could  send  the  statement  to  the  customer.  Then,  too,  as  payments  are 
made  the  original  would  be  receipted  and  handed  to  the  customer,  while  the 
duplicate  would  be  used  as  a  cash  ticket  to  be  treated  the  same  as  the  sales 
tickets  for  the  day. 

In  order  to  keep  proper  track  of  the  regular  accounts  receivable  and  also 
the  received  side  of  the  cash  book,  as  per  illustration  (Fig.  9).  The  totals 
of  these  columns  are  credited  at  the  end  of  each  month  to  accounts  receivable 
account  and  petty  accounts  receivable  in  the  general  ledger.  The  total  debits 
to  customers  in  both  sections  will  be  debited  to  these  accounts  so  that  .as 
explained  in  relation  to  accounts  payable  account,  the  balance  of  the  accounts 
receivable  account  would  always  show  customers'  balances  unpaid,  or  out- 
standing. 

The  following  is  an  illustration  of  the  accounts  receivable  account  as  it 
will  appear  in  the  general  ledger: 

Dr. 
Jan.  31,  Sales  to  customers $7,500  00 

Cr. 
Jan  31,  Cash  and  other  credits  to  customers $5,800  00 

Bal. 
Jan.   31,   Dr $2,700  00 

The  following  is  a  sample  of  the  trial  balance: 


I 


I 


TRIAL  BALANCE  AS  TAKEN  FROM  THE  GENERAL  LEDGER. 


Proprietors*  Personal  Account: 

Cash 

Bank 

Accounts  Receivable  Account 

Petty  Accounts  Receivable  Account 

Bills  Receivable 

Real   Estate 

Furniture  and  Fixtures 

Interest  Receivable 

Accounts  Payable 

Bills  Payable 

Reserve  for  Depreciation 

Partners'  Investment  Accounts 
Department  A. — Purchases 
Department  A. — Expense 
Department  A. — Sales 
Department  B. — Purchases. 
Department  B. — Expense 
Department  B. — Sales. 
Department  C. — Purchases 
Department  C. — Expense 
Department  C. — Sales 
Department  D. — Purchases 
Department  D. — Expense 
Department  D. — Sales 
Department  E. — Purchases 
Department  E.^Expense 
Department  E. — Sales 
Department  F. — Purchases 


Dr. 


Cr. 


743 


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American  Business  and  Accounting  Encyclopedia 

Department  F. — Expense 
Department  F. — Sales 
Insurance 
General  Expense 
Advertising 


493-494 


BALANCE  SHEET. 


Assets         Liabilities 


Cash 
Bank 

Accounts  Receivable  Account 

Petty  Accounts   Receivable  Account 

Bills  Receivable 

Real  Estate 

Furniture  and  Fixtures 

Interest  Receivable 

Accounts  Payable. 

Bills  Payable 

Reserve  for  Depreciation 

Partners*  Investment  Accounts 


PROFIT  AND  LOSS  ACCOUNT. 

Debits. 

Insurance 

General  Expense 

Advertising 

Credits. 
Net  Profit— Department  A. 
Net  Profit — Department  B. 
Net  Profit— Department  C. 
Net  Profit— Department  D. 
Net  Profit — Department  E. 
Net  Profit— Department  F. 
Interest  on  Investments. 

The  form  of  Salary  Book  illustrated  (Fig.  10)  will  be  found  convenient 
where  employes  purchase  merchandise  of  the  house,  or  receive  advances  on 
account  of  salary. 


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(494)     DEPARTMENT  DRUG  STORE. 

The  business  is  divided  into  eight  departments,  namely,  Drugs,  Cigars, 
News,  Flowers,  Soda,  Lobby,  Farm  and  Five  Points.     The  name  of  each 

744 


494-495 


American  Business  and  Accounting  Encyclopedia 


De. 


department  designates  the  general  character  of  merchandise  sold  in  the  depart- 
ment, with  the  exception  of  Lobby,  Farm,  and  Five  Points. 

Lobby  is  a  designation  given  the  cigar  stand  in  the  lobby  of  the  building 
in  which  the  main  store  is  located. 

Farm  is  applied  to  the  greenhouses  and  kindred  equipment  used  in  the 
production  of  plants  and  flowers,  which  production  largely  supplies  the  flower 
department. 

Five  Points  is  a  branch  drug  store,  in  another  part  of  the  city,  the  locality 
being  known  as  "Five  Points." 


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Forms  1  and  2 


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(495)     COMBINATION  SALES  RECORD,  MONTHLY   STATEMENT 

AND  CUSTOMERS'  ACCOUNT. 

Forms  I  and  2  are  sheets  of  loose  leaf  sales  book.    Charges  are  written 

up  daily  in  the  sales  book  with  carbon  paper  between  the  forms.     At  the 

close  of  the  month's  business  each  individual  sales  account  is  totaled  and 

the  total  posted  to  the  ledger.    Ledger  balance,  if  any,  is  added  or  deducted  on 

.Form  1  and  an  itemized  bill  is  ready  for  mailing  or  collector. 

The  method  has  several  advantages ;  it  permits  of  supplying  at  any  time 
during  the  month  of  an  itemized  statement  immediately  upon  request.  It 
permits  of  prompt  mailing  or  giving  to  collector  of  itemized  accounts  at  the 
end  of  each  month.  A  duplicate  copy  is  retained.  But  one  posting  of  charges 
to  an  individual  per  month  is  required.  As  the  charges  are  written  up  distri- 
bution is  made  to  the  proper  departments,  in  the  columns  provided.  These 
columns  are  totaled  and  the  department  credited  accordingly. 

No  distribution  is  provided  for  Soda,  Farm  or  Five  Points  for  the  follow- 
ing reasons: 

Soda  department  is  a  strictly  cash  business  and  therefore  has  no  credit 
sales. 

Farm  has  no  charges  except  through  the  flower  department.  Five  Points 
keep  a  separate  sales  book  and  ledger. 


745 


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American  Business  and  Accounting  Encyclopedia 


495 


Mc-oth  of-                   ho 

CASH 

L.     Debit     CreJ.f 
•Accoyrjt                p    p^^^^        bUb^r. 

jollcctic 

CobK  Cos 

')       birvds 

Ci^ors 

NffWS 

* 

•i    br     Cr. 

br     Cr 

br     C. 

^, 

foroyAKt   Tor^nrJ 

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1 

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Ood^ 

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The  Fn 

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ints  IGffnl  E. 

%\>cr)i«    Int  nod  b'SctJ 

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r        br       Or         br    \ 

Cr.        br 

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Font  S 
CASH    BOOK   AND   JOURNAL. 

Form  3  is  a  cash  book,  showing  the  distribution. 

The  columns  "Collections,"  "Cash  Sales"  and  "Cash  Purchases"  are  in- 
formation columns.  The  total  of  each  day's  collections  is  extended  to  that 
column  and  carried  forward  from  day  to  day,  to  the  end  of  the  month,  making 
it  possible  to  see  at  a  glance  how  collections  are  coming  in  or  make  compari- 
sons. 

The  total  of  each  day's  cash  sales,  in  all  departments,  is  extended  to 
"Cash  Sale"  column  and  the  total  of  the  columns  at  the  end  of  the  month 
gives  the  cash  sales  for  the  month.  The  same  is  true  of  "Cash  Purchase" 
column.  The  distribution  of  cash  items,  whether  debit  or  credit,  needs  no 
explanation.  At  the  end  of  each  month  the  distribution  columns  are  totaled 
«ind  posted  to  the  proper  accounts.  But  one  posting  of  distributed  items  per, 
month  to  each  department  is  necessary. 

Form  4  is  journal  showing  like  distribution  as  cash  book.  "Credit  Sales" 
and  "Credit  Purchases"  columns  are  information  columns.  Each  day  the 
register  showing  of  credit  sales  in  all  departments  is  totaled  and  entered  in 
"Credit  Sales"  column.  This  permits  the  knowledge  of  the  amount  of  mer- 
chandise going  out  on  credit  at  any  period  during  the  month.  Of  course, 
the  sales  book  gives  the  total  at  the  end  of  month  and  the  postings  are  taken 
from  that  source. 

746 


495 


American  Business  and  Accounting  Encyclopedia 


De. 


Mo,tt,»f             no            JOi^KNAL 

bny 

AccoDpt 

L 
F. 

beb.t 

Credit 

Credit 

Cre 
C|)ns 

d.t 

bry^S 

Oi^nri 

Newi 

«•*     br     Cr 

br     Cr 

br     Cr 

fbroo^S^'    forwnrtJ 

1 

2 

i 

4 

S 

& 

7 

. 

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J 

Fore  4  Left  Hand  Page 


joyaNAL 

r  lower  5 

Sodn 

Lobby 

T)je  rnrt»\ 

Five  Poii^ti 

Gei)'\L*\iCt)-,e 

lijto^d  b<4ct 

br 

Cr 

br 

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br 

Cr 

br 

Cr 

br 

Cr 

br 

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i 

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a    _H 

ForiM  4  Right  Hand  Page 


All  time  purchases  are  entered  in  "Credit  Purchase"  column  the  total  at 
the  end  of  the  month  showing  the  credit  purchases  for  the  month. 

But  one  posting  for  each  department  per  month  is  required  on  the  dis- 
tributed items  in  the  journal. 


MiSCE.LLANEOy.';    SHFFT    MD 
■P) — 

\J 

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747 


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De. 


American  Business  and  Accounting  Encyclopedia 


SUNDRY  accounts. 


495 


Form  5  is  miscellaneous  page  of  loose  leaf  ledger.  Customers  whom  we 
estimate  will  not  purchase  again  or  purchase  but  seldom  are  placed  in  mis- 
cellaneous to  avoid  giving  an  entire  page  uselessly.    Should  they  become  con- 


TRANSCRIPTOF  [i2?5INE.S5 

AT 


riVE.  POINTS      STOf\E:        for    Vv><-K    L^d.r)^,    5ntur.j^y,. 


CASH  aLCLIPTS 


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SALLS    ICOLLLCTION 


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CASH   S  A LLb^  ;">"■"■" 


To  to  I. 


COLUtCT.orsjsC'""'" 


1  O^crft*^^ 


C(\LDlT    SALLS 


Si/n^o^ 


FrT^ft 


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CaLDiT  5ALE 5 •!'''>""'*' 


ACC02;NTS    atCElVAIbLL 


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AJJCrfd.t'Snlo   for   W77 


DLDl^CT 


ToTol 


G<*n»crion>    by  Office. 


TSToT 


Ot/T>Tnr)<j,,^^  Accol^^)t^    tl^is     DnTf 


ACCOUNTS    fVECtlVAl^LLJI?"''"'"' 


SZ'C  CtSTlONS" 


OrCHIM  L  PA^KLR. 

r>ir\r-iiNCHAP1.  A^.ABA^'A 


M^r),-.Ar 


Form  6 


stant  or  frequent  buyers  a  transfer  is  made  to  a  page. 


weekly  reports. 

Form  6  is  the  weekly  report  from  Five  Points  store,  covering  both  cash 
and  credit  sales  and  presenting  clear  and  valuable  statistics  in  regard  to 
amount  and  class  of  business  done,  the  disposition  of  cash  receipts,  the 
condition  of  Accounts  Receivable  Accounts,  etc.  This  is  a  good  branch  store 
report  form. 

Form  7  is  the  weekly  farm  report  from  which  it  will  be  noticed  that  the 
produce  is  sold  direct  from  the  greenhouses  as  well  as  in  the  stores.  On  the 
back  of  this  form  provision  is  made  for  an  itemized  report  of  the  farm  pay 
roll  for  the  week,  and  the  receipts  of  the  employes  for  their  wages,  all  O.  K.*d 
by  the  superintendent. 

It  will  be  seen  from  this  explanation  and  the  forms  attached  thereto  that 
each  department  account  is  in  reality  a  trading  account,  to  which  has  been 


748 


II 


495 


American  Business  and  Accounting  Encyclopedia 


De. 


Tor  WccVf    Lr)J'TiJ>.      Sntvdo 


WE£  KLy_EM!rL  REPORT 


iL 


J'^0. 


atctiPTs 

Cn^S  Of)  (jngd    Init  rfhort 


-& 


'V-'lut 

^vlS  t'ccg'VftJ  fo''   Pny  Roll 


osK  rc*cf«ivgj   orv    nccotfr^t    Clt>i^ii.cd  on  hoc k  I 


Titnl 


tXPtNOlTyf^tS 


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<y«r)    Iji-^t) 


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[\Et1Ar\KS. 


"Iptol  Soles 


Eo>k   Purchaser 


^^^^^^^Ptf^^hr^r^^^^_^ 


-  Jz/brrif^Tcf^elff)^ 


Form  7 


debited  all  purchases,  pay  rolls,  and  proportion  of  general  expense  Delonging 
to  it,  and  to  which  has  been  credited  all  cash  and  credit  sales  eftected. 

The  Comparative  Balance  Sheet  and  profit  and  loss  account  also  sub- 
mitted will  thus  be  easily  understood  and  appreciated,  as  it  contains  a  sum- 
mary of  everything  worth  knowing  in  the  business.  The  departmental  trad- 
ing, or  profit  and  loss  accounts,  exhibit  the  total  transactions  at  both  main 
store  and  Five  Points,  and  the  footing  of  the  net  profit  made  in  each  depart- 


CONSOLIDATED  bALANCL  SHttT  AND  CONPAaATlVE   STATLMENT 

accoi;nts 

Die   C)l     i'=)oS 

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Accoynts   l\eceivoble                                                                   .5  I  o*) 
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2.5                1 

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Form  8 


749 


De. 


American  Business  and  Accounting  Encyclopedia 


495-497 


ment  must  agree  with  the  surplus  shown  on  the  balance  sheet.    This  surplus 
is,  of  course,  afterwards  credited  to  the  investments  accounts  of  J.  L.  Parker. 

The  same  form  of  Consolidated  Sheet  and  Comparative  Statement  may 
be  used  for  the  purpose  of  obtaining  weekly  totals,  the  only  drawback  being 
that  it  is  necessary  to  carry  either  a  book  inventory  or  to  take  an  actual  inven- 
tory. This  feature  of  an  accounting  system  must  be  governed  by  circum- 
stances. 


(496)     DEPARTMENT  STORE  CLASSIFICATION. 


No 

.     Department. 

27 

Men's   Furnishings 

1 

Grocery 

28 

Trunks   and   Suit   Cases 

Bakery- 

29 

Hats  and  Caps 

Candy 

30 

Barber  Shop 

4 

Meats 

31 

Men's  Shoes 

5 

Crockery  and  Hardware 

32 

Drugs 

6 

Restaurant 

34 

Patterns 

8 

Silks 

35 

Optical 

9 

Dress  Goods 

36 

Women's  Cloaks  and  Suits 

11 

Wash  Goods 

37 

Millinery 

12 

Linens 

38 

Muslin  Underwear 

Art   Goods 

39 

Infants'  Wear 

14 

Underwear  and  Hosiery 

40 

Women's  Shoes 

15 

Notions 

41 

Men's  and  Boys'  Clothing 

Dress  Trimmings 

42 

Women's  Waists 

17 

Toilets 

43 

Sporting  Goods  and  Toys 

Stationery 

44 

Photograph  Studio 

Cutlery 

45 

Carpets  and  Rugs 

19 

Jewelry 

46 

Lace  Curtains  and  Draperies 

21 

Leather  Goods 

47 

Wall   Paper 

23 

Ribbons 

48 

Furniture 

24 

Laces  and  Embroideries 

49 

Cut  Glass 

Handkerchiefs  and  Neckwear 

50 

Floral  Dept. 

Veilings 

51 

Corsets 

25 

Women's  Gloces 

52 

Music 

(497)     USEFUL  FORMS  FOR  LARGE  DEPARTMENT  STORES. 

The  accounting  necessary  for  the  larger  department  stores  to  be  found 
in  cities  of  the  calibre  of  New  York,  Boston  and  Chicago  is  necessarily  very 
expensive  and  complicated,  calling  for  a  large  number  of  books  and  forms 
which  are  entirely  unnecessary  in  smaller  businesses.  In  some  of  these  de- 
partment stores  the  purchases  are  so  large  and  varied  that  the  purchase 
accounts  will  number  several  thousand  in  number,  calling  for  the  use  of  per- 
haps five  or  six  separate  purchase  ledgers,  usually  divided  alphabetically. 
This  necessitates  the  use  of  as  many  columns  in  cash  book  and  journal,  so 
that  each  ledger  may  be  proved  separately  on  the  controlling  principle. 

Some  of  the  forms  used  in  these  stores  are  illustrated  below. 

When  goods  on  consignment  are  returned,  it  is  necessary  to  make  a 
memorandum  of  same  in  a  special  return  and  allowance  book. 

This  is  a  department  summary  book,  in  which  purchases  are  distributed 
to  the  various  departments. 

750 


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MANUFACTURING  ANALYSIS  BOOK. 


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DAILY  HAIL  AND  STORES  SALES  RECORD. 
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MANUFACTURING  PURCHASE  SUMMARY. 
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SUMMARY  OF  CASH  TICKETS. 


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remittance  blank. 

When  these  blanks  have  been  filled  out  they  are  handed  to  the  clerk  who 
makes  out  the  checks. 

SUNDRY  PURCHASE  TICKET. 

This  is  used  as  a  record  of  purchases  made  from  other  department  stores 
of  articles  not  on  hand. 

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COST  SYSTEM  FOR  WORK  ROOM. 

As  all  the  manufacturing  departments  employ  the  same  accounting  sys- 
tems with  but  little  change,  which  is  occasioned  by  the  different  lines  manu- 
factured, the  explanation  of  one  will  therefore  practically  explain  them  all. 

In  the  millinery  room,  which  we  will  call  "manufacturing  department  No. 
8,"  the  trimming  of  hats  is  carried  on.  When  an  order  is  received  from  the 
department,  whether  "stock"  or  "special,"  and  whereon  the  style  is  specified, 
or  as  in  the  case  of  "stock"  orders,  left  with  the  trimmer,  a  manufacturing 
ticket  is  at  once  given  out.  An  illustration  of  this  form  is  herewith  shown. 
The  manufacturing  number  is  the  number  of  the  hat — the  future  "stock  num- 
ber." The  "running"  number  is  given  it  on  its  return  to  the  desk  from  whence 
it  was  given  out,  and  is  practically  the  entry  number.  By  way  of  illustration, 
the  ticket  is  filled  out  in  an  abbreviated  form  and  is  practically  self-explana- 
tory. It  will  be  noticed  that  "outside  goods"  are  apparently  made  up  at  their 
cost  price,  but  as  a  matter  of  fact,  a  small  percentage  has  been  added  on  to 
defray  cost  of  handling — usually  5  per  cent.  From  all  house  materials,  a  flat 
discount  (called  the  manufacturing  discount)  is  deducted,  in  order  to  bring 
the  goods  down  to  their  approximate  cost  with  5  per  cent,  added  as  in  the 
case  of  outside  goods. 

The  data  in  the  lower  portion  is  obtained  from  a  time  ticket  issued  with, 
and  attached  to  the  manufacturing  ticket,  whereon  the  time  given  out  and 
time  returned  is  noted  with  the  names  of  the  different  "hands"  hrough  which 
the  hat  finds  its  way,  by  the  forelady  in  charge  generally.    The  price  of  the 

755 


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497 


labor  is  not  by  any  means  the  actual  cost  per  hour,  but  an  arbitrary  price  set 
for  the  particular  branch  of  work  it  affects. 

On  the  return  of  the  finished  hat  to  the  desk,  the  ticket  is  entered  in  a 
"cost  journal,"  ruled  as  follows : 

A  "stock  ticket"  reciting  the  number,  the  article  and  the  total  cost  is 
then  attached,  and  with  the  hat  is  sent  to  the  sales  department,  where  the 
selling  price  is  put  on.  The  manufacturing  ticket  is  retained  in  the  work- 
room and  the  stock  ticket  is  sent  to  the  auditing  department  for  the  purpose 
of  debiting  the  sales  department,  and  entering  by  the  manufacturing  audit 
clerk,  as  will  be  later  explained  under  that  heading. 


II 


I 


CASH   TICKETS. 

These  tickets  are  usually  made  in  pads  of  fifty  and  are  so  arranged  that 
a  carbon  lies  between  the  original  and  its  duplicate.  Another  style  that  has 
found  much  favor,  arranges  these  tickets  in  a  continuous  strip,  alternately 
coupon,  original  and  duplicate.  In  this  style,  the  detaching  of  a  "set"  of 
tickets  (coupon,  original  and  duplicate)  brings  the  carbon  leaf  automatically 
over  the  next  duplicate,  the  mere  closing  of  the  covers  of  the  book  folding 
the  original  and  coupon  over  it.  The  tickets  are  numbered  consecutively 
from  1  to  50,  the  tickets  of  each  set  (coupon,  original  and  duplicate)  bearing 
the  same  numbers,  as  shown  in  the  illustration. 

They  are  sometimes  secured  in  an  adjustable  cover  in  which  the  pad  or 
strip  is  securely  held  by  a  clasp,  but  often  a  cheap  permanent  cover  is  used, 
and  for  certain  reasons  is  preferred  by  some  stores. 


CASH  TICKETS 


AiAC/XCO^  Ct/JOO/V 


Sold    b 


Y 


SO 


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M 


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DepooTf ' 


WECnSLER  e/ABRAI-IAM. 

BROOKUTM. 
iTCMs  OM  oVnen  side. 


756 


497-500 


American  Business  and  Accounting  Encyclopedia 


Ee. 


In  the  back  of  each  book  is  a  summary  of  sales  printed  on  the  inside  back 
cover,  where  permanent  covers  are  used,  on  loose  cards  where  the  adjustable 
covers  find  favor.  The  former  method  is  the  more  commendable,  as  in  the 
latter  the  loose  cards  are  ofen  lost.  The  accompanying  illustration  gives 
the  form. 


(498)     DEPARTMENT  AND  INTER-DEPARTMENT  ORDERS. 

In  general  all  orders  should  be  issued  by  someone  having  authority. 
Nothing  creates  confusion  in  the  business  more  than  cases  where  orders  are 
issued  by  persons  without  that  proper  acknowledged  authority,  which  guaran- 
tees that  the  orders  will  be  carried  out  and  that  conflictins:  orders  be  avoided. 
Department  orders  should  be  issued  only  by  the  head  of  the  department  to 
his  subordinates;  inter-department  orders  should  be  issued  by  the  same  de- 
partment head  to  the  head  of  the  department  which  is  to  perform  the  order. 
Nothing  tends  to  do  away  with  the  best  devised  system  more  than  lack  of 
such  a  scheme. 

It  should  be  recognized  by  every  department  manager  that  one  of  his 
first  duties  is  to  get  the  best  out  of  his  subordinates.  He  should  be  glad  to 
see  and  to  encourage  any  ambitious  man  in  his  department,  but  he  should 
ulways  watch  and  control  him,  and  never  allow  or  acknowledge  and  self- 
established  authority  on  the  part  of  the  employe.  Ambition  is  only  a  part  of 
ihe  struggle  for  existence  and  a  main  factor  in  the  progress  of  the  whole 
world,  but  without  such  control  on  the  part  of  the  manager,  ambition  is  only 
likely  to  change  to  that  kind  of  jealousy  that  shall  undispulably  create  all 
kinds  of  confusion  and  do  away  with  that  discipline  which  is  the  only  guar- 
antee that  the  transactions  of  the  department  or  the  business  will  be  carried 
on  in  the  proper  way,  and  the  work  and  ambition  of  the  subordinates  be  used 
and  accumulated  to  promote  the  work  and  the  interests  of  the  department. 

Another  question  is  what  form  shall  the  order  have,  oral  or  written  form? 
The  superiority  of  the  latter  is  as  evident  as  the  defects  of  the  former,  and 
yet  it  is  impossible  in  every  case  to  use  the  written  order  form.  An  illustra- 
tion will  show  this.  As  advantageous  it  will  be  to  use  the  written  form  where 
an  order  is  given  by  the  sales  department  to  the  purchasing  department  to 
order  a  certain  supply  of  a  certain  kind  of  merchandise,  as  foolish  will  it  be 
to  use  the  same  form  when  a  book  or  a  catalog  is  wanted,  supposing  the  order 
can  be  given  directly  and  carried  out  right  away.  But  that  is  no  reason  why 
the  system  of  using  the  written  order-form  should  not  be  established.  Com- 
mon sense  will  do  away  with  every  doubt.  Presence  of  a  written  order  always 
puts  the  evidence  of  guilt  or  negligence  on  the  right  party. 

(499)  DEPARTMENT  STORE  CARD  BANK  LEDGER. 

(500)  DEPOSIT. 

Sec  Bank  ACCOUNT— Check  Register. 

757 


\ 


I 

I 

i  i 


CONTENTS  OF  VOL.  3 


327  BY 

328  Call  Register 

328A  Calculating  Machines 

329  Capital 

330  Circulating  Capital 

331  Fixed  Capital 

332  Capital  Assets 

333  Nominal  and  Actual  Capital 

334  Capital  Expendiutre 

335  Capital  Expenditures — Interest  on 

336  Capital  Liabilities 

337  Capital  Partnership 

338  Capital  Receipts 

339  Capital   and  Revenue    (Distinction   Be- 

tween 

340  Capita! — Sole  Proprietor 

341  Capital  Stock  (See  Stock) 

342  Capital  Stock  Unsubscribed  (See 

Stock) 

343  Card  System 

344  Petty  Ledger 

345  Customers'  Reference  List 

346  Customer's  Records 

347  Church  Membership  and  Parish  Record 

348  College  Records 

349  Catalogue  Index 

350  Collections 

351  Employe's  Experience  Record 

352  Record  of  Inquiries 

353  Manufacturers'  Record 

354  Sales  Record 

355  Subject  Record 

356  Installment  Records 

357  Real  Estate  Record 

3  >8  Mortga;;e  Loan  Business 

359  Societies,  Clubs,  etc. 

360  Accident  Insurance  Companies 

361  Telephone  Business 

362  Records  and  Ledgers  for  the  Medical 

Profession 

363  Indexes  and  Ledgers  for  Savings  Banks 

364  Cash  Account 

365  Cash  Assets 

366  Cash  Balance  Record 

367  Cash  and  Bank  Account 

368  Cash  and  Bank  Reconciliation 

369  Cash  Book 


370  Cash  Journal 

371  Cash  Discount 

372  Cash  on  Delivery 

373  Cash  Price 

374  Cash  Registers 

375  Cash  Sales  Record 

376  Cash  Sales  Slips 

377  Cash  Voucher 

378  Cashier 

379  Certificate  of  Auditor 

380  Certificate— Architect's 

381  Certificate — Auditor's 

382  Certificate — Corporation  Stock 

383  Certified  Check 

384  Certified  Public  Accountant 

385  Certified  Statement 

386  Charge 

387  Charge — Fixed 

388  Chart  of  Classification 

389  No.  1.    Chart  of  Departmental  Organi- 

zation 

390  No.  2.     Graphic  Chart  of  Production 

Cost 

391  No.  3.    dart  of  Classification  for  Gen- 

eral Store 

392  No.    4.      Chart    of    Classification    for 

Wholesale  and  Retail  Coal  Business 

393  No.    5.      Chart    of    Classification    for 

Machinery  Manufacturing  Business 

394  No.  6.     Chart  of  Classification  for  Boi- 

ling Works 

395  No.    7.      Chart    of    Classification    for 

Hospital. 

396  Charter 

397  Charter  Party 

398  Check 

399  Check  Figure 

400  Check  Ledger 

401  Check  Marks 

402  Check  Register  or  Bank  Account 

403  CTieck  Systems 
401  Check  Figure  17 

405  Reverse  Posting  Checking  System 

406  Checking  Additions 

407  Church  Records 

408  Classification  of  Accounts 

409  Standard    Classification   for   Telephone 

Companies 


-1 


I     ) 


410  Standard  Gassification  for  Street  Rail- 

road Companies  (arranged  by  the 
Public  Service  Commission  of  New 
York  City. 

411  Classification    of    Departmental    Store 

Accounts 

412  Classification  of  Brick  Man'f'g  Accounts 

413  Closing  Entries 

414  Club  or  Society  Accounting  Method 

415  Coal  Mining  (Bituminous)   Accounting 

Methods 

416  Coal  Business — Actual  Profit  in 

417  Coins  —  Value    of    foreign    coins    in 

United  States  money 

418  Collaterals 

419  Collection  and  Exchange 

420  Collection  Systems 

421  Collections — Following  up. 

422  Drafts  on   Customers  made  in  Tripli- 

cate 

423  College   Club  Accounting 

424  Colliery  Accounting 

425  Color 

426  Columnar   Books 

427  Commission 

428  Commission   Accounts 

429  Commission  and  Brokerage 

429  Commission  and  Brokerage 

430  Commission  Produce  Accounting 

431  Common   Stock 

432  Company 

433  Comparative  Statistics 

434  Comparative   Statistics 

435  Conditional        Endorsement        (notes, 

checks,   etc.) 

436  Consideration 

437  Consignment 

438  Consignment  Account 

439  Consignee 

440  Consignor 

441  Consolidations 

442  Construction  Account 

443  Contingent  Assets  or  Liabilities 

444  Contingent  Fund 

445  Contra 

446  Contract 

447  Contracts  Unfinished 

448  Contractors'  Accounts 

449  Controlling  Account 

450  Conveyance 

451  Co-Partnerships 

452  Co-partnership  Accounting 

453  Copyright 

454  Copyright  Account 


455  Corporation  Nomenclatures 

456  The  Corporation 

457  A  Few  Corporation  Pointers 

458  Correspondence — Filing  of 

459  Accounting  Methods  for  the  Wholesale 

Creamery  Business 

460  Keeping    the    Accounts    of    a    Small 

Creamery 

461  Credit  Reports 

462  Credit  Sales 

463  Credit  Vouchers 

464  Cross  Addition 

465  Customer 

466  Customers  Lists  and  Records 

467  Daily  Statement 

468  Date 

469  Day  Book 

470  Days  of  Grace 

471  Dead  Account 

472  Dead  Rent 

473  Death  of  Partner 

474  Debentures 

475  Dr. 

476  Debits 

477  Debit  Ledger 

478  Debit  Note 

479  Debt 

480  Debtor 

481  Decimal  Weights  and  Measures 
4L  Deferred  Bonds 

483  Deferred  Stocks 

484  Deficiency  Account 

485  Deficit 

486  Delivery  Receipt 
4S7  Demand  Note 

488  Demurrage 

489  Departments 

490  Departmentalization  of  General  Stores 

491  Departmental  Expense 

492  Sectionalization  of  Ledgers 

493  Customers'  Accounts 

494  Department  Drug  Store 

495  Combination      Sales     Record,     Monthly 

Statement  and  Customers'  Account 

496  Department   Store   Classification 

497  Useful    Forms    for    Large    Department 

Store 

498  Department  and  Inter-Department 

Orders 

499  Department  Store  Card  Bank  Ledger 

500  Deposit 


* 


NEH 


g^i^^iiiiiigai»i!.aiiih]»sMIS 


/^ 


rH  oriif 


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American 
Business  and  Accounting 

Encyclopedia 


REVISED  EDITION 


A  Standard  Reference  Book  for  Accountants  and  Business  Men, 
profusely  illustrated  with  hundreds  of  special 

forms  and  plates 


.1 


VOL.  IV. 
COMPLETE  IN  SIX  VOLUMES 


The  Business  Man's   Publishing  Company.  Limited 

DETROIT.  MICHIGAN 


IWflN^CmCUUTINl 


501-502        American  Business  and  Accounting  Encyclopedia 


De. 


Entered  according  to  Act  of  Congress, 
in  the  year  1909,  by 

The  Business  Max's  Publishing  Company,  Limited 
Detroit,  Michigan 

In  the  office  of  the  Librarian  of  Congress 
All  rights  reserved 


/ 


(501)     DEPRECIATION. 

The  definitions,  explanations  and  instructions  in  regard  to  depreciation  are 
numerous  and  diversified  in  many  important  directions.  We  i)resent  the 
following  examples  of  methods  recommended  by  accountants  in  good  standing, 
with  a  reputation  of  experience  and  efficiency : 

(A)  The  amount  which  should  be  deducted  from  the  book  value  of 
certahi  assets  for  the  purpose  of  ascertaining,  after  allowing  for  deteriora- 
tion, the  real  value  of  these  assets,  and  further  for  the  purpose  of  arriving 
at  the  legitimate  amount  of  profit  made  during  a  given  period  and  available 
for  appropriation  or  distribution  as  the  case  may  be. 

(B)  The  establishment  of  a  Reserve  account,  instead  of  making 
deductions  from  the  value  of  assets,  for  the  reason  that  in  this  way  the 
asset  depreciated  will  stand  on  the  books  at  the  actual  cost,  which  is  found 
advantageous  in  connection  with  fire  adjustments. 

(C)  Distribution  of  depreciation  over  shop  orders  as  part  of  the 
burden  or  general  factory  expense. 

(D)  The  establishment  of  a  reserve  for  repairs  instead  of  for  depre- 
ciation, the  cost  of  repairs  being  expected  to  cover  both  wear  and  tear 
and  depreciation. 

Proposition  (B)  is,  in  our  opinion,  the  best  because  if  the  estimated 
depreciation  proves  to  be  excessive,  a  transfer  may  easily  be  made  to  the 
Surplus  account  to  which  it  originally  belongs :  l)ut  in  connection  with  a  busi- 
ness which  represents  a  monopoly  and  where  competition  is  not  keen,  proposi- 
tion (C)  certainly  has  its  advantages. 

The  principal  disadvantages  of  this  latter  plan  is  that  the  depreciation  thus 
charged  against  customers  will  probably  be  distributed  by  way  of  dividend 
with  the  profits  actually  earned,  so  that  when  iJie  machinery  needs  replacing 
there  will  be  no  fund  in  existence  for  its  replacement. 

One  of  the  principal  troubles  in  connection  with  depreciation  charges  is 
the  usual  inclination  of  the  directors  of  a  corporation  to  reduce  them  in  a 
bad  year  so  as  to  make  a  better  showing,  while  they  never  trouble  to  even  up 
matters  by  increasing  the  charges  in  a  good  year.  From  an  accounting  stand- 
point there  is  no  excuse  for  variations  of  this  nature,  and  the  protests  of  the 
public  accounting  profession  on  this  practice  are  unanimous  and  vehement. 
Some  of  these  protests  are  quite  anuising.  In  one  case  an  actual  sinking  fund 
was  established,  i.  c. — a  fund  which  represented  an  actual  outside  investment. 
The  corporation  got  into  financial  difficulties  and  then  used  the  sinking  fund 
for  the  replacement  of  special  loans  as  they  fell  due.  When,  therefore,  the 
plant  and  machinery  were  actually  wiped  out  or  needed  immediate  replacementj 
the  assets  were  gone  and  the  sinking  fund  was  gone. 

(TiO?)       INTEREST  ON   CAPITAL  AND  DEPRECIATION. 

Why  should  interest  on  the  capital  invested  in  a  productive  plant,  which 
is  invested  in  the  ordinary  way  of  carrying  on  the  business  of  the  undertaking, 
be  added  to  the  provision   for  depreciation?     This  method  complicates  and 


De 


American  Business  and  Accounting  Encyclopedia       502-504 


obscures  the  actual  facts,  and  is  by  no  means  to  be  commended.  The  locking 
up  of  the  capital  for  a  time  in  productive  plant  is  one  of  the  incidents  of  the 
undertaking,  and  is  one  of  the  purposes  for  which  the  capital  is  provided, 
and  the  whole  profit  resulting  from  the  various  incidents  of  the  business  is 
the  reward  of  the  capital  invested  therein;  and  it  appears  that  between  the 
two  methods,  interest  or  no  interest,  for  this  particular  purpose,  the  latter 
has  much  to  commend  it.  If  interest  is  to  be  calculated  on  portions  of  capital 
locked  up  from  time  to  time  in  the  course  of  carrying  on  the  business,  it 
would  follow  that  it  should  be  computed  on  an  overdue  debt,  for  instance, 
the  amount  so  computed  being  debited  to  the  Profit  and  Loss  Account  as  a 
loss  on  sales,  while  on  the  credit  side  of  the  Profit  and  Loss  Account  would 
appear  the  fictitious  interest  so  charged  upon  the  overdue  debt.  Indeed,  to 
carry  the  matter  to  its  logical  conclusion,  and  having  regard  to  the  fact  that 
the  amount  of  capital  locked  up  in  productive  plant  averages  itself  as  closely 
as  capital  locked  up  in  debts,  interest  should  be  computed  on  all  debts  out- 
standing, whether  due  or  not,  less  perhaps  the  amounts  payable  to  creditors, 
Profit  and  Loss  Account  being  credited  with  this  interest  and  at  the  same 
time  debited  with  a  similar  sum  under  the  head  of  Loss  on  Sales.  I  fully 
appreciate  the  great  importance  of  interest  on  capital  as  a  factor  in  ascertain- 
ing cost  of  production,  but  I  do  not  think  it  should  as  a  rule  be  added  to  the 
provision  for  depreciation,  as  is  involved  by  the  annuity  method.— P.  D.  Leake, 
F.  C.  A. 

(503)     depreciation  and  secret  reserves. 

The  practice  of  some  business  executives  of  providing  a  reserve  for 
depreciation  greatly  in  excess  of  the  actual  requirements  and  thus  establish- 
ing a  secret  reserve  has  been  severely  criticised. 

It  is  always  better  to  err  on  the  right  side  if  it  is  necessary  to  err  at  all, 
but  it  must  be  apparent  that  in  a  corporation  whose  shares  are  open  to  public 
subscription  and  transfer,  this  secret  reserve  is  established  at  the  expense 
of  the  present  stockholders  and  to  the  benefit  of  future  stockholders. 


(504)       METHODS    OF    COMPUTING    DEPRECIATION. 

An  English  author  describes  four  methods  of  depreciation  generally  in  use 
in  the  commercial  world,  namely:. 

(A)  By  way  of  an  equal  annual  sum  charged  over  a  given  number  of 

years. 

(B)  By  charging  a  fixed   rate  of   depreciation  upon  the   amount  as 

diminished  year  by  year. 

(C)  By  the  annual  charge  of  a   sinking   fund,  which,   invested   at  a 
given  rate  of  interest,  would  redeem  the  capital  expended  in  a  given  number 

of  years. 

(D)  By  the  creation  of  a  special  reserve  fund  built  up  out  of  an  annual 

charge  to  profit  and  loss  accotmt. 

In  discussing  the  question  as  to  which  method  should  be  given  the  pref  er- 

758 


504 


American  Business  and  Accounting  Encyclopedia 


Ds. 


ence,  the  author  refers  to  the  fact  that  there  should  always  be  a  residual  value 
taken  into  consideration. 

In  a  mine,  depreciation  is  usually  figured  on  the  estimated  output  and 
the  length  of  time  it  will  take  to  produce  that  output,  but  in  respect  of  ordinal- 
machinery,  the  depreciation  should  cover  not  only  the  estimated  life  of  the 
machine,  but  the  possibility  of  supersession.  The  author  referred  to  prefers 
Plan  "B"  and  does  not  take  into  consideration  the  substitution  of  a  certain 
charge  per  year  for  services  of  the  machine,  said  charges  to  be  based  on  the 
estimated  life  of  the  machine,  the  number  of  hours  the  machine  will  be  in 
operation  during  a  year,  the  cost  of  maintenance,  and  a  certain  percentage 
added  to  provide  against  supersession.  This  cost  per  year  is  regularly  added 
to  prime  cost  on  the  shop  orders,  thus  constituting  a  part  of  productive  labor 
and  treating  the  machine  in  the  same  way  as  a  human  operator. 

The  distinction  between  that  portion  of  machine  expense  to  be  prorated 
over  productive  labor  and  that  portion  which  may  be  described  as  the  depre- 
ciation  charge,  will,  we  believe,  be  clearly  appreciated  from  the  standpoint 
given.  *^ 

That  portion   relating  to  depreciation  consists  of  the  charge  made   in 
respect  of  the  estimated  life  of  the  machine,  cost  of  maintenance,  and  provision 
.  against  supersession. 

That  portion  relating  to  general  factory  expense  consists  of  such  items 
as  rent,  light,  heat,  and  power  used  in  operation. 


GENERAL   DEPRECIATION. 

Plan^'B.''^'  ^'''^''  ^'''^'"^'''"  ""^  depreciation  on  buildings,  etc.,  we  prefer 


ANOTHER  VIEW. 

"  Depreciation  "  is  a  "  shrinking  in  value  of  an  as<^pf  "    Ti,;o 
fi-om asset.        ihis  may  anse 

(a)  Use. 

(b)  Lapse  of  time  {e.  g.,  in  the  case  of  a  leasehold) 

(c)  Obsolescence  {i.  e.,  the  progress  of  new  inventions) 

«hl.  ^  .     ^"'''''"'      """"^^  ^'  ^""'"  ^^  '"  ^"^  P^rti<="l^r  case  is  ver>^  debat- 
able, but  one  maxim  cannot  be  too  well  understood-  ^ 

A  charge  for  depreciation  has  no  relation  to  profits  anH  ^\^c...\a  k 
whether  profit  is  being  made  or  not.  ^""^^  ^'  "'^^^ 

The  points  to  be  considered  in  principle  are:— 
(1)     Cost  price. 
(3)     "Life." 
(3)     Extent  of  expenditure  on  "  maintenance  " 

(5)  SuT.  ^,1"  ^°'"'""'  ^"'  °*^^  -"^^  °^  p^«- 


759 


Dk. 


American  Business  and  Accounting  Encyclopedia 


504 


M  the  «^ame  time  short  time  and  overtime  must  not  be  lost  sight  of,  nor 
the  speed  of  the  machiner>'.  nor  (in  the  case  of  boilers)  the  quality  of  water. 
There  may  be  said  to  be  four  methods  of  providing  for  it. 

(1)  By  a  fixed  annual  sum. 

(2)  A  fixed  percentage  on  the  original  value. 

(3)  A  fixed  percentage  on  the  diminished  value. 

(4)  One  sum  to  cover  repairs,  renewals,  and  depreciation. 

Method  (3)  is  largelv  supported  and  is  in  common  use  on  the  ground 
that  it  equalizes  the  total  charge,  as,  in  the  early  years,  you  get  a  heavy  charge 
for  depreciation  and  small  repairs,  and,  as  years  go  on,  the  former  dimmishes 
and  the  latter  increases. 

The  two  following  accounts  illustrate  method   (4)  : — 


PLANT  account. 


Dec.  31    To  Cash    100,000 

1901 
Dec.  31     To  Additions    1.000 

101,000 

1902 
Dec.  31    To  Additions    2,000 

103,000 


(All  Additions,  not  Renewals.) 


depreciation  account. 

Dec    31    To  Repairs  and  Renewals     .500      Dec.  31     By  Profit    and    Loss    ac- 

•'     Balance    4,500  count  5%  on  100,000 . .   5.000 

Dec.  31     "     Balance    4,500 

1902 
Dec.  31      "     Profit    and    Loss    ac- 
count 5%  on  101,000..    5,050 

T)cc%i      "     Repairs  and  Renewals  1.000      Dec.  31      "     Balance     8,550 

"     Balance    8,550  1903 

Dec.  31      "     Profit    and    Loss    ac- 
count 5%  on  103,000..   5.150 

1903  

Dpc    31      "     Repairs  and  Renewals  3,100  ,„^«« 

"     Balance     10.600      Dec.  31     "     Balance    10,600 


and  so  on.  . 

It  will  be  noticed  that  the  extent  of  the  Cr.  lialance  to  Depreciation 
Account  shows  how  much  has  been  provided  (net)  towards  depreciation 
and  renewal.  Obviously,  the  account  must  never,  under  any  circumstances, 
have  a  Dr.  balance.  It  is  equally  clear  that  the  amount  set  aside  should  be 
increased  as  the  total  plant  is  increased.— i?.  N.  Carter,  F.  C  A. 

760 


505-506       American  Business  and  Accounting  Encyclopedia 


Dr. 


(505)     depreciation  rates. 

The  following  suggestions  as  to  rates  of  depreciation  have  been  extracted 
from  a  recent  work  on  the  subject : 

Street  railroad  permanent  way  (heavy  steel  rails  on  concrete  founda- 
tions) ;  life,  20  to  40  years;  rate  two  and  one-half  to  five  per  cent. 

Street  railroad  cars  (kept  in  constant  repair;  life,  10  to  20  years;  rate, 
five  to  ten  per  cent. 

Overhead  wires;  life  three  to  five  years;  rate,  25  to  33%  per. cent, 
but  the  large  residual  value  of  the  copper  must  be  taken  into  consideration 
in  fixing  this  rate. 

Patterns  designed  on  copper  rollers;  rate,  two  and  one-half  to  five 
per  cent. 

Patterns  in  wood,  or  iron  ;  rate,  -^0  to  331/3  per  cent,  but  taking  into  account 
the  residual  value  of  the  material. 

Special  patterns  are  charged  direct  to  the  job  for  which  thev  have  been 
made.  Standard  patterns  which  can  be  used  over  and  over  again  on  different 
jobs  must  be  separately  considered,  and  the  rate  fixed  in  accordance  with  the 
business  conditions,  /.  c,  the  length  of  time  during  which  the  pattern  may 
be  reasonably  supposed  to  continue  to  be  of  service. 

:Main  buildings  of  gas-works  and  gas-holders ;  rate,  two  and  one-half  to 
five  per  cent,  on  diminishing  values. 

Furnaces  and  plant  subject  to  rapid  deterioration ;  rate,  ten  per  cent,  on 
diminishing  values. 

Ships ;  rate,  five  to  ten  per  cent. 

Horses;  rate,  l?i/,  to  20  per  cent. 

Factory  and  Buildings ;  rate,  2i/,  per  cent,  to  5  per  cent  on  diminishing 
value.  ^ 

Boilers  (separately)  ;  rate,  7^.  per  cent,  to  10  per  cent. 

Moving  Machinery ;  rate,  5  per  cent,  to  10  per  cent,  on  diminishing  value 

value      "''"''  ^"'^  Fixtures;  rate,  7  per  cent,  to  12i/,  per  cent,  on  diminishing 

Rolling  Stock;  rate,  5  per  cent,  to  10  per  cent,  on  diminishing  value 
Electric  Wires;  rate,  25  per  cent,  to  33i{,  per  cent,  on  original  value 

(506)     pixLEv  ON  depreciation. 
A  frequent  method  of  arriving  at  the  total  amount  to  be  written  off  for 

cZTTT  •'  '1  '"' 7^'^'^  ''  P'^^^'P'  '^'  "^"^^  thoroughly  unsound  which 
could  be  devised,  VIZ.,  first  ascertaining  the  profit  without  depreciation,  then 
aking  into  consideration  the  amount  of  dividend  which  the  directors  desire 
to  pay,  and  leaving  any  balance  available  as  the  proper  amount  for  depreciation. 
tlT'  "^^^'^^7^^J^"^l  ""^^«""d  system  could  not  be  acted  upon,  or,  from 
th     directors    and  officers'  selfish  point  of  view,  a  more  foolish  one.     The 

IsZ^lltZlT  r'  "T'l"  '"^''  ""'  '^  ^'  *^  P^y  ^'  h'^h  a  dividend 
LvTn  Lh     H  ""I      "  ''"'"'•     '^  P^^^^"*^^^  ^"  *h-  -Pital  paid 

affable     A  T  T  ''  "''"'''  '''''''  "^^  ^^^^'"^^  -  ^and  is  alwavs 

available.    A  director  who  consents  to  agree  to  recommend  a  quarter  per  cent 

761 


De.  American  Business  and  Accounting  Encyclopedia        506-507 

more  dividend  than  he  is  absolutely  compelled  is  exceedingly  foolish,  while 
a  secretary  who  assists  him  is  more  foolish  still.  There  is  no  doubt  that 
thousands  of  corporations  have  been  wound  up  through  this  insane  craze 
for  paying  high  dividends,  when  lower  ones  would  have  contented  the  stock- 
holders and  preserved  their  capital  for  a  longer  period. 

It  may  be  argued  that  the  directors  have  no  right  by  writing  oflF  too 
much  for  depreciation  in  any  one  year,  to  minimize  the  profit  of  that  year, 
and  thus  deprive  stockholders,  who  may  happen  to  be  stockholders  when  the 
dividend  is  prepared,  and  who  may  sell  their  stock  afterwards,  of  that  which 
they  are  legitimately  entitled  to.  This  theory  is,  surely  an  entirely  false  one ; 
it  is  not  incumbent  upon  the  directors  to  consider  in  any  way  individual  stock- 
holders, or  a  special  group  of  stockholders,  and  certainly  not  those  who  make 
a  practice  of  buying  and  selling  stock  and  holding  them  for  short  periods. 
It  is  their  duty  to  keep  the  capital  of  their  company  intact,  and  do  their  best 
to  make  it  a  permanent  institution.  With  this  view  directors  and  secretaries 
should  endeavor  to  eliminate  the  fictitious  assets  from  their  balance  sheets 
as  soon  as  possible,  and  to  replace  them  by  investments  which  in  bad  times 
will  enable  them  to  pay  a  moderate  dividend.  In  frequent  instances  corpora- 
tions after  paying  dividends  of  15  and  20  per  cent,  for  years,  have  gone  into 
liquidation  within  13  months  of  their  last  high  dividend,  through  their  not 
having  in  hand  a  reserve  out  of  which  to  meet  a  temporary  depression  in  their 
particular  fine  of  business. 

Directors  and  officers,  therefore,  in  simply  looking  at  the  matter  from 
their  own  point  of  view,  and  doing  their  best  to  preserve  their  fees  and  their 
situations  for  years  to  come,  are  acting  in  the  true  interests  of  the  stockholders 
as  well  as  themselves.  In  further  support  of  this,  it  is  undoubtedly  a  fact  that 
the  stock  of  a  company  that  has  paid  fair  dividends,  and  has  a  large  reserve, 
is  more  saleable  and  commands  higher  prices  than  that  of  one  that  has  paid 
large  dividends,  but  cannot  in  its  accounts  show  that  there  is  anything  to  fall 
back  upon  in  case  of  emergency. 

In  settling,  therefore,  the  amount  of  depreciation,  the  directors  should 
not  take  into  consideration  how  the  result,  of  their  decision  will  affect  the 
dividend,  or  how  the  dividend  will  affect  the  market  price  of  the  company's 
stock.  Directors  have  nothing  to  do  with  the  market  price  of  the  stock  and 
from  the  moment 'they  commence  to  regard  any  question  respecting  the 
internal  management  of  their  company  from  that  point  of  view,  it  becomes 
almost  impossible  for  them  to  do  their  duty  honestly.  They  should  ascertain 
the  very  fullest  amount  that  ought  to  be  chargeable  for  depreciation,  even 
if  the  result  shows  a  loss,  while  a  little  difference  would  make  a  profit,  and 
place  the  accounts  before  the  stockholders  without  any  attempt  to  make  them 
look  better. 

(507)     depreciation  of  machinery. 

Not  only  do  various  current  expenses  continue  to  accrue  whether  the 
factor/   is  working  or  closed,  but   in   some   instances   the   depreciation   of 

762 


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Dk. 


machinery  continues  although  it  is  not  in  use.  In  fact,  it  is  stated  that  some 
very  delicate  machinery  will  depreciate  more  readily  when  not  in  use  than  when 
subject  to  ordinary  wear  and  tear.  It  is  therefore  a  matter  of  considerable 
importance  to  investigate  this  feature  in  order  to  secure  accurate  results. 

It  is  also  necessary  to  take  into  consideration  the  fact  that  there  is  always 
a  risk  of  machinery  becoming  obsolete  on  account  of  improved  inventions, 
and,  to  be  perfectly  safe,  it  is  necessary  to  provide  for  a  depreciation  reserve 
sufficient  to  take  care  of  this  possibility,  always  bearing  in  mind  that  if  the 
amount  reserved  against  depreciation  is  found  to  be  too  large,  the  excess  may 
with  propriety  be  retransferred  to  the  surplus  account  from  which  it  came. 

It  is  true  that  some  accountants  object  to  this  suggested  retransfer,  and 
refer  to  it  as  an  uncertain  and  intangible  item,  but  we  fail  to  appreciate 
the  reason  for  such  a  criticism,  or  why  such  a  credit  to  profit  and  loss,  or 
surplus,  should  be  any  more  intangible,  or  uncertain  than  any  other  item 
contained  in  the  profit  and  loss  and  surplus  accounts.  It  is  very  desirable,  so 
far  as  possible,  to  get  away  from  academic  arguments  that  lead  nowhere,  and 
hold  closely  to  actualities. 

depreciation  of  machines  problem. 
We  manufacture  wooden  spokes  for  wheels,  almost  the  entire  work 
being  done  by  machinery.  Hitherto  we  have  had  no  efficient  cost  system  but 
I  have  now  received  instructions  to  organize  one.  I  am  somewhat  doubtful  as 
to  the  proper  treatment  of  the  machinery.  Does  depreciation  enter  into  the 
cost  of  manufacture?  How  would  you  compute  the  value  of  the  machine 
hours?     The  standard  unit  is  1,000  spokes  of  a  particular  size. 

SOLUTION. 

Machinery  i,sed  in  a  factory  takes  the  place  of  hand  labor;  therefore 

he  manufactured  product  should  be  charged  with  the  cost  of  the  machine's 

tune  just  as  much  as  the  hand's  time.    But  machinery  is  an  investment,  and 

tl-^r  Z  ■'  '"u"'''  '°  '"'''"'*  °"  ^''  '"vestment  just  as  though  his 

capital  was  sunk  m  other  enterprises.  How  does  he  receive  this  interest  = 
A  machme  under  normal  conditions,  has  a  nonnal  life-that  is,  the  makers 
guarantee  that  with  proper  treatment  and  care  it  will  do  so  much  work 
and  last  a  certam  number  of  years.  If  the  machine  is  run  more  than  the 
pecficafons  sfpulate,  or  if  it  is  used  on  heavier  work  than  it  is  supposed 
to  do,  or  ,f  ,t  .s  neglected  it  must  follow  that  its  life  is  shortened  mate^lj 
And  vice  versa,  if  conditions  are  the  opposite 

less^r^tZ'^  T\T  ^'"'"''""  ''  '"  "'*  "'  °"Si"al  value  becomes 
less,  in  other  words  it  depreciates.  The  amount  of  this  diminution  in  value 
de^nds  upon  the  treatment  the  machine  receives.  The  manufacturer^  the'" 
fore  purchasing  a  machine  knows  that  it  is  good,  say,  for  ten  vears  and  , hi, 
at  the  end  of  that  time  he  will  have  to  purchase  Another  one  to'tak  'itspllc^ 

investment  for  the  period,  each  succeeding  year  after  the  first,  however  beine 
decreased  by  the  amount  of  the  depreciation  and  interest  cllculat^  ;„  the 

763 


Dk.  American  Business  and  Accounting  Encyclopedia  507 

residue.    The  total  amount  therefore  produced  will  be  the  amount  the  machine 
has  to  earn  in  ten  years  to  pay  for  itself. 

Confronted  with  the  proposition  that  he  must  purchase  another  machuie 
in  ten  years'  time,  the  manufacturer  has  to  consider  where  he  is  gomg  to  get 
the  monev  for  the  new  purchase.  Profits  in  the  tenth  year  may  not  be  large 
enough  to  be  drawn  upon  for  the  purchase  of  new  machmery.  What  then 
can  he  do^  Presupposing  that  the  machine  is  good  for  ten  years,  each  year 
it  must  depreciate  one-tenth  or  thereabouts.  This  depreciation  each  year 
should  be  charged  against  profits  as  reducing  the  net  profit  available  for 
distribution,  and  credit  to  an  account,  ''Reserve  for  Depreciation  of  Machm- 
ery "  or  some  such  title.  The  accumulation  in  ten  years  should  be  enough  to 
purchase  a  new  machine,  the  salvage  from  the  old  one  covering  any. shortage 
that  may  occur. 

Crediting  this  depreciation  account  serves  the  purpose  of  leavmg  the 
machinery-  account  on  the  books  intact,  but  in  making  up  the  balance  sheet 
the  asset  account,  machinery,  tools  and  fixtures  is  offset  by  this  reserve  for 
depreciation,  thus  showing  the  net  value  of  the  investment.  Some  manu- 
facturers deduct  the  annual  depreciation  from  the  original  account  each  year, 
the  machinery  account  on  the  books  showing  a  value  which  may  or  may  not 
be  correct  in  proportion  to  the  correctness  of  the  amount  depreciated.  In 
case  of  fire  this  method  would  play  directly  into  the  hands  of  the  fire  insur- 
ance company  in  adjusting  the  losses,  as  the  machines  might  be  worth  far 
more  than  the  actual  book  values  stated. 

Depreciation  is  more  assuredly  a  factor  in  the  cost  of  manufacture,  for 
having  been  charged  against  profits,  it  must  be  considered  an  expense  of 
the  business  just  as  much  as  other  expenses,  non-productive  labor,  etc.,  and 
as  an  expense  it  must  be  pro-rated  over  the  product  in  order  to  arrive  at 
a  iust  cost.  Another  expense,  maintenance  of  the  machine  in  good  working 
order,  replacement  of  broken  parts,  etc.,  has  also  to  be  distributed  over  the 
product  and  made  a  part  of  cost  of  production. 

If  the  machines  have  been  in  use  for  some  time,  it  will  be  necessary  to 
have  a  re-valuation  of  them  made,  and  the  probable  life  of  each  machine 
estimated  by  a  competent  person.  If  the  machines  are  new  so  much  the 
better  and  for  the  purpose  of  this  article  I  will  suppose  they  are.  In  purchas- 
ing a  machine,  there  is  a  cost,  at  the  maker's,  or  at  the  destination. 

If  the  former,  say  the  machine  costs  $400,  freight  in  cartage,  installation 
at  new  factorv  amount  to  another  $100,  making  the  first  cost  of  the  machine 
readv  for  work  $500.  We  will  presume  its  life  is  five  years.  Let  us  figure  out 
the  Amount  it  has  to  earn  to  pay  for  itself  and  pay  the  owner  six  per  cent, 
on  his  investment. 


First      year,  $500  cost  -f-  6%  interest  = 

Second  year,  $500  less  $100     deprec.  =  $400,  to 

bear    6%    interest  = 
Third      year,  $400  less  $100     deprec.  =  300,  to 

bear    6%    interest  = 


$530 
24 
18 


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Fourth  year,  $400  less  $100  deprec.  = 
bear    6%    interest  = 

Fifth  year,  $200  less  $100  deprec.  = 
bear    6%    interest  = 


200,  to 

12 

100,  to 

6 

Total  amount  to  be  earned  in  the  years     $590 


Total  amount  to  be  earned  in  one  year $ii8 

This  amount  divided  by  the  number  of  working  hours  a  year  gives 
the  hourly  machine  wage  chargeable  to  the  manufactured  product,  including 
all  interest  charges. 

Suppose  the  year  to  contain  '^.OOO  working  hours ;  then, 

$118  ^  -2,000  =  .0.59  hoirly  wage. 

Capacity  of  each  machine  per  day,  1,000  spokes. 

Cost  of  1,000  spokes  =  number  of  hours  in  day  X  .<>5i),  which  -i-  1,000  = 
cost  per  spoke. 

In   addition   to   this,   we   have   depreciation,   maintenance,   general    sliop 
expense,  to  be  pro-rated  over  the  manufactured  product. — G.  Farrar. 
(^508)     depreciation  and  exhaustion  of  coal  mines. 

One  of  the  principal  considerations  of  those  in  charge  of  the  finances  in 
the  coal  mining  business  is  the  wasting  asset  feature,  or  gradual  exhaustion 
of  the  quantity  of  coal  to  be  mined. 

Reserves  must,  of  course,  be  established  for  the  purpose  of  replacing 
machinery  which  will  not  admit  of  further  repairs,  or  has  become  obsolet^ 
[n  addition  to  this,  every  well-ordered  coal  mine  will  establish  its  reserve 
against  exhaustion,  and  the  question  as  to  the  best  method  of  making  this 
provision  is  of  interest. 

In  the  first  place— as  it  is  impossible  to  mathematicallv  ascertain  just  how 
much  coal  there  is  to  be  mined— it  is  necessary  to  make  an  estimate  of  the 
quantity  contained  in  the  mine,  and  the  number  of  years  it  will  take  to  mine  it. 

Next— figure  out  as  closely  as  possible  the  capital  outlav  involved  credit- 
mg  same  with  the  value  of  the  land,  buildings,  machinery,  etc.,  at  what  they 
may  be  expected  to  bring  when  the  mine  is  abandoned. 

Divide  the  sum  thus  obtained  by  the  estimated  number  of  tons  of  output 
and  the  remainder  will  be  the  amount  of  each  ton  of  coal  actually  mined. 

(509)     DETECTION  OF  ERRORS. 

It  is  very  important  in  making  the  following  suggestions  to  call  particular 
attention  to  the  fact  that  a  Trial  Balance  is  rarely  out  of  balance  because  of 
a  single  error.  There  are  usually  several  errors,  and  in  cases  of  this  kind 
the  methods  of  detection  suggested  merely  involve  a  waste  of  time  Where 
however,  a  check  system  is  adopted  (such  as  described  under  that  headin-)' 
and  a  daily  proof  of  work  maintained,  these  rules  will  be  found  of  -reat 
value.  The  error  will  be  located  not  onlv  to  one  record  or  ledger  but^'aUo 
to  the  debits  or  credits  relating  to  that  book,  and  the  diflference  may* generally 
be  discovered  to  consist  of  a  single  mistake.  (See  Controlling  Accounts  and 
Checking  Systems). 


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It  will  also  be  found  of  assistance  in  making  up  the  Trial  Balance  to 
draw  off  total  footings  instead  of  balances,  thus  permitting  a  convenient 
comparison  with  the  records  from  which  postings  have  been  made.  We 
recommend,  therefore,  the  use  of  four  column  Trial  Balances,  debit  and 
credit  columns  of  total  footings  and  debit  and  credit  columns  of  balances. 

In  a  cross  entry  journal  post  all  the  debits  first  and  afterwards  the  credits. 

In  considering  the  best  method  of  obtaining  a  correct  trial  balance,  it 
should  be  remembered  that  prevention  is  better  than  cure,  as  the  latter  may 
be  difficult  and  tedious  notwithstanding  the  most  ingenious  rules  and  sugges- 
tions. 

We  will,  however,  treat  the  matter  first  from  the  point  of  view  of  a  cure, 
to  be  applied  to  what  are  now  generally  known  as  "old  style  books,"  and  will 
take  up  prevention  later.    The  books  are  out  of  balance,  and  the  problem  is  to 

locate  the  error. 

1.  Look  carefully  through  the  trial  balance  to  see  if  a  balance  has  been 

omitted,  or  has  been  entered  on  the  wrong  side. 

2.  Do  not  look  through  your  postings  to  see  if  you  can  find  the  amount 
of  the  error  unposted,  unless  you  think  you  are  familiar  with  such  an 
amount.    The  required  difference  is  generally  made  up  of  two  or  more  errors. 


3.      EXAMPLES  OF  TRANSPOSITIONS. 

Error  $27.00.— May  be  $41.00  posted  as  $14.00;  $52.00  posted  as  $25.00; 
$30.00  posted  as  $3.00;  $58.00  posted  as  $85.00;  $36.00  posted  as  $63.00; 

$47.00  posted  as  $74.00. 

Error  $45.00.— May  be  $94.00  posted  as  $49.00 ;  $72.00  posted  as  $27.00 ; 

$61.00  posted  as  $16.00 

Error  $18.00.— May  be  $13.00  posted  as  $31.00;  $35.00  posted  as  $53.00; 

$57.00  posted  as  $75.00. 

4.      DOUBLE    SLIDE. 

Error  $435.60.— (Note.— From  the  previous  examples  it  will  be  seen  that 
the  error  consists  of  figures  which  added  make  the  total  of  nine.  We  are  now 
giving  examples  of  errors  which  do  not  amount  to  nine,  and  which,  therefore, 
must  be  divided  by  nine.  The  following  examples  all  amount  to  eighteen 
if  the  figures  are  added  together.) 

$435.60  divided  by  nine  amounts  to  $48.40.  The  error,  therefore,  may 
be  $484.00  posted  as  $48.40.  Should  there  be  no  such  error  discovered  divide 
$48.40  by  11,  when  the  amount  obtained  will  be  $4.40.  The  error,  therefore, 
may  be  $440.00  posted  as  $4.40  cents.    This  error  is  called  a  "double  slide." 

5.  Another  example  of  "  double  slide  "  is  as  follows  :— 

Error  $43.56.— $43.56  divided  by  9  equals  $4.84,  but  no  error  of  $48.40 
posted  as  $4.84  can  be  found.  Therefore,  we  divide  $4.84  by  11  and  obtain 
the  amount  $0.44.     Now  look  for  $4.40  posted  as  $0.44. 

6.  If  transpositions  do  not  apply,  look  through  the  ledger  for  a  balance 
omitted  from  the  trial  balance. 

766 


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7.  Look  for  an  account  closed  but  not  ruled  off,  so  that  last  month's 
balance  has  been  taken  again  this  month. 

8.  If  the  difference  is  an  even  number,  it  may  be  a  debit  posted  as  a 
credit,  or  a  credit  posted  as  a  debit. 

9.  If  the  difference  is  1  cent,  or  10  cents,  or  $1.00,  the  error  is  almost 
certam  to  be  m  addition  or  subtraction  in  drawing  off  the  balances. 

10.  Check  the   footings  of  the  trial   balance,  and  the  carrying  of  the 
totals  to  the  recapitulation  sheet. 

11.  Scan  the  folio  columns  of  all  books  of  original  entry  to  see  if  anv 
posting  has  been  omitted.  ^ 

12.  See  that  you  have  not  forgotten  to  include  in  the  trial  balance  the 
balance  of  cash  account. 

13.  I  ook  for  some  small  account  ruled  off  during  the  month  to  show 
a  balance,  but  no  balance  brought  down. 

14  Carefully  check  over  your  sundry  accounts  receivable,  and  notes 
receivable  accounts,  as  these  two  accounts  are  prolific  sources  of  error 

15.  If  all  these  efforts  to  locate  the  difference  are  fruitless,  check  the 
additions  of  the  ledger  accounts,  and  the  drawing  off  of  the  balances 

16  Then  proceed  to  check  the  postings  as  follows :  On  a  sheet  of  paper 
ake  off  from  the  ledger  the  credit  postings  of  cash,  using  a  separate    olumn 

with  the  total  called  for  by  the  cash  book 

loca  "the"  fttent'^  ''  ""'  ''"'""'  '°'"''='"  "^^  '"'"^  "^  "-'^^  '"  ^^er  ,o 

Jo'    Alsfthe'f '  'T:,':'"  °*^.'''  '■'=''''  '^^^"  '»^""Ss  in  like  manner, 
on      Tf  tt         ,         "'  ^^^'^  P°'""8^'  ^"'l  "^dit  postings. 
~0.     If  these  all  agree,  draw  off  the  postings  to  the  ledger  from  the  sales 
book,  and  compare  total  with  total  of  sales  book 

21.     It  is  supposed  that  the  cash  book  and  journal  are  self-provin..  so  f.r 
as  footmgs  are  concerned    hut  if  *i,=  *  »  i       t  ■  proving  so  tar 

ti.«  ■,;.  iSikSi"ta  hi ,,"""'  '"T  '•  '"■"'  »fc  -pp... » 


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Di.  American  Business  and  Accounting  Encyclopedia        510-512 

(510)     DIAGRAM. 

(See  Charts.)  A  method  of  exhibiting  statistics  in  a  graphic  manner  so 
as  to  call  special  attention  to  their  significance.  Diagrams  are  now  extensively 
used,  not  only  to  illustrate  business  conditions,  but  also  in  connection  with  all 
kinds  of  scientific,  mechanical  or  political  investigations. 


Foreman's  OflTice 


Universal  M.M. 


Sensitive  Drill 


Lathes 
Tool  Making  Room 


1-1.  censjiiv 

''^■^    It 

•^"^     2i  Drill  UITo 


C  x18  Surface  Uribder 


t 


THE  IRON  TRADE  REVIEW 


Showing  Arrangement  of  Tool  Room. 

(.•)11)     DIRECTORS. 
(See  Stock  Accounts.) 

(51?)     DISBURSEMENT  RECORD. 
A  Voucher  Record— a  General  or  Petty  Expense  Record 


m 


512-515        American  Business  and  Accounting  Encyclopedia 


Di. 


Comparative  Diagram  of  Wages. 


(513)     DISCOUNT. 


A  per  centum  deduction   from  the  principal   for  cash  anticipations  or 


other  agreed  terms. 


(514)     CASH    discount. 


(515)     special  discount  columns. 

The  customar\^  practice  of  discounting  trade  bills  for  cash  is  now  conveni- 
ently provided  for  in  cash  books  by  special  discount  columns. 

Much  has  been  said  and  written  regarding  the  relative  merits  of  posting 
the  total  amount  of  the  bill  to  the  credit  of  the  customers'  accounts,  or  the 
posting  of  cash  and  discount  separately.  After  reviewing  the  matter  verv 
carefully  and  considering  both  sides  of  the  question  we  are  in  favor  of  posting 
cash  and  discount  separately  as  this  method  facilitates  the  audit  of  the  books 
and  also  gives  information  in  the  ledger  account  which  does  awav  with  the 
necessity  of  referring  to  the  cash  book  for  further  particulars. 

At  the  end  of  the  month  the  total  of  the  Discount  column  is  charged  or 
credited  to  cash,  according  to  which  kind  of  account  is  aflfected.  The  Dis- 
count columns  are  carried  as  memoranda  until  the  end  of  the  month,  being 
deducted  from  cash  receipts  and  cash  payments  in  balancing  the  cash. 

It  is  desirable  to  provide  a  separate  discount  column  for  each  sales 
ledger  where  Controlling  accounts  are  carried,  as  otherwise  the  items  must 
be  picked  out  at  the  end  of  each  month  in  order  to  arrive  at  the  necessarv 
agreement. 

The  question  has  been  raised  as  to  whether  the  merchant  is  at  lil^erty 
to  anticipate  a  payment  and  charge  the  vendor  with  interest  from  date  of 
anticipation  to  due  date  without  the  vendor's  invitation  or  consent.  We  believe 
the  general  feeling  of  both  wholesale  and  jobbing  trade  is  that  no  such  right 
exists.     Extra  datings  are  given  to  promote  new  business — to  accommodate 

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Di.  American  Business  and  Accounting  Encyclopedia        515-519  ' 

customers,  to  provide  necessary  time  for  distant  deliveries  and  to  encourage 
early  orders.  ^ 

(516)     cost  of  cash  discounts. 
It  is  true  that  a  bill  drawn  at  60  days'  sight  and  discounted  the  same  day 
two  per  cent,  for  cash,  only  costs  the  owner  interest  at  the  rate  of  12  per 
cent,  for  the  60  days  that  he  pays  for  the  use  of  the  money,  but  the  allowance 
of  two  per  cent,  ten  days  from  the  date  of  the  invoice  forces  him  to  pay 
mterest  for  the  use  of  the  money  for  the  50  days'  unexpired  time  at  the  rate 
of  141/0  per  cent.     When  paid  within  15  days  the  rate  is  at  16  per  cent    for 
the  45  days'  free  time.    When  the  bill  runs  30  days  and  the  discount  is  allowed 
the  mterest  paid  is  at  the  rate  of  24  per  cent.     When  the  bill  is  40  days  old 
and  discount  taken,  the  interest  is  at  the  rate  of  36  per  cent.     When  50  days 
have  run  by,  72  per  cent,  is  demanded  for  the  use  of  the  money  and  when  the 
remittance  reaches  the  seller  after  55  days,  the  seemingly  little  two  per  cent   is 
the  equivalent  of  interest  at  the  rate  of  144  per  cent,  for  the  remaining  five 
days   unexpired  time. 

(517)       PURCHASE  DISCOUNT. 
(518)       SALES  DISCOUNT. 

There  has  been  considerable  discussion  in  regard  to  the  proper  method 
of  treating  both  Discount  on  Sales  and  Discount  on  Purchases,  and  after 
considering  the  matter  very  carefully,  we  have  arrived  at  the  conclusion  that 
vvhile  Discount  on  Sales  is  properly  a  selling  expense,  Discount  on  Purchases 
should  be  considered  in  Trading  account,  because  it  reduces  the  cost  of  pro- 
duction. ^ 

(519)       DISCOUNT    ON    FREIGHT. 

The  question  is  frequently  raised  as  to  whether  when  goods  are  sold 
delivered  but  freight  is  not  prepaid,  the  cash  discounts  should  be  deducted 
from  the  gross  amount  of  the  bill  or  from  the  net  amount  after  freight  has 
been   deducted.     When   goods   are   sold   delivered   the    freight    is   generally 
included  in  the  price,  i.  c,  the  price  of  the  goods  delivered  is  higher  than 
the  price  of  similar  goods  sold   f.  o.  b.  point  of  shipment.     The  shippers 
therefore,  frequently  claim  that  cash  discount  should  not  be  deducted  from' 
gross  amount  of  invoice,  but  from  that  amount  less  freight,  and  in  the  coal 
and  lumber  business,  where   freight  is  one  of  the  principal  components  of 
the  amount  charged  for  the  goods,  business  usage  appears  to  have  decided 
that  freight  shall  be  deducted  prior  to  taking  off  cash  discount,  as  the  freight 
IS  paid  to  the  railroads  in  full.     On  the  other  hand,  however,  the  purchasers 
of  goods  claim  that  when  buying  f.  o.  b.  at  destination,  the  question  of  freight 
does  not  concern  them,  and  that  in  fact,  in  paying  the  freight  in  order  to 
clear  the  goods  they  are  making  an  advance  on  account  of  the  shippers,  on 
which  advance  they  are  entitled  to  interest. 

It  would  seem  that  where  freight  is  prepaid  as  an  accommodation  to 
the  customer,  cash  discount  should  not  be  deducted  from  the  amount  thereof, 

770 


519-523        American  Business  and  Accounting  Encyclopedia 


Dl 


but  wherever  it  is  included  in  the  price  as  an  inducement  to  obtain  the  order, 
the  customer  would  be  acting  perfectly  within  his  rights  in  deducting  cash 
discount,  unless  there  was  an  agreement  or  understanding  with  the  seller  to 
the  contrary. 

(520)       TRADE    DISCOUNT. 

Trade  Discount  is  the  deduction  from  list  prices  allowed  to  jobbers. 
In  some  lines  of  business  a  number  of  such  discounts  are  allowed  cumulatively, 
some  being  preferences  to  particular  customers.  Thus,  in  the  hardware 
trade  one  customer  will  receive  a  discount  of  75% — 71/0%  and  5%,  while 
another  will  be  allowed  75%— 71/2-0%  and  21/2%.  These  discounts  are  always 
consecutively  computed  on  the  remainder. 

Such  discounts  appear  to  be  an  unwieldly  method  of  selling  goods,  but 
commercial  usage  governs  the  custom. 

(521)       BANK  DISCOUNT. 

Applies  to  loans  and  discounted  notes,  and  is  simple  interest  deducted  in 
advance  from  the  amount  to  be  loaned  or  advanced.  Thus,  a  note  of  $100 
at  six  months  from  date  would  be  discounted  for  $95  if  the  rate  of  discount 
were  10%.  The  rate  of  discount  charged  by  a  bank  depends  upon  the  value 
of  the  security  offered  and  is  a  matter  of  contract  between  the  bank  and  the 
borrower. 


(522)       TRUE  DISCOUNT. 

The  equivalent  of  interest  on  present  value  to  date  of  maturity,  present 
value  being  such  an  amount  as  with  interest  to  date  of  maturity  added  will 

equal  the  principal. 

Soule  says :  ''  The  present  worth  of  a  note  or  debt  is  the  sum  that  remains 
after  the  true  discount  is  deducted  from  the  face ;  or  it  is  the  principal  which, 
at  the  specified  rate  of  interest  and  time,  would  amount  to  the  face  of  the 
note  or  debt  when  it  becomes  due.  For  example,  if  we  loan  $500  for  one  year 
at  8  per  cent.,  it  will  amount  to  $540.  Hence  we  see  that  the  present  worth 
of  $540,  due  one  year  hence  at  8  per  cent.,  is  $500.00. 

"  The  function  or  purpose  of  true  discount  is  properly  to  determine  what 
sums  are  to  be  invested  to  produce  a  specified  amount  at  a  given  rate  of  interest 
and  for  a  stated  period  of  time.  And  in  this  respect  it  is  the  same  as  interest 
where  we  have  the  time,  rate  per  cent.,  and  interest  or  amount  given  to  find 
the  principal." 

(523)     DISTRIBUTION. 

The  method  of  carrying  separate  accounts  with  expenditures  for  statistical 
and  comparative  purposes,  or  providing  separate  columns  in  regular  accounting 
records  or  statistical  recapitulations.    See  columnar  cash  books  and  journals. 

771 


Di.-Do        American  Business  and  Accounting  Encyclopedia        o24-oS1 

(')24:)       EXPENSE    DISTRIP.UTION. 

(525)       PURCHASE   DiSTRinUTION. 

(526)       SALES   DISTRIBUTION. 

These  are  either  a  section  of  regular  records  or  special  summaries.  They 
form  a  part  of  all  modern  accounting-  systems  devised  for  business  of  any 
magnitude. 

(527)     DIVIDENDS. 
See  Stock  Accounts. 

(528)     DORMANT  PARTNER. 

A  silent  partner.  One  who  takes  no  part  in  the  management  of  a  business, 
or  one  who  is  not  known  to  the  public  as  being  a  partner. 

(529)  DOUBLE  ACCOUNT  BALANCE  SHEET. 

In  no  other  commercial  enterprise  but  a  railroad,  we  suppose,  would  an 
arrangement  of  this  kind  be  found  satisfactor}-. 

If  capital  subscribed  amounts  to  so  much,  this  capital  is  exclusively 
confined  to  capital  expenditures.  The  capital  receipts  and  capital  expenditures 
are  carried  separately  and  shown  on  a  separate  Balance  Sheet.  The  capital 
must  not  be  used  for  revenue  expenditures.  Capital  constructs  the  road,  plant 
and  equipment,  builds  the  cars,  and  from  nowhere  does  the  money  to  start 
the  business  appear  to  come. 

The  railroad  is  opened  to  the  public  and  the  public  supplies  the  revenue 
receipts  which  cover  the  expenditures  in  connection  with  running  the  railroad 
trains,  depots,  telegraph  operators,  etc..  and  also  furnishes  the  profits,  all 
of  which  are  exhibited  on  a  special  Balance  Sheet. 

We  do  not  believe  this  system  is  used  by  any  railroad  in  the  United 
States,  and  therefore  submit  it  as  a  curiosity. 

This  system  of  preparing  balance  sheets  is  illustrated  under  the  heading 
of  "  Balance  Sheets." 

(530)     DOUBLE  AVERAGE. 

See  Averaging  Accounts. 

(531)     DOUBLE  ENTRY. 

That  system  of  keeping  books  of  account  which  requires  a  credit  for  every 
debit,  and  a  debit  for  every  credit,  a  perfect  equilibrium  or  balance  being  thus 
maintained.  The  advantages  of  this  system  are  that  errors  are  thereby  exposed 
and  readily  located  and  that  the  keeping  of  correct  statistical  records  is 
greatly  facilitated.  Thus  the  surplus  of  assets  over  liabilities  on  the  balance 
sheet  will  always,  under  the  double  entry  system,  be  represented  by  a  credit 
of  like  amount  on  the  Profit  and  Loss  Account. 

As  book-keeping  by  double  entry-  consists  entirely  of  debits  and  credits, 

772 


531-535       American  Business  and  Accounting  Encyclopedia 


Do. -Dr. 


the  Business  College  axiom  which  reads  "  debit  everything  you  give  and  credit 
everything  you  receive  "  fairly  expresses  the  principle  which  governs  the  art, 
it  being  understood  that  the  business  also  credits  itself  with  ever\'thing  given, 
and  debits  itself  with  everything  received.  The  great  principle  of  Double 
Entry  is— that  every  debit  must  have  a  corresponding  credit.  In  order  to 
carry  out  this  principle.  Double  Entry  in  the  old  days  revolved  around  a 
journal.  In  this  journal  every  business  transaction  was  recorded  with  its 
corresponding  debit  or  credit. 

If  the  transaction  was  a  sale,  it  was  first  recorded  in  a  sales  book,  and 
afterwards  transferred  to  a  journal  with  its  corresponding  credit  to  Mer- 
chandise Account.  If  the  transaction  was  a  cash  receipt,  it  was  first  recorded 
in  a  cash  book,  and  then  transferred  to  a  joumal  with  its  corresponding  debit. 

Double  Entry,  like  other  sciences,  has  been  subject  to  evolution,  so  that, 
while  still  maintaining  the  principle,  the  corresponding,  or  balancing  entries 
are  now  made  in  total  instead  of  in  detail,  thereby  achieving  the  same  results 
with  an  immense  saving  of  clerical  labor.  Thus,  the  balancing  entries  of 
sales,  purchases,  various  kinds  of  expenses,  etc.,  are  now  made  by  journalizing 
the  totals  at  the  end  of  the  month,  or  posting  such  totals  direct  from  books  of 
original  entry,  and  books  of  account  are  so  arranged  as  to  readily  furnish 
these  totals. 

See  Book-keeping. 


(532)     DOUBTFUL  ACCOUNTS. 


See  Suspense. 


(533)     DRAFTS. 
See  Bill  of  Exchange  (Bentley's  "Corporate  Finance  and  Accounting"). 

(534)     DRAFTING  OFFICE  RECORDS. 

A  method  of  designating  and  locating  tracings. 

Each  tracing  should  be  given  a  number,  the  numbers  being  consecutive,  a 
separate  number  for  each  new  tracing.  It  is  understood  that  it  is  customary 
to  use  blue  prints  for  reference  instead  of  the  original  tracing,  in  order  to  save 
the  wear  and  tear  on  the  latter. 

Provide  a  card  index  which  will  exhibit  the  tracing  numbers  and  also  the 
names  of  the  tracings,  by  method  of  cross  indexing.  The  illustration  will 
clearly  show  the  general  arrangements. 

There  should  be  guide  card  sub-divisions  showing  each  detail :  as  an 
example — ^have  guide  card  showing  valve  stems,  valve  stem  stopping  box, 
etc.,  and  a  separate  card  for  links  of  all  sized  cylinders. 

On  the  cards  themselves  it  would  depend  on  the  requirements  of  the 
business  as  to  the  details  entered.    See  illustration. 

(535)     DRESSMAKING  BUSINESS  COST  SUMMARY. 

In  many  dressmaking  establishments  prices  are  often  quoted  beforehand 
for  each  special  order,  and  therefore  some  kind  of  cost  record  is  found  of 

773 


Dr. 


American  Business  and  Accounting  Encyclopedia        535-537 


537 


American  Business  and  Accounting  Encyclopedia 


Dr. 


I 


great  value,  not  only  as  a  guide  to  the  party  who  makes  the  estimates,  but 
also  as  a  check  on  the  estimates,  so  as  to  ascertain  that  they  are  being  made 
with  a  due  knowledge  of  the  cost  of  material  and  labor  entering  into  the 
goods  manufactured,  and  that  a  due  allowance  is  made  for  the  profit  that 
should  be  obtained. 

The  appended  form  of  cost  summary  may  contain  suggestions  for  those 
of  our  subscribers  who  may  be  interested  in  this  line  of  business. 


C05T  SDMNARY   FOR  THE!  bRLt^SNAKiriG  BD5lhE55 

btftc 

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(536) 
See  Department  Stores. 


DRUGS  (RETAIL). 


(537)     DRY  GOODS  BUSINESS. 

Tn  a  wholesale  dry  goods  business  it  is  somewhat  difficult  to  figure  out 
as  to  how  to  cut  down  the  work  of  billing  and  stock  keeping.  It  is  necessary 
to  put  down  first  the  case  numbers,  the  yards  from  each  case,  the  quality 
numbers  and  the  substitutes  at  times  of  one  quality  number  for  another,  to 
keep  track  of  the  stocks  in  the  stock  record.  For  example,  we  sell  to  Jones 
&  Co.,  two  pieces  of  350  velvet,  one  piece  from  732.  Of  course  these  different 
case  numbers  must  not  appear  on  bill ;  only  the  following : 


350        2  pes.  Velvet,  52  yd. 

52  104  57% 

The  book  entry  as  it  now  appears  would  be — 


$59.80 


M4        52  yds. 
722         52  yds. 


350 


2  pes.  Velvet,  etc. 


Is  there  not  an  easier  method  for  keeping  the  stock?  As  it  now  stands, 
we  sometimes  substitute  one  quality  for  another,  say  320  as  350.  Of  course 
the  320  part  would  not  show  on  the  bill,  but  must  show  on  our  book  records. 

774 


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SOLUTION, 

The  following  suggestions  will,  it  is  believed,  overcome  the  difficulties 
now  encountered: 

Make  your  invoices  in  duplicate  by  use  of  carbon  and  keep  the  duplicate 
invoices  in  numerical  sequence  in  a  binder. 

Make  the  duplicate  invoices  one  and  one-half  inches  wider  than  the  orig- 
inals, so  as  to  admit  of  the  insertion  of  the  "  case  number  "  and  "quantity  "  in 
the  left  hand  margin  of  the  duplicate  without  taking  it  from  the  typewriter. 
(See  Forms  1  and  2.) 

The  carbon  used  should  not  be  wider  than  the  original  invoice,  thus 
leaving  the  left-hand  margin  of  the  duplicate  open  to  view  and  uncovered 
and  ready  to  be  typewritten  on. 

Combine  the  "  cash  number  "  and  "  quantity."  For  instance,  case  number 
is  644  and  the  goods  sold  amount  to  54  yards,  it  would  be  better  and  more 
concise  to  write  same  as  follows :  "  64454  or  644-54."  The  first  three  figures 
of  this  number  as  you  will  perceive,  denote  the  "  case  number  "  (644)  and  the 
remaining  two  figures  of  this  number  represent  the  quantity (54). 


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537 


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~ 

Don't  keep  stock  record  in  the  old-fashioned  book  form.  Use  loose  leaves 
for  the  purpose,  drawn  up  like  form  attached,  Form  3. 

Each  day  take  "  duplicate  invoice  binder  "  and  post  to  the  "  disposed  " 
column,  of  the  respective  cases  given  in  the  stock  record,  the  different  quantities 
sold  as  shown  in  the  duplicate  invoices.    Also  insert  the  invoice  number. 

The  above  arrangement  enables  the  accountant  to  combine  order  book 
and  day  book,  and  insures  accuracy;  by  reason  of  the  fact  that  there  is  no 
repetition  of  entries  and  does  not  require  as  much  work  in  the  keeping  of  the 
stock  account. — G.  C.  Kaefer. 

Another  Suggestion. 

The  forms  illustrated  may  also  be  interesting  and  instructive. 

The  same  marked  "  Sheet  Xo.  303  "  represents  a  sheet  from  a  loose  leaf 
stock  book  and  gives  illustration  of  two  ways  in  which  to  keep  the  stock 
record. — E.  C.  Hopkins. 


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(538)     DUE. 

What  ought  to  be  paid;  what  may  be  demanded.  It  differs  from  owing 
in  this,  that  sometimes  what  is  owing  is  not  due.  A  note  payable  a  certain 
time  after  date  is  owing  immediately  after  it  is  delivered  to  the  payee,  but  it  is 
not  due  until  such  certain  time  has  elapsed. 

At  times  the  word  "  due  "  signifies  a  simple  indebtedness  without  reference 
to  the  time  of  payment,  while  at  others  it  shows  that  the  day  of  payment  has 
passed. 


(539)     DUE  BILL. 

A   written   or  printed   acknowledgment   of   indebtedness, 
promise  to  pay,  sometimes  called  an  *'  I.  O.  U." 


An    informal 


776 


(540)     DUE  DATES  RECORD. 

A  record  sometimes  kept  of  maturity  of  Accounts  Payable  in  order 
to  secure  cash  discounts.  Such  a  record  will  include  the  name  of  the  creditor, 
date  of  bill,  amount,  terms,  due  date. 

Such  a  record  is  also  frequently  kept  by  placing  the  bills  in  an  office 
tickler  according  to  the  terms  and  discounts  allowed. 

(541)     DUPLICATE. 

A  copy.     A  carbon  copy.     (See  Order  Blanks.) 

Duplicates  are  made  to  save  the  labor  of  rewriting  or  reproducing.  In 
most  retail  stores  all  bills  are  made  in  duplicate  or  triplicate,  one  copy  being 
given  to  the  customer,  and  the  others  going  to  the  book-keeping  and  shipping 
departments.  ^ 

777 


Du. 


American  Business  and  Accounting  Encyclopedia 


542 


542 


American  Business  and  Accounting  Encyclopedia 


Du. 


HI 


(542)     DUPLICATING  DEVICES. 

Our  illustration  shows  an  efficient  compound  bill  and  order  form  con- 
sisting of  a  set  of  twelve  duplicates  made  at  one  writing. 
The  set  consists  of — 
Office  Records 
1. 

3. 

4. 

5. 

10. 

11. 

12. 

Factory  Records 

6. 
.  7. 

8. 

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The  sheets  differ  in  length,  width,  ruling  and  some  of  the  printed  matter 
but  by  using  an  up-to-date  billing  machine  everything  is  easily  and  accurately 
registered. 

779 


Si 


I 


Du.-Em.      American  Business  and  Accounting  Encyclopedia        442-546 

Note  tliat  each  of  the  twelve  sheets  bears  the  same  serial  number  in 
the  upper  right  hand  corner.  This  is  not  only  for  identification,  but  also 
for  filing  purposes. 

One  of  the  advantages  of  this  arrangement  is  that  certain  information 
which  does  not  appear  on  the  top  sheet,  appears  at  the  foot  of  some  of  the 
under  sheets.  This  is  accomplished  by  making  the  end  sheets  longer  than 
the  top  sheet. 

On  page  779  is  a  combined  charge  sheet  and  billing  system  which 
has  proved  very  satisfactor>^  and  is  used  in  the  same  wav  as  the  previous 
illustration,   through   the   medium   of   a   heavy   manifolding  billing   machine. 

Blank  Xo.  1  is  the  original  order  filled  in  by  the  traveling  salesman 
and  received  by  mail.    This  is  not  illustrated. 

Blank  Xo.  2  is  the  label  for  package  or  shipping  instructions.  Blanks 
Xo.  ^,  4,  o  and  6  are  identical.  Blank  Xo.  7  constitutes  the  invoice-  Xo  8 
IS  handed  to  the  ledger  keeper  from  which  he  posts  to  the  ledger ;  Xo.  9  is 
placed  in  a  binder  and  forms  a  permanent  bound  record  and  also  serves 
as  a  means  of  proving  the  sales  postings. 


(543)     EARNINGS. 

The  wages  of  an  operator,  clerk  or  other  person  employed  at  certain 
specified  wages.  This  word  is  also  sometimes  used  to  define  net  profits 
either  of  an  individual,  a  partnership  or  a  corporation. 

(544)     EMBEZZLEMENT. 

The  fraudulent  appropriation  to  one's  own  use  of  the  money  or  goods 
entrusted  to  one's  care  by  another. 

The  fraudulent  appropriation  of  propertv  by  a  person  to  whom  it  has 
been  intrusted  or  to  whose  hands  it  has  lawfully  come.  It  is  distinguished 
trom  larceny  in  the  fact  that  the  original  taking  of  the  property  was  lawful 
or  with  the  consent  of  the  owner,  while  in  larceny  the  felonious  intent  must 
have  existed  at  the  time  of  the  taking 


(545)     EMPLOYE. 
A  person  employed  in  the  service  of  another  whether  permanent  or  not. 

(546)     EMPLOYES'  RECORDS. 

These  are  various  and  voluminous.     In  some  establishments  more  infor- 
mation IS  desired  than  in  others,  and  the  records  are  arranged  accordingly 
We  illustrate  an  application  blank,  three  regular  factory  forms  of  record  and 
one  office  clerk  record.    The  latter  will  be  easily  distinguished  by  the  reference 
to  education  and  business  experience. 

780 


540 


American  Business  and  Accounting  Encyclopedia 


Em. 


Position  ADolied  for 


APPLICATION  FOR  EMPLOYMENT. 


Date 


Name 


Address 


I  ««♦  Plaeonf  Fmnloument 


Address 


Fr*.nloved.as 


Term  of  Emoiovrrient 


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Ruasons for  Leaving 


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American  Business  and  Accounting  Encyclopedia 


Em. 


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783 


Em. 


American  Business  and  Accounting  Encyclopedia 


546 


DAILY  REPORT  OF  PATIENTS  TREATED  P.Y  MEDICAL  DEPARTMENT 

OF  THE  TRENTON  STEEL  CO. 

Trpnton.    N'.    T 100.. 

1 

Office 
No. 

Hospital 
No. 

Name 

Age 

Occupation 

Nature  of  Injury 

1 

•  ••••••••*... 

Surgeon 1 

TRENTON  STEEL  COMPANY. 

ACCIDENT    REPORT. 


Dr.'s  Report. 


Name  and  .\ge    

Residence     

Dependents     

How  Long  Employed  by  Company   

Nature  of  Injury    

Cause   of   Injury    (State    Details    Fully), 


Nature  of  Machinery   

Condition   of  Machinery    , 

Condition   of  Premises    , 

How  Long  Employed  in  This  Capacity   

What   Did    Injured   Say   Regarding  .Accident? 


What   Did  Witnesses  Say? 


Names  and  Addresses  of  Witnesses 


Rate  of  Wages  of  Injured 
Remarks     


Open  Hearth  Department,  Card  No.  17. 


IW, 


Broken  Arm,    (Smith) 


l/4/'07 


784 


547-551        American  Business  and  Accounting  Encyclopedia      Em. -En. 

(517)     EMPLOYES   INJURED. 

There  are  throughout  the  United  States  a  great  many  large  manufac- 
turing concerns  employing  thousands  of  men.  several  of  whom  receive  injury 
more  or  less  serious  every  day.  It  is  unfortunately  supposed  by  the  public 
that  these  injuires  are  concealed  and  not  properly  attended  to.  The  attempts 
at  concealment  are  undoubtedly  injudicious  and  tend  to  excite  an  unnec- 
sar>'  prejudice  against  the  corporations. 

These  corporations,  however,  keep  a  very  concise  record  of  everything 
of  the  kind  that  happens  and  their  treatment  of  the  injured  men  cannot  be 
criticised. 

There  is  usually  a  chief  surgeon  who  has  as  many  assistants  as  he 
requires.  There  are  stretchers,  a  hospital  room,  and  every  possible  attention 
is  given  to  the  injured  man. 

The  regular  system  of  records  is  as  follows : — 

Chief  Surgeon's  Report 

Accident  Report. 

Departmental  Reports. 

(548)     ENDORSED  BONDS. 

A  term  used  on  the  Stock  Exchange  to  describe  bonds  endorsed  by 
transfers,  assignments,  releases,  etc. 

(549)     ENTRY. 

The  act  of  setting  down  the  particulars  of  a  sale,  or  other  transaction,  in 
a  merchant's  or  trademan's  account  books ;  such  entries  are  in  general  prima 
facie  evidence  of  the  sale  and  delivery,  and  of  work  done,  but  unless  the 
entry  be  the  original  one,  it  is  not  evidence. 

(550)       ENTRY    CLERK. 

The  clerk  who  enters  the  orders  or  sales  in  order  book  or  sales  jounial. 

(551)     ENVELOPE  SYSTEM   FOR  WHOLESALE   LUMBER 

BUSINESS. 

Most  of  the  lumber  sold  is  at  a  delivered  price,  often  thousands  of  miles 
away  from  the  point  of  production,  and  the  item  of  freight  is,  therefore,  of 
great  importance. 

There  is  a  regular  schedule  of  shipping  weights  for  all  classes  of  each 
kind  of  lumber,  as  for  example,  Fir: 

Flooring  weighs    2000  lbs. 

Boards  S.  1  S.  weighs 0,500  lbs. 

Bevel   siding  weighs 700  lbs. 

Dressed  timber  weighs 3,000  lbs. 

Rough   timber  weighs 3,300  lbs. 

When  a  manufacturer  ships  stock  for  a  wholesaler,  he  guarantees  that 
the  lumber  he  ships  will  not  exceed  the  schedule  weight,  if  it  does  the  shipper 
will  have  to  stand  the  additional  cost  of  freight. 

785 


En. 


American  Business  and  Accounting  Encyclopedia 


551 


A.  K.  ARKLEY  LUMBER  CO 


ORDER. 


SHIPMENT 


f^«ml>«'-    Number 

Date    Date 

Date  Rec'd    Car 

Customer's   No From 

Salesman    Invoiced 

For    


Rate    Ship  to 

Route    


Note   No $. 

Draft  No $. 


.  Date      Total 


SETTLEMENT. 


Freight  $ 
Discount  $ 
Cash         $ 

$ 


Inv.  $. 

Net  Proceeds?. 

Est'd  wt Est'd  fr't 

Act'l  wt Act'l  fr't^ 

@ $ 

@ $ 


Bought  of   . . 
Transit    to     . 

Date    

Amt.    Invoice 
Discount 
Advance 
Balance 


.  Terms 
I 


-  -  $. 

-  -  $. 

-  -  $. 
Freight  $- 


Loss  $- 


Cost  ^ 
Gross  Gain  $- 

EXPENSES. 


Commission 

Interest 

Exchange 


Net  Gain  .$- 


Re-Consigned 


THE  ENVELOPE,  FORM  12. 


551 


American  Business  and  Accounting  Encyclopedia 


En. 


In  addition  to  keeping  a  regular  set  of  books  it  has  been  found  very  con- 
venient and  in  many  cases  absolutely  necessary  to  keep  a  separate  record  of 
each  shipment,  one  that  will  show  the  individual  history  of  each  and  every 
car  shipped,  and  the  illustration  shows  an  envelope  which  is  in  use  in  many 
offices  for  this  purpose. 

In  looking  at  the  envelope  it  will  be  seen  that  on  the  left  hand  side  is 
the  heading  "  Order "  and  a  blank  left  for  the  number,  date,  date  received, 
customer's  number,  salesman,  customer's  name  and  shipping  point,  freight 
rate  and  shipping  directions.  Below  these  items  are  several  lines  on  which 
the  order  is  copied. 

Below  the  third  heavy  line  on  the  envelope  we  find  a  blank  space  for  the 
name  of  the  mill  from  whom  we  get  the  stock,  also  a  space  for  the  date  and 
terms  of  the  purchase. 

After  we  have  received  the  order  from  our  customer  and  placed  our 
order  with  the  mill,  these  blanks  are  filled  in  and  the  order  from  the  customer 
together  with  a  copy  of  our  order  to  the  mill  and  any  correspondence  relating 
to  the  order  are  placed  inside  the  envelope,  it  is  then  filed  away  according 
to  order  number  until  the  stock  is  shipped. 

When  we  get  the  mill  invoice  showing  the  amounts  shipped,  etc.,  we 
make  out  the  invoice  to  our  customer  and  save  a  copy  of  it  to  put  inside  of 
the  envelope.  On  the  face  of  the  envelope  we  fill  in  the  blanks  under  the 
heading  "  Shipment  "  the  number,  date,  car  number,  point  shipped  from  and 
the  date  invoiced.  Below  the  name  of  the  mill  from  whom  we  purchased  the 
stock  we  insert  the  amount  of  the  mill's  invoice  to  us,  the  discount,  and  the 
amount  advanced.  We  also  insert  in  the  place  provided  (see  illustration) 
the  estimated  weight  and  the  estimated  freight  on  the  shipment. 

As  the  wholesalers  are  not  all  men  of  unlimited  means,  it  requires  some 
outside  capital  to  pay  the  mills  90%  cash  on  their  invoice  and  most  of  the 
wholesalers  have  an  arrangement  with  their  banks  to  make  a  note  for  the 
amount  required  and  have  the  bank  advance  the  money.  On  the  envelope  will 
be  seen  places  on  which  to  write  the  number  and  amount  of  the  note. 

The  mill's  invoice  to  us  and  a  copy  of  our  invoice  to  our  customer  is 
then  placed  inside  the  envelope  and  it  is  filed  away  according  to  shipment 
number  until  we  get  settlement  for  the  car. 

When  our  customer  pays  us  for  the  car  we  write  a  tabulated  statement 
of  his  credits  on  the  envelope  under  the  heading  "  Settlement "  so  much 
freight,  so  much  discount,  and  so  much  cash,  etc. 

The  freight  bill  always  accompanies  the  customer's  settlement  and  from 
it  we  fill  in  the  space  left  for  actual  weight  and  actual  freight  and  below  this 
the  underweight  or  the  overweight  as  the  case  may  be. 

The  mill  is  then  paid  the  balance  of  their  invoice  plus  the  underweight  or 
less  the  overweight,  and  the  amount  paid  is  written  on  the  lines  provided. 
The  envelope  now  shows  the  cost  of  the  car  and  we  extend  the  amount  in  the 
blank  provided,  and  deducting  this  from  the  net  proceeds  as  shown  above 
gives  us  the  gross  gain.  Under  the  head  of  "  Expense  "  we  write  our  salesman's 
commission,  interest  on  our  note,  exchange  and  have  two  lines  for  sundries. 


786 


787 


Ex.-Es.        Amkkican  Business  and  Accounting  Encyclopedia        551-554 


554 


American  Business  and  Accounting  Encyclopedia 


£s. 


The  sum  of  the  expenses  can  now  be  extended  and  deducted  from  the  gross 
gain,  showing  the  net  gain. 

It  would  be  well  to  say  that  by  keeping  a  copy  of  our  invoice  in  the 
envelope  we  dispense  with  the  use  of  a  salesbook.  We  journalize  our  sales 
and  for  explanation  of  the  journal  entrv-  we  write  a  combination  of  the  car 
number,  the  order  number  and  the  shipment  number. 

(5.V>)     EQUATION  OF  PAYMENTS. 

See  Averaging  .Accounts. 

(553)     ERASURE. 

The  obliteration  of  a  writing. 

The  use  of  erasures  in  books  of  account  for  the  purpose  of  correcting  errors 
should  be  steadfastly  discouraged.  If  an  amount  has  to  be  changed  on  a 
cash  book,  journal,  or  ledger,  the  particulars  of  the  change  should  accompany 
same,  so  that  the  reason  of  the  change  is  readily  apparent.  Some  complain  that 
the  correction  of  entries  in  a  ledger  mars  its  appearance,  but  the  fact  remains 
that  thereafter  an  erasure  is  generally  regarded  with  more  or  less  suspicion 
by  those  who  may  find  it  necessary  or  desirable  to  look  over  or  examine 
the  books,  and  it  is  sometimes  exceedingly  difficult  for  a  book-keeper  to  make 
a  satisfactory-  explanation  as  to  why  such  and  such  an  entry  was  erased  and 
some  other  figure  substituted. 

(554)     ESTIMATED  PROFITS  (TREATMENT  OF) 

At  the  end  of  the  fiscal  year  it  is  natural  that  the  officers  of  a  corporation 
should  wish  to  make  the  best  possible  showing  of  the  results  of  their  man- 
agement, and  to  avoid  any  comparison  with  previous  years'  results  which 
may  appear  unfavorable.  For  this  reason  the  secretary,  in  making  up  his 
statistical  statements,  scans  with  a  covetous  eye  the  record  of  unfilled  orders,  or 
unfinished  contracts,  and  takes  serious  counsel  with  himself  as  to  how  much 
anticipated  profit  he  can  include  without  jeopardizing  his  reputation  as  an 
accountant. 

The  subject  seems  to  be  divided  naturally  into  four  main  sections — 

1.  Unfilled  orders. 

2.  Goods  sold  for  future  delivery. 

3.  Uncompleted  orders. 

4.  Unfinished  contracts. 

An  unfilled  order  may  be  defined  as  an  order  waiting  arrival  of  goods 
necessar}'  to  fill  it.  The  sale  has  been  made,  but  the  jobber  is  temporarily  out 
of  stock  of  the  article  ordered.  A  bill  has  been  received  from  the  manufacturer 
advising  shipment,  but  the  goods  are  not  yet  to  hand. 

In  this  case  the  secretar}'^  is  justified  in  considering  the  profit  on  the 
unfilled  order  as  earned  when  the  sale  was  made,  but  he  must  be  careful  not 
to  credit  sales  account  with  the  total  of  such  unfilled  orders  unless  he  also 
debits  purchase  account  with  the  total  cost. 

7.S8 


In  the  case  also  of  manufacturers'  agents  who  obtain  orders  on  commission 

the  manufacturer  shipping  the  goods — the  commission  is  earned  when  the 

sale  is  made,  and  the  order  placed  with  the  manufacturer,  as  the  agent  has 
no  responsibility  in  connection  with  filling  the  order.  It  is  usual  for  such 
agents  to  render  a  periodical  statement  to  the  manufacturers  showing  sales 
made  and  commissions  due,  including  only  those  sales  of  which  the  manu- 
facturers have  advised  shipment,  the  agents'  books  being  made  up  to  correspond 
with  the  periodical  statements.  In  order  to  include  these  current  profits 
(not  yet  charged  to  the  manufacturers)  in  the  statement  of  the  year's  revenue, 
it  may  be  found  convenient  to  open  an  account  with  "  unshipped  orders, " 
charging  this  account  with  commission  earned  on  such  orders  and  crediting 
profit  and  loss.  Then,  as  the  orders  are  shipped,  the  commissions  can  be 
charged  to  the  manufacturers  and  credited  to  unshipped  orders  account. 

Goods  sold  for  future  delivery  differ  from  unshipped  orders  in  that  the 
former  are  not  required  until  a  certain  specified  time,  and  the  profit  made  on 
such  sales  should,  therefore,  fall  within  the  period  fixed  for  delivery.  Where, 
however,  goods  are  contracted  for  some  time  ahead  to  make  sure  of  deliver)' 
at  a  certain  date,  and  such  goods  are  actually  manufactured  and  stand  ready 
for  shipment  on  the  given  date — it  is  reasonable  to  take  credit  for  the  profit 
on  the  sales,  although  the  goods  are  neither  shipped,  nor  billed. 

But  where  a  coal  merchant,  for  instance,  contracts  to  furnish  a  certain 
quantity  of  coal  within  a  given  period  at  a  certain  price  per  ton — the  profit 
should  be  distributed  over  the  various  deliveries;  and  when  a  yearly  contract 
is  taken  for  advertising  in  a  monthly  magazine  the  profit  from  such  contract 
is  distributed  over  the  twelve  monthly  insertions  of  the  advertisement. 

Uncompleted  orders  in  the  factory  are  a  source  of  very  considerable 
trouble  to  the  secretary  because  of  the  difficulty  of  estimating  correctly  the 
proportion  of  profit  on  the  proportion  of  work  done.  In  most  manufactories, 
where  goods  are  manufactured  for  the  general  trade,  it  is  customarv  to 
include  the  cost  of  work  in  progress  as  an  asset  and  to  take  credit  for  profit 
only  on  completed  articles.  Where,  however,  the  complete  cost  of  an  article  is 
known  and  the  selling  price  is  fixed  by  adding  a  certain  percentage  to  cost — 
there  is  no  reason  why  that  percentage  of  the  work  actually  accomplished 
should  not  be  included  in  the  year's  profits. 

With  unfinished  contracts  it  is  still  more  difficult  to  deal,  for  the  reason 
that  it  is  frequently  troublesome,  and  sometimes  impossible,  to  accurately 
estimotc  the  cost  of  work  necessary  to  complete.  \\'hen  contracts  are  taken 
for  building,  iron,  or  achitectural  work,  it  often  happens  that  certain  condi- 
tions are  overlooked  when  figuring  on  the  contract  and  that  ultimatelv  the 
work  results  in  a  loss.  Only  when  such  a  contract  is  approaching  completion 
is  it  perfectly  safe  in  a  great  many  cases  to  take  credit  for  the  anticipated 
profit,  and  the  proper  method  is  undoubtedly  to  estimate  the  cost  of  the  work 
remaining  to  be  done,  add  to  that  amount  the  cost  of  work  already  completed 
(which  will  give  the  total  profit  on  the  contract),  add  proportion  of  profit  to 
cost  of  work  remaining  to  be  done  and  treat  this  amount  as  a  reserve  a«ainst 
the  contract  price,  which  has  been  credited  to  the  contract  account. 

789 


!   i 


III 


Es.-Ex.        American  Business  and  Accounting  Encyclopedia        554-557 

In  the  case  of  contracts  the  work  on  which  is  not  far  advanced,  and  in 
regard  to  which  the  cost  of  the  balance  of  the  work  cannot  be  accurately 
estimated,  the  actual  expenditure  should  be  treated  as  an  asset,  and  no  provi- 
sion made  for  estimated  anticipatory  or  prospective  profits  on  the  balance 
sheet. 

It  should  always  be  borne  in  mind  that  the  annual  financial  statement 
should  make  an  accurate  presentment  of  the  condition  of  the  business,  and 
that  any  speculative  or  unjustifiable  inflation  of  income,  by  the  inclusion  of 
over-estimated,  anticipated  or  prospective  profits,  will  but  react  upon  the 
showing  of  the  business  for  the  following  year,  and  throw  discredit  upon  the 
judgment  of  the  officer  responsible  for  the  inaccurate  statement  of  the  previous 
year. 

(555)     EXCHANGE. 

The  charge  made  by  a  bank  for  clearing  country  or  foreign  checks,  repre- 
senting cost  of  collection. 

The  fluctuation  of  exchange  may  be  explained  as  follows: 

For  small  sums,  say  for  $500  or  less.  New  York  or  Chicago  exchange 
always  sells  at  a  premium  of  about  0.1  per  cent.  This  is  to  pay  the  bank  for 
its  trouble  and  for  the  expense  of  shipping  the  money  when  its  balance  at 
New  York  or  Chicago  gets  low.  Banks  usually  buy  New  York  or  Chicago 
drafts  at  par,  that  is,  at  their  face  value,  thus  making  no  charge  for  cashing 
them. 

But  on  large  sums  the  rate  of  exchange  varies.  If  the  San  Francisco 
banks  owe  the  New  York  banks  $1,000,000,  they  must  send  that  amount  by 
express,  an  expensive  proceeding.  If  a  man  in  San  Francisco  at  that  time 
wished  to  buy  a  draft  on  New  York  for  $10,000  they  would  charge  him  more 
than  usual  because  they  would  have  to  express  that  much  more  to  New  York. 
But  if  a  man  in  New  York  wished  to  buy  a  draft  on  San  Francisco  he  might 
buy  it  for  $9,999  or  less,  because  they  would  get  their  money  at  once,  and  the 
risk  and  expense  of  transmitting  it  would  be  saved. 

(556)     EXCISE. 

The  duties  levied  on  the  manufacture  and  sale  of  domestic  commodities  or 
articles  intended  for  home  consumption. 

(557)     EXPENSE. 

A  Revenue  account  to  which  is  debited  expenditure  from  which  no 
direct  returns  are  expected. 

Any  factory  expenditure  which  does  not  come  under  the  heading  of 
prime  cost. 

Different  kinds  of  expenditures  should  not  be  dumped  into  a  General 
Expense  account  any  more  than  different  kinds  of  purchases,  sales,  goods 
returned,  etc.,  should  be  dumped  into  a  Merchandise  account.  The  intelligent 
merchant  requires  a  comparative  record  of  the  different  classes  of  his  expendi- 
ture, which  will  show  if  they  are  justifiable  considering  the  volume  of  business, 
or  if  they  are  excessive  and  the  result  of  a  careless  and  lax  administration. 

790 


558-564        American  Business  and  Accounting  Encyclopedia 

(558)     organization  expense. 


Ex. 


(559)     promotion  expense. 

Expense  incurred  in  the  organization  of  a  corporation,  such  as  promotion, 
discount  on  stock  sold,  etc. 

This  expense  is  generally  carried  on  the  books  as  a  fictitious  asset,  being 
gradually  extinguished  by  charging  off  a  certain  proportion  annually.  The 
justification  of  this  method  of  treating  promotion  expense  is  that  it  is  not 
incurred  for  the  particular  benefit  of  the  first  year's  business,  and  it  is 
only  fair,  therefore,  to  spread  the  cost  of  organization  over  several  years. 

(560)  general  office  expense. 
Separate  accounts  should  be  kept  with  advertising,  postage,  salaries, 
express,  selling  expenses,  etc.,  so  that  the  fact  of  their  being  normal  and 
not  extraordinary  may  be  ascertained  at  any  time  without  the  trouble  of  analyz- 
ing the  Expense  account  by  drawing  oflF  lists  of  the  different  items  under  their 
separate  headings. 

(561)     administrative  expense. 
Expenditures  in  connection  with  the  management  of  a  business. 

(562)       SELLING  expense. 

Expenditures  in  connection  with  salesman's  commission,  etc. 

Administrative  and  selling  expense  should  not  be  included  in  cost  of 
production  with  which  it  has  nothing  whatever  to  do.  The  selling  expense, 
of  course,  adds  to  the  expenditures  of  the  business  in  disposing  of  the  goods 
but  this  is  an  entirely  different  department. 

It  is  important  to  distinguish  between  shop  expense  and  administrative 
or  selling  expense  as  it  considerably  affects  the  value  of  comparative  statistics 
in  relation  to  actual  cost  of  production  by  establishing  incorrect  standard  units. 

(563)  DEPARTMENTAL    EXPENSE. 

Where  a  business  is  divided  into  departments,  the  cost  of  administration 
may  be  pro-rated  according  to  the  volume  of  business  done.  If,  for  instance, 
certain  employes  are  engaged  in  working  for  separate  departments  and  an 
accurate  account  cannot  be  kept  of  the  time  spent  by  each  employe  in  each 
department,  then  the  cost  of  their  services  may  be  pro-rated  according  to 
the  amount  of  turnover  of  each  department.  Such  percentages  are  frequently 
computed  on  gross  sales,  but  it  is  considered  preferable  and  more  equitable 
to  compute  them  on  the  turnover. 

(564)  EXPENSE  ADJUSTMENTS. 

If  we  have  paid  insurance  and  there  are  several  months  yet  to  run  we 
credit  Insurance  account  when  closing  the  books  and  debit  Profit  and  Loss 
account  with  the  amount  actually  earned  to  date  by  the  insurance  company 

791 


!     ,  I 


Ex. 


Amf:rican  Business  and  Accounting  Encyclopedia        564-567 


and  earn-  the  balance  of  the   Insurance   Expense   account   on   the   Balance 
Sheet  as  an  asset. 

(565)     EXPENSE  journal. 

Expense  accounts  are  generally  sub-divided  as  much  as  possible  so  that  it 
may  readily  be  seen  how  much  has  been  expended  on  each  particular  kind  of 
expense.  In  a  great  many  businesses  only  one  column  is  carried  in  the  Cash 
Book  or  Journal  for  general  expense,  and  a  separate  book  is  kept  in  which 
the  distribution  is  made  as  per  illustration. 


Lx 

P 

^9 

$e 

:  Jovrt 

)al 

0 

Mo9t1)    Totil 

^.5 

■OJ 

r-uj 

5 

cm 

4- 

Jar^vary 

FtbrDaty 

Mfl»-c»> 

etc. 

_ 

. 

(500)  EXPENSE    LEDGER. 

In  some  large  businesses  what  is  termed  the  "  General  Ledger  "  is  used 
exclusively  for  *'  Expense  Accounts." 

(507)       ESTABLISHMENT   EXPENSE. 

A  term  referring  to  all  expenses  of  manufacture  outside  of  prime  cost. 
The  latter  consists  of  raw  material,  supplies  and  direct  labor.  **  Establish- 
ment expense  "  therefore  would  include  rent,  light,  heat,  power,  insurance  and 
the  salaries  of  the  store-keeper,  receiving  clerk  and  general  foreman  or  gen- 
eral superintendent,  etc. 

A  somewhat  new  term  for  this  class  of  expense  is  "  Dead  Weight 
Expense,"  this  title  being  used  because  many  of  these  charges  do  not  vary 
much  whether  any  work  is  being  done  in  the  factory  or  not. 

'•  The  question  as  to  what  basis  should  be  used  for  the  distribution  of  the 
direct  expense,  and  the  foolishness  of  distributing  such  expense  under  normal 
manufacturing  conditions,  over  either  the  cost  of  raw  material  or  the  cost  of 
raw  material  and  labor  combined,  could  not  be  better  illustrated  than  by  the 
following  extract  from  a  recent  work  on  the  subject : 

792 


567 


American  Business  and  Accounting  Encyclopedia 


Ex. 


DIRECT  COST  OF  COXTRACTS. 

Xo.    L  Xo.   2. 

F.iw  material    $2,000.00         $2,000.00 

Direct   labor    1,000.00  2.000.00 


Xo.  .3. 

$2,000.00 

;j.ooo.oo 


Total. 

$6,000.00 
6.000.00 


Total    .$:{.ooo.oo 


$4,000.00         $5,000.00       $12,000.00 


"  If  it  is  assumed  that  the  total  establishment  expenses  amount  to 
$2,400,  it  is  evident  that  these  expenses  are  at  the  rate  of  40  per  cent,  of 
both  the  cost  of  the  labor  and  of  the  raw  material,  and  to  20  per  cent,  of 
the  cost  of  the  labor  and  material  combined.  If  it  is  assumed  that  the  contract 
price  for  each  of  the  contracts  is  $3,570,  $5,040  and  $(>.510  respectively,  then 
giving  effect  to  the  three  methods  of  treating  establishment  expenses,  the 
following  statement  shows  the  net  profit  in  each  case: 

1.      CHARGING   EXPENSES   .ACCORDING   TO   THE  COST  OF   LABOR. 

Xo.    1.  Xo.    2.  Xo.    3. 

Raw    material    .$2,000.00  $2,000.00  $2,000.00 

Direct   labor    1,000.00  2.000.00  .3.000.00 

Expenses — 40  per  cent,  of  labor....        400.00  800.00  1.200.00 

$.3,400.00  $4,800.00  $6,200.00 

Price    3..')70.00  .').040.00  6,510.00 

Profit  •. $170.00  $240.00  $;no.oo 

2.      CH.ARGING  EXPENSES  ACCORDING  TO  THE  COST  OF  RAW   MATERIAL. 

No.   1.  Xo.   2.  Xo.   3. 

Raw    material    .$2,000.00  $2,000.00  $2,000.00 

Expenses— per  cent,  of  material 800.00  800.00  800.00 

Direct   labor    i  .000.00  2,000.00  3,000.00 

$3,800.00  $4,800.00  $5,800.00 

Price    3.570.00  .5,040.00  6,510.00 

Profit    .$230.00  $240.00  $710.00 

(Loss) 

3.      CHARGING  EXPENSES  ACCORDING  TO  THE  COST  OF  RAW   MATERIAL  AND  LABOR  COMBINEa 

Xo.  1.  Xo.  2.  Xo.  3. 

Labor  and  raw  material  $.3,000.00  $4,000.00  $5,000.00 

Expenses — per    cent,    of    labor    and 

material    600.00  800.00  1.000.00 

$3,600.00  $4,800.00  $(i.000.00 

P"Ce     .3.570.00  .5.040.00  6.510.00 

.$30.00  $240.00  $510.00 

(Loss) 

793 


Ex. 


American  Business  and  Accounting  Encyclopedia        56"!  -570 


'ii 


I ', 


!  ■;! 


Hi 


"  It  will  be  observed  that  by  the  first  method  the  profit  is  at  the  rate  of 
five  per  cent,  on  the  total  cost,  which  is  equivalent  to  a  rate  of  4.76  per  cent, 
upon  the  price.  By  the  second  method  the  first  contract  shows  a  loss  of  $230 
and  No.  3  contract  a  profit  of  $710,  and  by  the  third  method  a  loss  of  $30 
on  the  first  contract  and  a  profit  of  $510  upon  the  third  contract.  On  the 
assumption  that  the  first  is  the  correct  method  of  charging  the  establishment 
expenses,  the  results  show  how  important  it  is  to  have  a  correct  method  of 
charging  establishment  expenses  because  by  the  second  and  third  methods  a 
loss  is  shown  upon  some  contracts  and  an  inflated  profit  shown  upon  others, 
whereas  these  contracts  are  all  equally  remunerative.  It  will  be  observed  that 
in  the  case  of  No.  2  contract,  where  the  cost  of  the  raw  material  and  of  the 
contract  labor  are  the  same,  there  is  no  difference  in  the  profit  shown  by 
the  three  methods. 

The  expense  of  a  manufacturing  establishment  does  not  increase  or 
decrease  according  to  the  price  of  the  raw  material,  but  it  does  vary  according 
to  the  amount  of  labor  that  is  to  be  spent  on  producing  the  finished  article. 

Note  the  wisdom  of  the  remark  calling  attention  to  the  fact  that  in 
No.  2  contract,  the  cost  of  the  raw  material  and  labor  being  exactly  the  same, 
the  proportion  of  general  expense  will  be  the  same  whether  computed  on  one 
basis  or  another. 

(568)     SHOP  OR  factory  expense. 

See  second  definition.  This  expense  is  distributed  over  completed  orders 
and  also  over  work  in  process  when  inventory  is  taken  and  the  books  are 
closed. 

By  "  Factory  Expense  "  we  mean  those  items  of  cost  which,  while  they 
cannot  be  charged  to  specific  jobs,  nevertheless  add  to  the  cost  of  articles 
manufactured.  In  Factory  Expense  we  include  such  items  as  insurance, 
taxes,  general  factory  supplies,  fuel  and  light,  the  salary  or  wages  of  superin- 
tendent, factory  clerks,  engineers,  fire-men  and  general  laborers  who  connot 
be  otherwise  classified.  It  is  sometimes  the  custom  to  separate  Factory 
Expense  and  general  indirect  labor,  placing  in  the  latter  division  the  labor 
costs  above  specified.  Whether  or  not  this  division  is  made,  is  immaterial, 
as  it  finally  resolves  itself  into  a  general  factory  expense. 

(569)     factory  expense  idle. 

Some  cost  accountants  advocate  charging  the  expense  of  factory  capacity 
idle  to  an  account  called  "  Factory  Expense  Idle."  Thus  it  is  proposed  to  keep 
the  cost  of  the  product  of  the  factory  operated  and  the  cost  of  the  factory  idle 
separate  from  one  another. 

(570)     productive  expense. 

Any  expense  that  can  be  charged  to  specific  jobs,  therefore  entering  into 
prime  cost. 

794 


571-576        American  Business  and  Accounting  Encyclopedia  Ex. 

(571)     material  expense. 

Any  expense  connected  with  the  care  of  stores  and  supplies,  such  as 
purchasing  and  handling  material  both  raw  and  in  the  process  of  manufacture. 

572)     store   expense. 

Expense  incurred  by  the  shop  organization  on  account  of  the  store,  such 
as  merchandise  drafting,  etc.,  which  is  transferred  periodically  to  Store 
Expense. 

(573)     machine  expense. 

Expense  incurred  in  the  regular  manufacture  of  goods. 

The  "  Machine  Unit  System "  is  a  system  whereby  machine  expense 
may  be  readily  assessed  as  a  loading  on  labor,  in  costs  in  detail,  giving  the 
correct  proportion  of  expense  in  each  case  as  follows: 

By  dividing  and  subdividing  machine  expense  by  analysis  and  estimate 
until  it  is  all  assessed  against  a  machine  or  bench  of  the  productive  class. 

By  averaging  the  machine  units  for  same  kinds  of  machines,  attaching 
class  letters  to  each  machine  of  the  same  kind  and  causing  these  letters  to 
be  marked  on  the  time  tickets  with  the  labor  giving  the  hours  of  the  machine 
operation  with  a  description  of  the  job. 

By  estimating  the  loading  on  each  time  ticket  by  multiplying  the  hours 
by  the  machine  unit  during  the  period  for  which  the  machine  expense  is 
known  or  computed. 

(574)     power   expense. 

Power  expense  is  divided  by  estimate  or  test  on  each  machine  and  class 
of  bench  work  in  each  department. 

Electric  current  is  assessed  in  proportion  to  results  from  tests  against 
each  machine  in  cases  where  the  motor  is  charged  to  the  machine. 

Power  assessed  against  the  non-productive  machines  is  finally  disposed 
of  with  the  other  expense  items  assessed  against  these  machines. 

(576)     rent  expense. 

This  expense  is  assessed  at  a  uniform  rate  per  square  foot  upon  all 
benches,  erection  areas,  and  machines  of  both  classes.  The  areas  are  based 
upon  a  carefully  measured  floor  space  which  includes  the  projected  obstructive 
area  of  each  machine  and  necessary  space  for  its  operation  and  maintenance. 
Vacant  space  is  divided  in  proportion  to  that  assessed  against  producing  units 
m  the  manufacturing  departments.  Tool  expense  is  divided  by  estimate  and 
analysis.  Sundry  expense  requires  an  investigation  into  its  actual  uses.  After 
dividmg  by  departments,  subdivisions  are  made  between  benches  and  machines 
and  finally  a  division  is  made  between  diflferent  kinds  of  bench  work  if  more 
than  one  kmd  exists  and  machines  also. 

795 


I  .i 


'.M 


i 


Ex. 


American  Business  and  Accounting  Encyclopedia        577-580 


(577)      UNPRODUCTIVE   EXPENSE. 

All  expense  that  cannot  be  charged  to  any  specific  job. 

(578)       DIFFUSED   expense. 

That  class  of  expense  which   is   distributed  or  pro-rated   according  to 
average  percentages. 

(579)     EXPERT  ACCOUNTANT. 

One  proficient  in  the  science  and  practice  of  accounts. 

(580)     EXECUTORSHIP  ACCOUNTS. 

All  who  have  ever  had  anything  to  do  with  the  administration  of  an 
estate  know  that  the  responsibilities  are  grave  ones,  and  that  in  the  majority 
of  instances  the  office  is  a  thankless  task.  It  is  also  well  known  that  as  a 
rule  executors  and  administrators  get  little  or  nothing  for  their  services,  unless 
it  be  specified  in  the  will  that  the  trustees  are  to  be  allowed  either  a  specified 
sum  or  fair  remuneration  for  their  services,  otherwise  actual  expenses  are 
the  limit  that  can  be  claimed.  Although  the  executor  can  get  nothing  for 
himself  for  work  on  account  of  the  estate  of  which  he  is  the  trustee,  yet  he 
is  always  empowered  and  has  the  right  to  engage  the  services  of  a  solicitor  or 
accountant  to  do  the  work.  They  may  be  paid,  but  not  their  employer.  The 
keeping  of  the  accounts,  and  the  prejiaration  of  the  necessary  statements, 
is  work  that  may  be  given  over  to  the  accountant,  and  the  executor  must 
become  responsible  for  the  correctness  of  the  work  of  his  book-keeper.  It  is 
obvious,  therefore,  that  if  the  work  is  to  be  well  done  and  properly,  that  the 
accountant  must  have  a  thorough  knowledge  of  the  laws  and  principles  under- 
lying accounts  of  this  nature.  Heretofore  it  has  been  oftener  the  case  that 
the  preparation  of  accounts  and  the  proving  thereof  have  been  the  work  of 
the  attorney  rather  than  of  the  accountant,  but  it  is  now  becoming  understood 
that  this  is  peculiarly  the  province  of  accountancy,  and  reports  by  expert 
accountants  are  becoming  more  common,  and  are,  especially  in  England, 
recognized  and  acted  upon  by  the  courts.  Judges  do  not  hesitate  to  accept  the 
findings  and  reports  of  members  of  the  Institute  of  Chartered  Accountants, 
and  place  upon  such  reports  the  stamp  of  their  approval. 

It  would  be  difficult  to  prepare  a  paper  which  would  cover  in  detail  the 
laws  of  the  various  states  of  the  union,  and  for  this  reason  it  is  well  perhaps 
if  in  this  case  the  principles  governing  the  keejiing  of  the  account  shall  be 
stated  only  in  a  general  way,  leaving  the  detail  to  be  worked  out  by  the  account- 
ant according  to  the  laws  and  rules  of  the  particular  state  in  which  the 
will  is  probated. 

The  first  duty  of  the  executor  is,  of  course,  the  proving  of  the  will  or  the 
taking  out  of  letters  of  administration.  This  just  means  that  the  executor 
places  on  record  evidence  of  his  rights  in  the  handling  of  the  estate  or  property 
of  the  deceased.  An  inventory  of  the  property  is  filed.  This  covers  the  real 
and  personal  estate,  and  the  latter  takes  in  everything  not  covered  by  the 

796 


580 


American  Business  and  Accounting  Encyclopedia 


Ex. 


former,  as  cash  in  hand  and  in  bank,  household  eflFects,  stocks  or  funds,  rents 
of  freehold  or  leasehold  property  due  at  death,  life  insurance  policies,  pro- 
prietory shares  in  public  companies,  or  private  companies,  with  dividends  due. 
money  invested  in  mortgages  or  bonds  and  interest  thereon,  good  will,  stock 
in  trade,  book  debts,  bonds  and  bills,  fanning  stock  and  all  other  personal 
property. 

About  the  only  book  that  the  average  executor  keeps  is  a  cash  book, 
which  shows  receipts  and  payments,  but  with  particulars  so  vague  and  indis- 
tinct that  very  often  the  work  of  preparation  of  the  accounts  is  difficult  and 
perplexing.  No  rules  are  anywhere  laid  do^vn  for  the  exact  manner  in  which 
accounts  of  this  class  are  to  be  kept,  and  because  of  the  fact  that  the  executor's 
work  is  generally  a  labor  of  love,  it  is  scarcely  to  be  wondered  at  if  the  accounts 
are  loosely  and  carelessly  kept.  In  an  ordinary  estate  where  there  are  not 
many  varied  sources  of  income  to  deal  with,  or  much  real  estate  to  look  after 
and  manage,  and  but  few  heirs  amongst  whom  distribution  is  to  be  made, 
for  the  purpose  of  keeping  the  accounts  up  to  the  preparation  of  the  final 
accounting,  a  simple  cash  book  will  suffice.  The  cash  book  should  show  on 
the  debit  side,  in  columns,  and  with  full  details,  the  amounts  realized  from 
the  sale  of  properties  and  securities  as  principal,  and  the  income,  and  if  the 
estate  runs  for  a  considerable  period,  investments.  On  the  credit  side  also 
use  columns,  as  many  as  are  necessary,  one  for  expenses,  one  for  debts,  one  for 
investments,  and  one  for  payments  to  legatees  and  heirs.  I  recommend  the 
use  of  total  columns  on  both  debit  and  credit  sides,  in  which  to  carry  the  total 
of  both  debit  and  credit  with  every  entry. 

For  larger  estates  it  becomes  necessary  to  keep  the  accounts  in  a  more 
clear  and  concise  manner  than  is  possible  with  the  simple  cash  book.  The 
simpler  the  accounts  are,  the  better,  so  long  as  they  contain  all  the  data  that 
is  necessary.  A  cash  book  and  ledger  will  answer  the  purpose  of  any  estate, 
with  subsidiary  books,  as  for  recording  rents,  bills  and  mortgages  receivable, 
and  whatever  other  books  the  nature  of  the  estate  may  require.  1  omit  the 
journal  for  the  reason  that  it  is  particularly  desirable  that  the  fullest 
explanations  shall  be  made  in  the  books  of  original  entry,  and  that  the  ledger 
and  cash  book  shall  contain  these,  so  that  in  referring  to  any  of  the  transac- 
tions of  the  estate  recourse  will  not  be  necessary  to  any  other  book.  One 
authority,  in  dealing  with  executors'  accounts,  suggests  as  advantageous  the 
making  of  a  preliminary  draft  of  the  arrangement  of  the  accounts.  In 
the  process  of  your  work  you  are  almost  sure  to  meet  with  items  requiring 
explanation  before  you  can  decide  to  which  particular  account  they  should 
be  placed,  or  what  proportion  of  them  is  capital  and  what  income.  You  will 
be  indeed  fortunate  if  in  the  course  of  your  work,  you  do  not  find  it  necessary 
to  make  alterations  and  corrections.  And  for  this  purpose  he  suggests  two 
ordinary  cheap  books,  with  paper  binding,  and  both  ruled  alike,  that  is,  in  the 
form  of  an  ordinary  cash  book  with  double  cash  columns,  using  one  for 
tlie  cash  book  and  the  other  for  the  ledger. 

As  in  the  opening  of  any  kind  of  a  business,  the  terms  and  conditions  and 
material  which  form  the  opening  accounts  of  the  business  should  be  set  forth  in 

797 


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full,  so  with  the  accounts  of  an  estate,  the  will  should  be  carefully  scanned, 
and  an  abstract,  or  indeed  the  whole  will  might  be  copied  into  the  beginning 
of  the  cash  book  or  ledger.  Besides  this,  it  is  well  to  enter  the  date  of  death 
of  the  testator,  date  of  grant  of  probate,  the  names  and  addresses  of  the 
legatees,  the  executors,  and  such  other  information  as  you  may  be  able  to 
obtain.  Such  a  proceeding  as  this  will  effect  a  wonderful  saving  of  time 
afterward,  especially  if  the  trust  be  one  of  long  duration.  A  copy  of  the  in- 
ventory should  be  written  into  the  cash  book  following  the  particulars  above 
set  out,  after  it  has  been  verified  as  to  its  correctness,  noting  any  discrep- 
ancies. The  opening  entries  will  then  be  ready  to  be  made  in  your  books. 
In  the  cash  book,  which  is  in  reality  also  a  journal,  you  credit  capital  and 
charge  the  various  accounts  of  which  the  estate  is  composed.  Separate 
accounts  should  be  opened  for  each  parcel  of  real  estate,  and  opposite  it  should 
be  placed  the  incumbrance,  if  any  exist,  against  it.  The  capital  account 
should  show  the  total  estate  of  the  testator,  and  should  agree  with  the  inven- 
tory. As  happens  frequently,  certain  parcels  of  the  real  estate  may  be  willed 
directly  to  the  legatees.  Having  credited  capital  account  with  these,  in  order 
to  show  the  condition  of  the  estate  at  the  time  of  death  of  the  testator,  it 
becomes  necessary  to  make  a  further  entry,  crediting  capital  account  and 
charging  the  legatee.  Having  gathered  together  all  the  materials  mentioned 
above,  the  books  should  now  show  and  contain  an  account  of  the  assets  of 
the  testator,  with  which  the  executors  have  to  do.  The  next  to  proceed  with 
is  the  dealings  of  the  estate,  which  comprise  the  transactions  of  the  execu- 
tors, and  as  to  these  I  cannot  do  better  than  quote  shortly  from  a  paper  on 
this  subject  recently  prepared  and  read  by  the  president  of  the  Institute, 
with  whose  views  I  coincide. 

As  the  transactions  of  the  executors  consist  entirely  of  receipts  and  pay- 
ments, they  appear  in  the  form  of  the  cash  account,  the  entries  being  made  in 
the  order  of  date  on  which  the  transactions  occur.  The  first  entry  will  be 
cash  in  the  house.  Then  following  will  come  the  sum  received  in  payment 
of  the  back  debts,  proceeds  of  shares  and  other  investments  realized,  also 
rents  and  dividends,  interest,  etc.,  received.  These  are  income.  Cheques 
drawn  on  the  bank  are  also  receipts  from  the  bank,  being  the  money  drawn 
out  to  discharge  debts.  The  use  of  the  columnar  cash  book  will  save  con- 
siderable labor,  especially  as  all  receipts  should  be  paid  into  the  bank,  and 
all  moneys  paid  by  cheque.  Next  on  the  credit  side  will  appear  all  payments 
made  by  the  executors  on  account  of  the  debts  of  the  deceased,  or  for  which 
his  estate  is  liable.  There  should  be  a  careful  keeping  of  vouchers  for  all 
the  payments,  and  a  division  should  be  kept  as  between  payments  of  accounts 
incurred  previous  to  death  or  following,  in  order  that  they  may  be  ultimately 
entered  in  the  proper  account.  The  ordinary  payments  of  the  average  estate 
will  be  found  to  comprise  the  following:  1.  Probate  and  administration, 
which  includes  fees  payable  on  the  grant  of  the  probate.  2.  Funeral  ex- 
penses, with  all  that  that  implies.  3.  Executorship  expenses,  including  valua- 
tion fees,  law  costs,  accountant's  charges,  travelling  expenses  and  other  ex- 
penses incident  to  such  a  trust.     4.    Debts  owing  by  the  testator,  as  rents, 

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wages  and  taxes.     5.    Debts  on  mortgage,  if  any,  with  interest  due  at  death. 
6.   Debts  on  bonds  and  other  securities.    7.   Pecuniary  legacies. 

Care  must  be  taken  to  post  all  the  sums  received  on  account  of  income 
separate  from  the  receipts  on  account  of  capital. 

In  closing  up  the  accounts,  transfer  to  Capital  Account  must  be  made  of 
the  items,  as  in  Section  2  enumerated  above,  and  any  excess  of  receipts  in  the 
realization  of  the  property  over  the  amount  at  which  inventoried,  on  the 
credit  side,  and  on  the  debit  side  any  deficiency  which  may  have  arisen  from 
the  same  source.  These  matters  having  been  attended  to,  the  books  will  then 
show  just  what  is  left  which  is  available  for  legacies  and  bequests,  and  this 
should  be  distributed  amongst  those  entitled  to  it.  In  case  any  portion  of  the 
estate  is  still  unrealized,  or  there  are  any  debts  against  the  estate  outstanding, 
it  is  necessary  that  reserves  should  be  made  suflficient  to  cover  these  points. 
Annuities  should  be  provided  for  by  the  investment,  in  an  absolutely  safe 
manner,  of  such  a  sum  as  will  produce  with  the  interest  annually  the  required 
sum. 

Having  closed  up  these  matters,  the  proving  or  passing  of  the  accounts 
becomes  necessary,  and  the  preparation  of  statements  to  this  end  is  next  in 
order.  Just  what  form  these  statements  or  schedules  take,  depends  largely 
upon  the  law  governing  these  matters  in  the  particular  locality  or  state.  In 
New  York  the  forms  furnished  and  required  by  the  Surrogate  Court  are: 
A — Receipts.  B — Losses.  C — Expenses.  D — Debts.  E — Payments  to 
legatees.  F — Names  of  persons  entitled  to  share  in  the  estate.  G — Other 
information.  H — Property  or  estate  undisposed  of.  These  forms  are  self 
explanatory,  and,  ehminating  "  F,"  which  is  merely  a  memorandum,  should 
be  self-balancing. 

The  accounts  having  been  filed,  are  subject  to  examination  and  objection 
by  any  person  interested  in  the  estate,  and  reference  is  had  to  the  proper  au- 
thority for  adjudication  of  any  differences  which  may  arise.  If  the  objec- 
tions are  sustained,  the  accounts  must  be  varied  accordingly;  if  no  change  is 
effected  as  a  result  of  the  protest,  the  accounts  are  then  settled,  and  the  decree 
which  makes  them  binding  is  issued.— F.  H.  Macphcrson,  C.  A. 

UNIVERSITY   OF   ILLINOIS.      C.    P.    A.    EXAMINATION,    MAY,    1904. 

QUESTION   6. 

The  administrator  of  a  will  received  $63,000  in  cash  to  be  distributed 
among  the  heirs  and  legatees  under  the  terms  of  the  will,  as  follows  : 

Sarah,  a  daughter  of  the  deceased,  after  payment  of  the  legacies,  in- 
cluding a  legacy  of  $1,000  to  herself,  was  to  receive  one-fifth  of  the  residue 
of  the  estate. 

Jane,  a  daughter  of  the  deceased,  after  payment  of  the  legacies,  was  to 
receive  one-fifth  of  the  residue  of  the  estate. 

Anne,  a  daughter  of  the  deceased,  was  to  receive  the  same  as  Jane. 

George,  a  son,  after  payment  of  the  legacies,  including  a  legacy  of  $500 
for  himself,  was  to  receive  one-fifth  of  the  residue  of  the  estate. 

799 


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Ex.  American  Business  and  Accounting  Encyclopedia  580 

Three  children  of  a  deceased  son,  Jacob,  were  to  receive  legacies  of 
$50<»  each. 

Reuben,  a  son.  was  to  receive  one-fifth  interest  in  the  residue  of  the 
estate,  subject  to  the  payment  of  the  legacies  as  mentioned,  and  also  sub- 
ject to  legacies  of  $3,000  each  to  his  wife  and  three  children. 

The  administrator  carried  out  the  terms  of  the  will. 

Open  the  books  of  the  administrator  showing  receipt  of  the  funds,  their 
proper  distribution,  payment,  and  closing  entries. 

SOLUTION. 

JOURNAL  ENTRIES. 

1. 

Cash    $63,000 

To  Corpus    $63,000 

Funds  in  hands  of  administrator  for  distribution  per  will. 

Corpus    $63,000 

To  Legacies  account $15,000 

Sarah     $1,000 

George    500 

Jacob's  children  1,500 

Reuben's  wife  3,000 

Reuben's  children   9,000 

Residuary  Estate  account 48,000 

3. 

Residuary  Estate  account $48,000 

To  sundry  legatees $48,000 

Sarah— %    $9,600 

Jane — %     9,600 

Anne — %    9,600 

George— %    9,600 

Reuben— Vs     9,600 

Entered  under  the  terms  of  the  testator's  will. 

LEDGER  ACCOUNTS. 

CORPUS. 

Legacies $15,000 

Residuary  Estate  account 48,000 

$63,000 

Cash    $63,000 

$63,000 
800 


580  American  Business  and  x\ccounting  Encvclopedia 

LEGACIES. 

Cash,  Sarah    $  1,000 

Cash,  George    500 

Cash,  Jacob's  children    1,500 

Cash.  Reuben's  wife   3,000 

Cash,  Reuben's  children    9,000 

$15,000 

Corpus    $15,000 

$15,000 

4. 

RESIDUARY  ESTATE  ACCOUNT. 

Sarah,  legatee,  %   $  9,600 

Jane,  legatee,  %   9.6OO 

Anne,  legatee,  %    9.6OO 

George,  legatee.  %    9,600 

Reuben,  legatee.  %   9.600 

$48,000 

Corpus     $48,000 

$48,000 

SARAH,  LEGATEE. 

Cash     $9,600 

Residuary   Estate   account $9,600 

JANE.  LEGATEE. 

Cash    $9,600 

Residuary   Estate   account $9,600 

ANNE,   LEGATEE. 

Cash    $9,600 

Residuary    Estate   account $9,600 

GEORGE,   LEGATIE. 

^^^^}    $9,600 

Residuary   Estate   account $9  gQQ 

REUBEN.   LKGATEE. 

^*^!\ ' $9,600 

Residuary    Estate   account ^9  qqq 

CASH    ACCOUNT. 
^^'•P"^     $63,000 

$63,000 
801 


Ex. 


f  ■  r.  1 


Ex.-Fi.        American  Business  and  Accounting  Encyclopedia       580-583 

5. 

Legacies  account — 

Legacy  to  Sarah    • $  1,000 

Legacy  to  George    500 

Legacy  to  Jacob's  children    1,500 

Legacy  to  Reuben's  wife    3,000 

Legacy  to  Reuben's   children    9,000 

Legatees'  accounts — 

Sarah    $9,600 

Jane    9^600 

Anne    9-600 

George    9.600 

Reuben    9,600 

$63,000 

- — G.  Jacobsson. 


(581)     FACTORY  COST  ACCOUNTING. 

See  Manufacturing  Costs. 

(582)     FICTITIOUS  ASSETS. 

Fictitious  assets  are  frequently  expense  accounts  carried  on  the  books  as 
assets,  for  the  reason  that  expenditures  have  been  made  for  future  benefit, 
which  has  not  yet  been  received. 

Examples. — Promotion  expense,  bonus,  franchise,  advertising. 

Expenditures  of  this  kind  are  usually  charged  off  in  certain  propor- 
tions year  by  year,  or  at  other  stated  intervals,  until  extinguished. 

(583)     FIGURES. 

These  consist  of  Roman  and  Arabic  numerals.  The  Roman  is  compli- 
cated and  the  Arabic  is  simple,  but  lawyers  say  that  in  contracts  and  law 
proceedings  Roman  figures  will  be  held  valid,  but  Arabic  figures — owing 
to  the  ease  with  which  they  may  be  counteriieited — ^have  been  held  not  to  be 
sufficient  to  express  the  sum  due  on  a  contract. 

(584)     ARABIC  figures. 

Naught  or  Cipher    One    Two    Three    Four    Five    Six    Seven    Eight    Nine 
0  123  4567  8  9 

(585)    ROMAN    FIGURES. 

I     II      III      IV     V     VI      VII      VIII      IX     X 

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(586)  CIPHER. 

This   is  one  of   the   most   curious    features   of   either   mathematics   or 

accountancy. 

A  cipher  placed  in  front  of  what  is  termed  a  "  whole  number  "  expresses 

nothing  but  zero. 

.012 

A  cipher  placed  on  the  right-hand  side  of  a  "  whole  number  '*  expresses 

great  value. 

$1,000,000 

In  this  case  the  ciphers  evidently  represent  $999,999.    Thus — 

$999,999  +  1  =  1  million  dollars. 
The  zero  marks  are  used  in  decimals  to  indicate  the  correct  reduction  of 
digital  value.     The  right-hand  ciphers  are  used  to  indicate  the  increase  of 
value. 

.12  =  12/lOOths.         .012  =  12/1000ths. 

(587)  FILE. 

A  receptacle  arranged  for  the  deposit  of  papers  or  other  data  in  alpha- 
betical or  numerical  reference.     (See  Card  Systems.) 

(588)     FILING  SYSTEMS. 

(589)     alpiiap>etical  filing  systems. 

This  is  a  system  of  folders,  using  a  number  of  division  sheets  with 
projecting  tabs  arranged  alphabetically. 

It  is  also  an  ordinary  card  system,  such  as  is  used  in  recording  stores 
received  and  delivered,  and  balances  on  hand.  For  illustration  of  a  card  sys- 
tem, see  ^Manufacturing  Accounting,  or  Card  System,  \''olume  3. 

(590)     decimal  filing  system. 

A  method  used  in  railroad  organizations  in  which  ciphers  are  used  to  des- 
ignate general  or  sub-general  headings.  For  example,  0 — General  will  be 
divided  as  follows : 

0.00     General. 

0.10     Officers  and  Employes. 

0.20     Materials  and  Supplies, — General. 

0.30     Insurance. 

0.70     Relations  with  federal,  state  and  municipal  governments. 

0.80     Relations  with  other  Transportation  Companies,  etc. 
1 — Executive — as  follows : 

1.00     Executive, 

1.10     Constitution  and  By-Laws. 

1.20     Charter  and  Letters-Patent,  etc. 

803 


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!    ■! 


American  Business  and  Accounting  Encyclopedia 

2 — ^Finance  and  Accounts— as  follows: 
3.00     Finance  and  Accounts . 
2.10      Finances. 
2.20     Accounts. 

3— Roadway  and  Structures— as  follows: 
3.00     Roadway  and  Structures. 
3.10    Right  of  Way. 
3.20     Crossings. 
3.30     Roadbeds. 
3.40    Tracks,  etc. 

4r— Equipment  and  Shops— as  follows: 
4.00     Equipment  and  Shops. 
4.10     Rolling  Stock. 
4.20     Floating  Equipment. 
4.30     Shops,  etc. 

5 — ^Transportation  and  Storage: 

5.00     Transportation  and  Storage. 

5.10     Tracks  and  Terminals— Working. 

5.20     Trains. 

5.30     Locomotives— Utilization  of,  etc 

6— Traffic.  Rates,  etc.,  as  follows: 

6.00  Traffic,  Rates.,  etc. 

6.10  Passenger  Traffic. 

6.20  Freight  Traffic. 

6.30  Baggage,  Handling,  etc. 

6.40  Mail,  Handling,  etc. 

6.50  Express,  Handling,  etc. 

No  provision  is  made  for  digits  7  and  8.  these  having  been  especially  left 
open  in  order  that  they  may  be  used  for  such  general  subjects  as  may  be  con- 
sidered desirable  bv  the  railroad  offices  using  this  system. 

No  9  has  been  especially  provided  for  matters  off  the  hne  of  road  and 
entirely  foreign  to  a  railroad,  or,  for  matters  to  be  filed  geographically. 

9.00  Local  Facilities  and  Affairs. 

9.10  New  England. 

9.20  South  Eastern  or  South  Atlantic. 

9.30  South  Central  or  Gulf. 

9.40  North  Central  or  Lake.  etc. 

(591)     numerical  filing  index. 

In  regard  to  correspondence,  or  any  matter  of  that  nature,  the  numerical 
system  is  best  on  an  auxiliary  card  index.    The  cards  are  numbered  from  one 

804 


591-595        American  Business  and  Accounting  Encyclopedia 


Fi. 


upwards  and  the  folders  for  holding  the  matter  to  be  filed  are  numliered  in 
the  same  order.  This  involves  a  considerable  amount  of  work  because  the 
particulars  of  the  correspondence  must  be  included  in  the  card  index,  and  the 
correspondence  is  filed  separately.  Numerical  guide  cards  numbered  by  tens 
are  placed  at  regular  intervals  in  the  letter  drawers. 

Sometimes  there  is  an  effort  made  to  increase  the  efficiency  of  this  sys- 
tem by  cross  indexing,   according  to  the   subjects,   upon   cards   of   different 

colors. 

The  numerical  system  is  much  used  in  connection  with  savings  banks 
and  customers'  ledger  accounts,  especially  where  the  number  of  these  ac- 
counts is  very  large.    See  Card  System,  Vol.  3. 

(592)     SUBJECT  filing  index. 

As  above  indicated,  a  special  index  may  be  arranged  on  different  colored 
cards  or  loose  leaves,  providing  the  subjects  are  not  miscellaneous.  The  best 
plan,  however,  is  undoubtedly  to  use  extension  tabs  on  the  guide  cards  and 
to  file  these  guide  cards  alphabetically. 

(593)     geographical  filing  index. 

This  involves  the  use  of  guide  cards  indicating  the  locality  required  to 
be  referred  to.  This  system  is  much  used  in  installment  houses  for  the  use 
of  collectors.    It  is  also  used  in  a  Real  Estate  business  for  the  same  purpose. 

(594)  VERTICAL    filing   SYSTEM. 

This  is  a  system  of  folders  constructed  vertically  instead  of  horizontally. 
A  vertical  file  drawer  of  the  proper  depth  will  hold  approximately  nine  times 
as  much  correspondence  as  any  standard  horizontal  file  drawer.  This  saves 
a  great  deal  of  work  in  connection  with  transferring  and  also  simphfies 
reference  materially. 

The  Vertical  Filing  System  consists  of  a  separate  folder  or  folders  for 
each  individual  or  subject,  as  the  case  may  be. 

Miscellaneous  documents  or  correspondence  are  arranged  in  a  separate 
folder,  alphabetically. 

(595)  FOLLOW-UP   SYSTEM    FILE. 

If  satisfactory  results  are  to  be  obtained  from  the  operation  of  a  follow- 
up  system,  the  inquiries  must  be  followed  up  systematically — at  the  right 
time— and  the  system  must  provide  for  bringing  the  inquiries  to  notice  ex- 
actly at  the  time  when  they  require  attention.  By  making  use  of  certain 
mechanical  devices,  the  follow-up  system  l-?.s  been  brought  to  such  a  state 
of  perfection  that  any  matter  reouiring  attcntit  n  a  week,  a  month  or  six 
months  from  date  can  be  dismissed  from  the  mind  with  the  assurance  that  k 
will  be  brought  to  notice  at  the  proper  moment. 

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American  Business  and  Accounting  Encyclopedia        595-598 


The  most  simple  device  for  a  follow-up  system  is  a  correspondence  file, 
indexed  by  dates.  Most  stationers  carry  in  stock  small  files,  designed  for  use 
on  the  desk,  which  are  provided  with  thirty-one  numbered  compartments- 
one  for  each  day  in  the  month.  In  these  compartments,  letters  or  memoranda 
are  filed  according  to  the  date  on  which  the  matters  referred  to  should  receive 
attention.  As  an  illustration,  a  letter  is  written  on  the  tenth  of  the  month 
to  which  a  reply  should  be  received  within  ten  days.  A  copy  of  the  letter,  or 
memoranda,  referring  to  the  matter,  is  placed  in  compartment  No.  20.  On 
the  20th  all  papers  filed  in  compartment  No.  20  are  removed  for  attention. 
If  no  reply  to  the  letter  in  question  has  been  received,  another  letter  is  writ- 
ten or  such  action  as  may  be  considered  necessary  is  taken.  Then. if  the 
matter  has  not  been  disposed  of,  the  papers  are  filed  ahead  to  the  date  on 
which  thev  should  again  receive  attention.  A  file  of  this  kind  will  be  found  a 
great  convenience  on  any  man's  desk  and  can  be  used  to  advantage  for  bring- 
ing to  his  notice  from  day  to  day  all  sorts  of  matters  which  require  his 

attention.  .  r      .u  ii 

Where  the  correspondence  to  be  handled  is  too  voluminous  for  the  small 
desk  file,  one  or  more  drawers  in  the  regular  files  may  be  arranged  with 
similar  indexes. 


(596)     card  filing  system. 


See  Volume  3. 


(597)     correspondence  filing  system. 
See  Alphabetical,  Numerical,  Subject  and  Vertical. 

(598)     catalog  filing  system. 

The  catalog  file  of  the  Maryland  Steel  Company  has  about  2,000  different 
books  or  pamphlets  in  it,  and  as  it  has  been  in  operation  for  three  years,  it 
can  be  said  to  have  proven  itself  satisfactory.  Yet  it  is  very  simple  and,  up  to 
this  time,  hasn't  cost  over  $25  to  provide  and  maintain. 

An  ordinar>',  wood  re-inforced,  box  file,  is  used  in  which  the  catalogs 
are  kept  and  the  key  to  the  situation  is,  of  course,  a  card  index.    We  will  take 
up  the  boxes  first.     They  can  be  bought  by  the  hundred  at  about  16c  each. 
After  a  catalog  has  been  received  and  given  its  number,  it  is  placed  in  the 
proper  box  which  is  marked  on  the  outside  with  two  numbers,  usually  giving 
a  range  of  ten  numbers,  say  100-110.    It  is  not  the  intention  or  desire  to  fil 
the  box  at  once,  but  to  leave  room  for  other  catalogs  of  the  same  material 
which  may  come  along  later.    When,  however,  the  box  does  fill  up,  it  is  easily 
managed  by  putting  another  box  numbered  "  A  "  or  "  B."     Some  of  the 
pamphlets,  booklets  and  circulars  received,  which  are  worth  saving,  are  sma 
and  it  would  take  a  large  number  to  fill  the  box.     Then  the  numbers  will 
still  be  maintained  by  duplicating  the  same  number.     If  you  are  looking  up 
electrical  fixtures  and  on  going  to  your  index  for  that  title,  you  are  referred 
to  175,  it  doesn't  matter  how  many  books  you  find  in  that  box. 

806 


59&-599        American  Business  and  Accounting  Encyclopedia 


Fi. 


Large  catalogs,  bound  volumes,  are  indexed  just  the  same  and  their  num- 
ber plainly  marked  on  the  back,  and  the  books  placed  on  a  shelf. 

Now,  as  to  the  index.  This  is  copiously  cross-indexed  under  subjects 
and  individuals.  Take  again  as  an  example  "  electrical  fixtures."  Here  you 
find  the  names  of  several  firms  whose  catalogs  you  have,  all  shown  on  the 
same  card.  Then  each  of  these  firms  has  a  separate  card  showing  the  same 
file  number,  so  if  you  wanted  the  catalog  of  the  Electrical  jVIaterial  Co.,  you 
look  for  it  and  find  it  as  175-B. 

Acetylene  light  may  be  under  consideration.  Some  one  may  want  to 
figure  on  cost  of  lighting  with  it.  Turning  to  "  acetylene  "  in  the  card  index, 
we  get  the  names  of  the  firms  making  appliances  for  its  generation  and  use, 
and  the  boxes  in  which  the  catalogs  may  be  found.  If,  later  on,  additional 
catalogs  are  received  from  other  makers  of  acetylene  generators  or  lamps, 
their  names  would  be  put  on  the  same 'card  and  their  number  would  be  the 
next  unfilled  number  in  the  box,  in  this  case,  321.  Should  there  already  be  ten 
different  makers  and  there  was  still  room  in  the  box  for  more,  the  number 
would  be  either  the  same  or  321-A.  That  is  optional  with  the  filer  and  really 
makes  no  difference. 

(599)     electros,  cuts  or  patterns  filing  system. 

form  1. 

The  forms  illustrated  are  in  themselves  almost  self-explanatory,  but  to 
clearly  define  their  use,  we  will  go  through  an  imaginary  transaction. 

The  General  Mail  Merchandise  Company  have  a  particularly  fine  buggy 
which  is  known  as  the  Winthrop  Special.  A  cut  of  this  is  made  by  the 
engraving  company.  When  the  electro  company  send  the  engraving,  the  man 
in  charge  of  the  cuts  immediately  pastes  Form  1  on  the  electro.  All  electros 
are  numbered  consecutively.    This  one  happens  to  be  number  47. 

Then  Form  2  is  filled  out  as  illustrated.    . 


Electro  No.  47 

GENERAL    MAIL   MERCHANDISE  CO. 

Nbw    Orleans,    La. 


Form  I. 


ELECTRO  CARD 


Battm  No.       4T 


C"*     f»-«> 


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SUBJECT  CARD 


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SPECIAL   SUBJECT  CARD 


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REMARKS 

Kxeolieat  on  book  papor 
V«r>  difficult  to  print 


Form  3. 


Form  4. 


807 


ft 


American  Business  and  Accounting  Encyclopedia 


599-600 


I  ! 


FORM    2. 

This  is  a  white,  three  by  five  card,  and  it  is  filed  numerically  in  the  card 

cabinet. 

Notice  of  the  receipt  of  the  electro  is  then  sent  the  vehicle  departnient 
with  a  slip  bearing  the  information  on  the  Electro  Card  (Form  2).  Then 
this  information  is  entered  in  a  book  kept  for  that  purpose  by  the  depart- 
ment. Then  also  a  check  is  made  against  74,322  in  a  department  catalog 
so  that  they  may  know  for  what  vehicles  in  the  catalog  they  have  electros. 


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12 

OUT 

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joit  Is          Cvrti*  Publishing  Co., 
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Form  r>. 

The  clerk  in  charge  of  the  electros  then  goes  to  the  alphabetical  files  and 
picks  out  the  Subject  Card  (which  should  be  any  color  but  white)  and  puts 
down  the  proper  number  (See  Form  3). 

FORM   3. 
He  also  fills  out  a  Special  Subject  Card  as  shown  in  Form  4. 

FORM    4. 

This  card  is  white  and  is  filed  in  the  same  cabinet  as  the  preceding  Sub- 
ject Card  (Form  3).  The  card  in  the  present  instance  is  filed  among  the  last 
of  the  Be's,  on  account  of  the  Winthrop,  so  that  if  called  on  to  find  that 
card  he  will  turn  to  the  guide  card  Be  and  then  to  Wi  in  the  cards  behind 
that  guide. 

FORM    5. 

Then  when  this  cut  is  used  an  Out  Card  (Form  5)  is  filled  out.  For  the 
sake  of  economy,  these  cards  are  of  light  stock  or  paper.  These  are  filed  in 
front  of  the  Electro  Card  (Form  2).  A  steel  pointer  over  the  month  indi- 
cates to  the  clerk,  when  looking  over  the  cards,  whether  or  not  an  electro 
is  due  that  month,  without  first  examining  the  cards.  The  files  should  be 
examined  every  five  or  ten  days,  so  that  publishers  tardy  in  returning  electros 
can  be  written  to.  When  the  electro  is  returned  by  the  publisher,  the  Out 
Card  is  either  destroyed  or  filed  numerically  in  a  transfer  case  for  reference. 

(600)     FINANCIAL  STATEMENT. 

See  "Balance  Sheet,  Trading  Account,  Profit  and  Loss  Account,  Com- 
parative Statements,  etc. 

808 


601         '      American  Business  and  Accounting  Encyclopedia 

(601)     FIRE  INSURANCE  AGENCY  ACCOUNTING. 


Fi. 


Forms  used — Expiration  Journals,  Ledger  and  Cash  I>ook. 

The  Expiration  Journals  consist  of  daily,  monthly  and  yearly  records. 
In  the  daily  record,  the  amount  of  premium  is  posted  direct  to  the  Ledger  ac- 
count of  each  individual,  and  the  total  amounts  arc  carried  to  the  regular 
monthly  record  sheet.  The  total  amount  of  premiums  is  posted  direct  from 
the  monthly  record  to  the  credit  of  the  Insurance  account  in  the  Ledger. 
Net  premiums  are  credited  direct  to  the  respective  companies'  accounts  in 
the  ledger. 

The  yearly  record  is  a  summary  of  the  monthly  records.  If  a  record 
of  a  loss  by  fire  is  desired,  it  can  be  kept  as  shown  on  Form  4,  thus  enabling 
a  local  agent  to  give  actual  figures  to  any  general  agent  who  may  visit  the 
agency. 

Form  5  is  a  Ledger,  and  a  simple  plan  of  Cash  Book  is  used,  considered 
sufficient  for  the  Agency  business. 

The  following  are  the  advantages  of  this  system : 

DAILY   record. 

Separate  record  of  business  given  each  company. 
Automatic  record  of  expirations  on  that  day  for  each  year. 
No  expiration  record  to  make  up  or  rewrite. 


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No  space  wasted — everything  is  compact  and  every  line  of  each  sheet  is 
used. 

Each  day's  business  is  separate  and  in  form  for  comparison  with  business 
of  previous  years. 

If  desired,  renewal  policy  numbers  can  be  inserted  in  second  column  on 
left-hand  side  of  sheet. 

The  name  of  the  company  is  written  but  once  for  each  day. 


MONTHLY   record. 

Shows  what  amount  of  business  is  being  done  each  day;  no  necessity 
of  waiting  until  end  of  month  to  find  how  much  insurance  is  written. 

No  possibility  of  forgetting  or  overlooking  charging  back  to  the  com- 
panies any  return  premiums  due  for  cancellations. 

This  serves  as  a  double  check  on  monthly  accounts  current  to  each 
company. 

If  desired,  the  total  daily  expenses  of  the  agency  (as  shown  by  the  cash 
book)  can  be  inserted  in  column  following  heading  of  "  remarks." 

Amount  of  business  given  each  company  is  before  you,  as  a  guide  in 
figuring  percentage  of  postage  to  be  charged  to  each  company. 


811 


.-rr- 


Fi. 


American  Business  and  Accounting  Encyclopedia 


601-602 


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YEARLY   RECORD. 

One  glance  shows  what  has  been  accompHshed. (hiring  the  year. 

Each^month's  record  is  separate,  yet  combined  for  total  results. 

It  is  a  practical  guide  to  your  business— showing  how  much  business  has 
been  secured  each  month,  and' whether  the  amount  of  money  expended  in  se- 
curing that  business  is  excessive  or  not. 

Shows  what  the  agent  is  doing  for  himself. 

Shows  what  he  is  doing  for  each  and  every  company  which  he  represents. 

CLAIMS   RECORD. 

Complete  record  of  each  and  every  loss  sustained  by  the  several  com- 
panies represented  by  the  agency. 

(602)     FIRE  INSURANCE  ADJUSTMENT. 

The  fire  insurance  adjuster  is  usually  an  exceedingly  clever  individual 
selected  bv  insurance  companies  as  a  man  possessing  an  uncommon  knowl- 
edge of  human  nature,  one  who  can  tell  at  a  glance  if  the  claim  is  fraudulent 
by^he  actions  and  appearance  of  the  claimant,  and  who  will  promptly  know 
when  it  will  be  good  policy  to  make  a  prompt  and  liberal  settlement. 

The  adjustment  of  fire  losses  frequently  presents  some  rather  puzzling 
problems  as  to  value  of  inventory  on  hand,  etc.,  but  as  a  rule,  it  is  safe  to 
calculate  the  average  profit  made  during  the  preceding  twelve  months,  and 
proceed  as  follows : 


812 


602  American  Business  and  Accounting  Encyclopi:dia  Fi. 

Inventory  January  1st    $ 

Purchases    

Total    « 

Gross   Sales    $ 

Less  Average  Percentage  of  Profit 

Cost  of  goods  sold $ 

Deducting  net  sales  from  the  footing  of  Inventory  and  P\irchases,  the 
difference  remaining  is  the  approximate  amount  of  Inventory  at  date  of  fire. 

The  entries  to  be  made  on  the  books  of  accoimt  covering  the  adjust- 
ment may  be  treated  somewhat  as  follows: 

The  S.  Krajove  Piano  Manufacturing  Company  was  partially  destroyed 
by  fire  November,  1000.  It  carried  insurance  on  buildings,  machinery  and 
stock  of  $30,000.  This  insurance  was  placed  January  1st,  1900,  at  2  per  cent., 
and  the  premium  amounted  to  '$()00  for  one  year,  which  was  paid  in  advance. 
The  actual  value  of  the  property  insured  was  estimated  at  $35,000.  The 
actual  value  of  the  property  destroyed  or  damaged  was  $20,000. 

The  insurance  adjusters  claimed  that  the  actual  damage  by  fire  was 
$15,000,  and  they  agreed  that  the  insurance  companies  should  pay  this 
amount  and  the  S.  Krajove  Piano  Manufacturing  Company  to  kee])  the 
salvage — that  is,  the  buildings,  machinery  and  stock  damaged,  but  not  en- 
tirely destroyed. 

In  formulating  a  claim  against  the  insurance  comi)any  the  amount  of  in- 
ventory when  last  taken,  July  1st,  1900,  was  used  as  a  basis.  To  this 
stock  was  added  the  total  of  invoices  of  goods  pinxhased,  labor  according 
to  cost  records,  freight  and  percentage  of  administrative  expense.  The  aver- 
age percentage  of  gross  profit  as  shown  by  the  records  of  the  six  months' 
business,  from  January  to  June,  was  then  deducted  from  the  total  sales  and 
the  remainder  deducted  from  the  inventory,  plus  purchases,  plus  labor,  plus 
freight,  plus  proportion  of  administrative  expense,  the  difference  being  the 
average  inventory  on  hand  at  date  of  the  fire. 

The  following  entries  were  then  made  on  the  books  to  adjust  the  matter: 


Dr. 

Insurance   Account    $15,000 

Amount  of  damages  agreed  upon  by  insurance  adjusters : 

Buildings    $7,000 

Machinery    3,500 

Unfinished  Stock   4,500 

Salvage  Account   5.000 

Value    placed    by   insurance    adjusters    on    that    portion    of 

buildings,  machinery  and  stock  in  trade  that  was  damaged  but 

not  entirely  destroyed  by  fire,  viz.: 

Buildings    $2,500 

Machinery     1,500 

Unfinished  <%tock   1,000 


Cr. 


813 


11  i 


Fi.  American  Business  and  Accounting  Encyclopedia  602 

Building   Account    $9,500 

Machinery  Acct   5,000 

Unfinished  Stock  5,500 

The  S.  Krajove  Piano  Manufacturing  Company  rebuild  that  portion 
of  their  premises  which  was  destroyed  by  fire  and  which  was  valued  in  the 
salvage  account  at  $2,500,  but  they  consider  it  worth  only  $2,000.  The  fol- 
lowing entry  is,  therefore,  made  on  their  books: 

Building  Acct   $2,000 

To  Salvage  Acct   $2,000 

For  portion  of  building  damaged  in  fire  used  in  reconstruction. 

The  S.  Krajove  Piano  Manufacturing  Company  repair  some  of  the 
machinery  which  went  through  the  fire  and  value  such  machinery  over  and 
above  cost  of  repair  at  $1,000.  The  damaged  uncompleted  stock  is  sold  for 
$1,250  to  J.  Smith  &  Co.    The  following  entry  is,  therefore,  now  made : 

To  Salvage  Acct $2,250 

Machinery  Acct   $1,000 

Machinery  damaged  by  fire,  repaired  and  used  in  mill. 

Dr. 

J.  Smith  &  Co $1,250 

Salvage  sold  to  them. 

Cash  payment  is  received  from  the  insurance  companies  amounting  to 
$14,250.    Make  entry  on  cash  book,  debit  side: 

Dr. 
Insurance    Acct.,     Cash    payments    from    insurance    companies 

(itemized)    $14,250 

One  of  the  insurance  companies  goes  bankrupt  before  paying  its  share 
of  the  damages,  on  account  of  which  the  S.  Krajove  Piano  Manufacturing 
Company  is  unable  to  collect  $750  of  the  insurance  money.  The  following 
entry  is,  therefore,  made: 

Fire  Loss  Acct.   ...  1 $750 

To  Insurance  Acct $750 

Insurance  uncollectable  owing  to  failure  of  Union  Fire  Ins.  Co. 

All  of  the  salvage  having  been  disposed  of  and  a  debit  balance  of  $750 
remaining  on  that  account,  the  following  entry  is  made  to  close  the  account: 


Fire  Loss  Acct 

To  Salvage  Acct 

Net  loss  on  salvage  from  fire. 


$750 


$750 


814 


602-606        American  Business  and  Accounting  Encyclopedia  Fi. 

The  amount  paid  January  1st,  1900,  for  one  year's  premium  on  insur- 
ance now  remains  standing  as  a  debit  balance  on  insurance  account.  At  the 
end  of  the  year  the  following  entry  is  made  to  dispose  of  this  balance : 

Insurance   Account    $600.00 

Profit  and  Loss: 

11    months'    premium    from    Jan.    1,    1900,    to    date 

of  fire    $550.00 

Fire  Loss  Acct. 

One  month  insurance  premium  (where  the  loss  ex- 
ceeds 50%  of  the  insurance,  the  companies  make 
it  a  rule  not  to  allow  for  the  balance  of  unex- 
pired insurance)    50.00 

— A.  A.  Pribnow. 

In  many  fire  insurance  policies  the  average  clause  is  inserted.  This  is 
generally  worded  as  follows: 

"  It  is  a  part  of  the  consideration  of  this  policy  and  the  basis  upon 
which  the  rate  of  premium  is  fixed,  that  the  assured  shall  maintain  insurance 
on  each  item  of  property  insured  by  this  policy  equal  to  the  actual  cash  value 
thereof,  and  that  failing  so  to  do,  the  assured  shall  be  an  insurer  to  the 
extent  of  such  deficit,  and  in  that  event  shall  bear  his,  her  or  their  proportion 
of  any  loss." 

This  clause  works  in  the  following  manner: 

If  property  valued  at  $10,000  is  insured  for  $7,500,  and  there  is  a  par- 
tial loss  by  fire  of  goods  to  the  value  of  $3,000,  the  insurance  company  would 
pay  $2,250,  or  same  proportion  of  the  loss  as  the  amount  insured  bore  to  the 
total  value,  viz.,  three-quarters. 

When  the  amount  received  from  the  insurance  company  for  rebuild- 
ing and  replacement  exceeds  the  cost  of  such  rebuilding  and  replacement,  the 
surplus  can  be  distributed  as  profit,  but  the  amount  of  such  distribution 
should  be  separately  stated  so  as  not  to  affect  the  trading  statistics. 

(603)     FIXED  ASSETS. 

See  Assets.  ' 

(604)  FIXED  CAPITAL. 

Capital  invested  in  fixed  or  permanent  assets. 

(605)  FIXED  CHARGES. 

Charges  against  revenue  which  are  regular  in  their  recurrence,  such  as 
rent,  interest  on  funded  debt  or  bonds,  taxes,  etc. 

(606)     FIXED  LIABILITIES. 

Liabilities  of  a  permanent  character,  such  as  capital,  bonds  and  mortgages. 

815 


Fi.-Fl.        American  Blsixess  and  Accouxtixg  Enxyclopedia        607-611 

(607)     FIXTURES. 

An  account  representing  the  value  of  fixtures  purchased  by  and  used  in 
the  transactions  of  a  business.    (See  also  "  Furniture  and  Fixtures.") 

(608)     FLOATING  ASSETS. 

Also  called  cash  assets.    See  Assets. 

(609)     FLOATING  CAPITAL. 

The  capital  retained  for  the  purpose  of  meeting  current  expenses.  It  in- 
cludes raw  materials  destined  for  fabrication,  such  as  wool  and  flax  products 
in  the  warehouse  of  a  merchant  or  manufacturer;  and  such  as  cloth,  linen, 
stores,  money  for  wages,  etc. 

(610)  FLOATING  DEBT  OR  INDEBTEDNESS. 

The  ordinary  trade  or  current  liabilities  of  a  business — such  as  bills  and 
accounts  payable,  salaries,  rent,  etc. 

(611)  FLOUR  MILL  BUSINESS  ACCOUNTING. 

This  describes  the  system  of  a  large  Michigan  Milling  Company  which 
maintains  a  line  of  elevators  throughout  the  State.  A  strict  division  of  ledger 
accounts  into  purchase  and  sales  ledgers  is  considered  impracticable  on  ac- 
count of  so  many  sales  being  made  to,  and  purchases  from  the  same  party.. 
The  departmental  divisions  consist  of  grain,  beans,  seeds  and  hay.  Each 
of  these  is  a  purchase  and  sales  deparement  in  itself.  There  is  also  a  general 
sales  department  having  supervision  over  the  departments  mentioned  and  over 
the  salesmen. 

When  a  car  is  received  it  is  inspected  and,  if  the  grade  is  as  purchased, 
it  is  unloaded  at  once,  the  weight  being  entered  in  a  receiving  book  and  also 


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'313 


611 


Americax  Business  and  Accounting  Encvclopedia 


Fl. 


on  a  car  ticket,  which  is  in  the  form  of  a  large  envelope  open  at  one  end,  as 

per  Form  1. 

Credit  Memorandums  are  made  out  in  triplicate,  as  per  Form  'I,  the 
original  going  to  the  ledger  clerk,  the  second  copy  to  the  cost  department 
and  the  third  copy  is  the  shipper's  receipt  for  the  goods  and  is  mailed  to  him. 


The  Order  Sheet  and  Invoice  are  made  out  in  quadruplicate,  as  per  Form 
o,  and  are  made  direct  from  the  salesmen's  orders  or  customer's  written 
orders.  Telephone  or  wire  orders  are  entered  on  the  Memorandum  Slip, 
Form  4. 

The  receiving  books,  as  per  Form  5,  may  not  be  absolutely  necessary  if 
the  purchase  orders  were  properly  arranged. 

The  head  miller's  daily  report  of  each  day's  production  is  as  per  Form  6. 
and  on  the  accuracy  of  this  report  depends  the  accuracy  of  the  cost  records. 

The  time  cards  used  in  the  time  clock  provide  for  a  proper  distribution,  as 
per  Form  7. 

Stock  cards  are  of  the  comition  form  without  provision  of  value. 

Form  8  is  a  Bank  Register  and  Cash  Journal,  and  the  headings  are  self- 
explanatory. 

The  elevators  are  independent  corporations,  in  which  the  manager  of  each 
has  a  financial  interest.  Purchases  are  made  from,  and  sales  to  them,  in 
exactly  the  same  manner  as  to  other  dealers.  Contracts  are  made  with  them 
and  are  binding,  and  lived  up  to,  the  same  as  if  there  were  ro  business  con- 
nection :  and  business  contracts  are  made  by  them  with  outside  dealers  and 
between  each  other. 

817 


Fl. 


American  Business  and  Accounting  Encyclopedia 


611 


818 


011 


American  Business  and  Accounting  Encyclopedia 


Fl. 


dALES  MEMO 


J<)0. 


Sold1C_ 
R 


oce. 


SbiPP*0^  InstriDctibna. 


Ci-ed.1-  QK^ 
FVice  O.K.- 
Invpice  No._ 


'SALESMAN 


o 

HEAD 

YteU 

O 

• 

MILLER'S   REPOKl 

CflViSe  of  6Stf^"t5owr) 

GRODND 

MANV)rACT^3RE-D 

^PPER    CR^)6T 

ACCORDING  TO 
A^iTOMATlC    SCALE- 

\)NCLE    6AM 

« 

SAMICO 

WEIGHT  riC\)RED 
BACK 

fSL^E  taiRD 

PEOPLES 

SCREENINGS 

LOW  GRADE. 

\ 

BRAN    AND    MIDDLINGS 

I5RAN 

MIDDLINGS 

TOTAL 

RYE  FLODR 

- 

N^DTRO 

15'OCKVs/HEA-r    FLCOR 

STRE.LT  CAR    FELD 

^)NCLE  SAM    PANCAKE- 

NO.  1    FEED 

SAMICO     PANCAKE. 

ISO.  Z  FEED 

FINE    MEAL 

STOCK  FEED 

CRACKED     CORN 

COARSE  CORN  MEAL 

GRIST 

GROUND    OAT^ 

1 

I 

819 


Fl. 


American  Business  and  Accounting  Encvcloi'edia 


Oil 


lECORO  OP 


DtPOStTS,  Cash  [>sftMRSE.MtNT6,  Checks  Drawn  anoFUchases  por  Month  of no 


5AGINAW   MILLING   CO, 


5ACINAW,  MICH. 


PAY  ENDING. 


NO. 

NAME. 
OEPT- 


^ 


c 

I 


1^ 


AFT E.R  NOON 


LOST  OR  OVLRTJUL 


TOTAL 


'T5blT^f^e 
Idte 


Itftl^l  W«6e5  ^«r  Week  ♦. 


8*'0 


612-615        American  Business  and  Accounting  E\cvcloi»edia        Fl.-Fo. 

(612)     FLUCTUATION  OF  ASSETS. 

The  appreciation  or  depreciation  of  values  caused  by  changing  market 
conditions,  or  wear  and  tear.  The  fluctuations  of  permanent  and  floating 
assets  are  generally  ignored,  unless  it  can  be  decided  that  the  changing  value 
is  permanent,  in  which  case  the  appreciation  or  depreciation  should  be  taken 
into  account  and  recorded  on  the  books. 

(fil.V)     FOLIO. 

A  folio  usually  consists  of  a  left-hand  page  and  a  right-hand  page  of  an 
account  book,  both  bearing  the  same  page  number.  It  is  customary  to  folio 
journals  and  to  page  cash  books  and  sales  books.  Quite  an  interest  has  been 
exhibited  in  the  question  whether  it  is  better  to  page  or  folio  a  cash  book. 
The  argument  in  favor  of  paging  cash  books  is  that  in  posting,  all  the  odd 
numbers  of  pages  will  refer  to  payments  and  all  the  even  numbers  to  receipts, 
this  being  a  kind  of  safeguard  against  errors  of  posting  and  an  assistance  in 
locating  errors. 

(614)     FOOTING. 
The  total  of  a  column  of  figures.    The  operation  of  addition. 

(615)     FOUNDRY  COST  ACCOUNTING. 

This  is  used  as  a  separate  heading  from  Manufacturing  Accounting  on 
account  of  certain  peculiarities  which  render  that  distinction  desirable.  Most 
foundries  are  content  with  ascertaining  the  average  price  per  pound  or  per 
one  hundred  pounds,  this  including  the  supply  of  coke,  pig-iron,  supplies,  etc. 

Purchase  Orders  are  as  per  Fomi  1. 


0 

1^0? 

,  ^^_ ^                         DATL       Feb.  2o             1*^07 

ADDRF.SS         Pck/,nj5    (browns  Co.. 

Zooibn*)  *Z  fbay\/ifw   P16  Ir-on  tB  be   delivered 
by  cTtTfy  15;  i«)o7.    'Ar  price  oV*M*iprrt5n  C2.2.40*) 
T>ELlVERy:'  F.O.O.^  Roc^ff.rJ.'liib/ 
"TE-RMS*.   .    i>o  clny&   net   or  2%  Cfl5|l  Ji»coV)i)1" 

^             '                                                              4-t-Aooo"' 

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+  4800 

5  58+0  0 

" 

2& 

«         •          - 

»34.4oo 

4-4-Aoo 

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^ 

Form  2  refers  to  a  separate  account  with  each  car  of  pig-iron  or  scrap- 
iron.  On  this  form  is  also  entered  each  day  the  weight  charged  in  cupola, 
this  being  obtained  from  the  foundry  report  sheet.  Form  3. 

Form  4  is  a  cupola  charge  mixture  made  up  by  the  foreman  of  the  foun- 
dry for  the  purpose  of  obtaining  uniformity  in  quality  of  castings.  In  con- 
nection with  these  forms  it  may  be  mentioned  that  wnenever  a  car  of  pig-iron 

821 


iiii[ 


To. 


AMERICAN  Business' AND  Accounting  Encyclopedia 


615 


CAR  NO.    C.^NWld^a                          _      ..^^., 

PRCX)F  CHECK 

ANALVSivS 

2.7o   %  SILICON 

7o  •/©MANGANESE- 

f.  lo  •/o  CRAPHI-riC     CARBON 

30  <»/;  COMfiSlNtP)     <£ARf3»ON 

5o  o/^PHOSPMSft'lis'^"' 

o«)  •/«  SV»LP>MSift 

•/o  AS  H 

DATE    nol  ] 

roM^iGNOR 

INVOICE.  WT 

reb. 

Z5- 

p.  f5.  -r  Co. 

4--^.  800 

DATE.   l« 

)o7 

USEX)                         ,N^'J1i'}&l^A 

r5ALANCL 

Feb. 

27 

4-300 

^0.  S'oo 

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is  received  borings  are  taken  from  pigs  in  different  parts  of  the  car  and 
analyzed  by  the  chemist.  This  analysis  is  recorded  on  Form  2,  a  report  to  the 
foreman  of  the  foundry.  Each  car  of  pig-iron  is  unloaded  in  a  pile  by  itself 
with  a  notation  as  to  the  car  number. 

The  cupola  man  is  furnished  with  a  report  of  the  cupola  formula  of 
charge  mixture  and  makes  a  report  each  day  of  the  actual  cupola  charge,  as 
per  Form  5.  '  ' 

Form  6  is  the  daily  foundry  summary  or  abstract — 2l  comparative  record 
cf  the  daily  operations  of  the  foundry  which  is  invaluable. 

Form  7  is  the  molders'  time  and  material  record. 

Form  9  is  made  up  by  the  cleaner,  being  a  daily  report  of  castings  made. 

822 


615 


American  Business  and  Accounting  Encyclopedia 


Fo. 


DAILY  FOUNDRY  RF.PORT 

CDPOLA  CHARGE 

ANALYSIS                                            1 

C«- 
No- 

(2>rnrjd 

u^^b^- 

5<licc 

0/. 

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PRODUCT                                                                      1 

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551 

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147 

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17  2.  lbs.  Coir*  -n^td  -t»  MCK 

loo  fb«    M4«>l  n**^^- 

On  Form  10  the  clerk  of  the  foundry  enters  each  day  the  daily  product 
of  each  man.  At  the  end  of  each  two  weeks  the  molder's  pay  is  figured  from 
this  card.  From  this  card  the  clerk  enters  daily  the  castings  made  and  dis- 
counts, as  per  Form  11,  after  which  this  information  is  sent  to  the  main  office 
and  entered  daily  on  Form  12. 

Form  13  is  the  broken  castings,  etc.,  a  daily  report  including  quantity, 
pattern  number  and  total  weight. 


CUPOLA  CHARGE  MIXTURE 


'RE.HkL.T&' 


Car  Mo. 


(34- 2_ 


74  6.2. 


9±oj& 


2.672- 


fbraryi 


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^ 


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^00 


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35- 


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>  84 


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(14/ 


ANALVSI6 


271 


338 


3o6 


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ith 


Ul 


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1    344 


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Fo. 


American  Business  and  Accounting  Encyclopedia 


615 


ABSTRACT  OF  DAILY 


Dwt5 


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H 


COKE. 


R>«r)d! 


5Too 


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"TtTTAUFDRfWrn* 


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(616)       BRASS  FOUNDRY   COSTS. 

A  brass  foundry  manufactures  such  articles  as  cash  registers,  musical  in- 
struments, pipe  organs,  etc. 

Form  A  is  an  order  from  the  order  department  to  make  a  specified  num- 
ber of  castings,  as  per  pattern  furnished.  The  final  cost  will  be  divided 
amongst  labor,  material  and  expense,  the  usual  distinction  in  a  manufactur- 
ing business.    Productive  labor  includes  the  time  of  molders  and  core  makers, 


ORDER  ON  BRASS  FOWORV 


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and  in  some  foundries  specific  division  numbers  are  used,  such  as  1321-R  for 
bench  moulders ;  1322-R  for  machine  molders,  etc. 

Daily  time  tickets  are  used  as  per  Form  3.  They  are  summarized  weekly 
or  monthly,  the  various  divisions  being  charged  with  expense  incurred. 

There  is  also  a  code  number  and  name  to  each  mixture,  such  as  hard 

826 


616 


American  Business  and  Accounting  Encyclopedia 


Fo. 


CASTING  RECORD 

lilXTDRLiHl          SOFT  GRASS                          1 

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brass  No.  1 0 ;  phosphor  bronze  No.  33.  The  metal  used  in  making  up  these 
various  mixtures  is  entered  on  a  record  card.  Form  C,  which  shows  the  name 
and  number  of  the  mixture,  input  and  output  gates  used,  and  number  of 
heats  required. 

Labor  loading  is  based  on  expense  time  turned  in  by  the  expense  em- 
ployes. Material  loading  is  based  on  expense  incurred  in  connection  with 
material. 

Form  E  is  the  destination  card  with  tracing  record  and  department  debits 
and  credits  also  recorded. 

827 


n 


Fo.-Fr.        American  Business  and  Accounting  Encyclopedia 


616-620 


Cyck«dby    N.D. 
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Form  F. 


Form  F  is  a  delivery  sheet.  When  final  deliveries  have  been  made,  this 
sheet  is  sent  to  the  order  department  where,  by  the  perpetual  inventory  sys- 
tem, a  completed  record  is  kept  of  material  ordered,  received,  dehveries  made, 
etc 

(6I;)     FRATERNAL  ORGANIZATIONS. 

MEMBERSHIP   RECORD. 

This  record  is  devised  on  the  loose-leaf  princii^le,  both  sides  being  utilized. 
The  names  are  arranged  alphabetically  by  denominations  and  by  divisions. 
For  instance.  James  Harris  of  Chicago  is  enrolled  as  a  contributing  member 
at  the  age  of  35  for  insurance  of  .$1,000.00.  A  guide  card  indicates  the  de- 
nomination $1,000.00.  The  alphabetical  index  locates  the  letter  H,  and  the 
card  thus  located  contains  full  information,  such  as  indicated  in  the  illustration. 

These  cards  are  printed  in  different  colors  and  supplied  with  tabs  num- 
bered from  one  to  ten,  tab  Xo.  1  indicating  age  20 ;  tab  Xo.  2  age  21,  etc.  A 
white  card  indicates  20  to  21)  inclusive ;  a  blue  card  30  to  39 ;  a  yellow  card 
40  to  49 ;  and  a  pink  card  50  to  59. 

(618)     FREIGHT. 

An  account  representing  cost  of  transportation  of  merchandise  pur- 
chased or  merchandise  sold. 

The  freight  on  purchases  belongs  to  the  Trading  Account.  The  freight 
prepaid  on  goods  shipped  to  customers  is  a  selling  expense,  and  does  not 
enter  into  the  cost  of  production. 

(019)     FREIGHT  AND  DISCOUNT. 

See  Discount. 

(020)     FREIGHT  BILLS. 

transportation   REGISTER. 

A  "-eneral  transportation  controlling  account  is  carried,  to  which  is  posted 
at  the  end  of  each  month  the  total  amount  of  cash  paid  for  transportation  and 

828 


617 


American  Business  and  Accounting  Encyclopedia 


Fr 


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American  Business  and  Accounting  Encyclopedia        617-620 


620-621        American  Business  and  Accounting  Encyclopedia 


Fr, 


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transportation  charges,  as  per  footing  of  general  transportation  column  in 
Cash  Book.  This  Controlling  account  is  then  balanced  by  charges  to  the 
various  Trading  accounts,  as  per  totals  shown  in  distribution  by  traiisportation 
register.  The  column  headed  Account  Sales  refers  to  charges  for  freights 
prepaid  on  customer's  account  which  have  been  permitted  to  go  to  the  credit 
of  Sales  during  the  month  and  are  thus  utilized. 

Each  freight  bill  has  a  special  serial  number  and  the  entries  on  the  reg- 
ister are  made  in  consecutive  numerical  order.  This  transportation  voucher 
number  is  also  noted  on  the  invoice  which  covers  the  shipment. 


830 


Tf^ANSPOr^TATION     T^EGISTER. 

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(621)     FREIGHT  RATES— HOW  TO  FIND. 

The  card  illustrated  (Form  1),  is  eight  inches  wide  by  five  inches  high, 
and  one  card  is  made  out  for  every  town  to  which  shipments  are  made,  the 
routing  is  indicated  on  the  second  line.  Below  this,  under  the  heading  "  com- 
modities "  is  a  complete  list  of  all  the  products  handled.  To  the  left  of  this 
column  under  "  date  "  and  "  party  quoted  "  is  filled  in  the  information  as  to 
the  time  and  the  source  of  the  quotation.  The  freight  rate  quoted  on  the 
different  commodities  is  entered  in  the  proper  column,  according  to  its  classi- 
fication— 1,  2,  3,  R26,  4,  5,  etc.  Plenty  of  space  is  set  aside  for  remarks  under 
that  heading. 


TOW.           ^a^HJlAyircUt^,        (DKc-c— 

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MASS  OOORS  & 

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831 


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Fr. 


American  Business  and  Accounting  Encyclopedia 


621 


/y^iimJUrjl^ 

A^ 

A 

i^^t^iJUL) 

NCW  YORK                 NCW  JERSEY 

VIRGINIA 

WEST  VA. 

NEW  ENGLAND 

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These  cards  are  kept  in  the  card  drawer  arranged  according  to  states,  the 
towns  in  each  state  in  alphabetical  order.  One  of  the  principal  advantages  of 
this  system  is  the  ease  with  which  it  may  be  installed.  No  extensive  preparation 
or  clerical  work  is  necessary.  You  can  begin  by  making  out  a  card  for  the 
first  town  you  have  occasion  to  get  a  freight  rate  on  and  putting  in  cards  for 
other  towns  as  you  come  to  them. 

Another  way  of  accomplishing  the  same  object  is,  instead  of  makmg  out 
separate  cards  for  the  towns,  to  make  out  separate  cards  for  the  commodities, 
provided  you  only  have  occasion  to  ship  to  comparatively  few  points.  On 
the  card  illustrated  herewith  (Form  2),  which  is  eight  inches  wide  by  five 
inches  high,  a  separate  card  is  made  out  for  each  commodity,  in  this  case 
the  commodity  being  cement.  This  commodity  comes  imder  classification 
No.  4.  The  cards  are  printed  for  the  states  to  which  shipments  are  made  and 
beneath  each  state  is  listed  the  names  of  the  towns.     Opposite  each  town  the 


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621-624        American  Business  and  Accounting  Encyclopedia        Fr.-Fu. 

freight  rate  is  entered.  As  other  towns  are  added  there  is  plenty  of  room 
to  enter  them  in  the  columns.  The  reverse  side  of  this  card  is  printed  with 
the  names  of  Ohio,  Michigan,  Indiana,  Pennsylvania  and  Illinois.  Where  the 
conditions  of  the  business  permit  it,  no  system  of  keeping  information  is  so 
convenient  as  this  one. 

The  next  system  is  the  most  comprehensive  and  extensive  of  them  all 
as  will  be  seen  by  the  illustration.  (Form  o).  The  card  is  five  inches  high 
by  three  inches  wide  and  made  with  projecting  tab.  The  concern  by  whom 
this  system  is  used  have  occasion  to  make  shipments  by  freight  and  express 
to  practically  every  town  in  the  United  States.  One  of  these  cards  is  made 
out  for  every  town.  All  the  towns  of  each  state  are  arranged  together  in 
alphabetical  order.  Under  the  numerals  1,  2,  3,  etc.,  are  rail  and  water  rates 
for  the  entire  six  classifications  and  the  express  rate  is  entered  in  its  proper 
position.  Beneath  this  there  is  plenty  of  room  for  any  additional  information 
that  might  be  valuable  as  a  part  of  the  record. — R.  Cole. 

(622)     FUNDED  DEBT. 

A  term  sometimes  used  to  describe  liabilities  secured  by  bonds,  for  the 
redemption  of  which  a  sinking  fund  is  established. 

(623)     FURNITURE  AND  FIXTURES. 

An  account  representing  the  value  of  furniture  and  fixtures  owned  by  a 
business. 

(624)     FURNITURE  BUSINESS  ACCOUNTING— RETAIL. 

A  convenient  form  of  Stock  Ledger  is  shown  on  form  1.  Stock  received 
is  posted  to  the  stock  Ledger  from  receiving  clerk's  O.  K.'d  copy  of  original 
order.    This  O.  K.'d  copy  is  attached  to  purchase  invoice. 

All  retail  sales  are  reported  by  a  salesman  on  a  form  of  duplicate  sales 
ticket,  as  per  form  2.  The  small  right-hand  coupon  is  perforated,  and  in 
case  of  a  cash  sale  the  left  portion  is  stamped  and  given  to  the  customer.  The 
right-ht^nd  coupon  is  placed  on  file  according  to  character  of  sale,  and  serves 
both  as  a  clieck  on  cash  receipts  and  the  shipping  department. 


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American  Business  and  Accounting  Encyclopedia 


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Each  customer  is  given  a  loose  leaf  account.  This  is  made  in  duplicate, 
the  original  going  to  the  customer,  and  the  carbon  copy  is  placed  in  the  post 
binder  and  given  a  page  number.  The  footing  of  this  page  makes  one  posting 
to  the  customer's  account  at  the  end  of  the  month,  no  matter  how  many  differ- 
ent charges  he  has  had.  A  recapitulation  is  made  of  the  loose  leaf  accounts  in 
order  to  make  the  proper  credit  to  Merchandise  Account. 

834 


624-625        American  Business  and  Accounting  Encyclopedia 


Fu. 


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all  Ct}i>\f\ojic^ooi  i^to/d  ic/fddressed  to  iite^  frn^. 

The  Van  Dyk  Fijrntdre  Co. 


MOMt  FUI{Ni6Hei\«  AND  DECOI^ATOf^S. 

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A  separate  petty  Cash  Book  is  used  for  expressage,  expense  and  other 
small  amounts. 

The  totals  are  entered  in  the  general  Cash  Book. 

The  chart  of  classification  will  no  doubt  be  appreciated. 

(625)     FUTURES. 

A  term  applied  in  Stock  Exchange  transactions  to  the  sale  of  commodities 
for  future  delivery. 

835 


Fu.-Ga.       American  Business  and  Accounting  Encyclopedia        625-627 


627 


American  Business  and  Accountinc,  Excvclopedia 


Ga. 


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options  on  future  means  that  the  privilege  is  secured  of  purchasing  or 
delivering  at  a  specified  price  within  a  specified  number  of  days. 


(626)     GAIN. 

The  profit  made  on  a  business  transaction. 
The  accretion  of  value  of  property  during  a  given  period. 
•Profit  and  Loss.") 


(See  also 


(627)     GAS,  ELECTRIC  LIGHT  AND  POWER  BUSINESS— SMALL 

SIZE. 

A  Lighting  Register  is  arranged  with  two  short  leaves,  so  that  one  list  of 
nzunes  can  run  six  months.  ->«. 

The  card  system  of  application  is  used  for  installation  of  services  and 
also    for  testing  meters,   meter   repairs,   arc   lights,   etc.     The   meters   are 


MeT..r  Test  Cord. 


McTtr  No 


MoKc 


MoKerS    No. 


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American  Business  and  Accounting  Encyclopedia 


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627-628        American  Business  and  Accounting  Encyclopedia       Ga.-Ge. 


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read  on  the  last  few  days  of  each  month,  and  the  cards  are  arranged  geo- 
graphically. The  register  is  arranged  in  the  same  manner,  so  that  a  street 
or  district  can  be  referred  to  without  trouble. 

The  representative  accounts  used  are  as  follows: — 

Street  Arc  Lighting 
Commercial  Arc  Lighting 
Incandescent  Lighting 

Unpaid  bills  of  the  previous  month  are  transferred  to  Expense  account. 

The  engineer  makes  a  daily  report,  also  the  trimmer,  and  a  voucher 
register  is  used. 

Another  system  used  by  a  gas  company  includes  a  ledger  with  a  numerical 
index  at  the  margin,  which  permits  the  book  to  be  opened  at  the  account 
desired  with  accuracy  and  despatch.  This  is  ruled  for  ten  accounts  to  the 
double  page,  the  accounts  being  arranged  vertically,  and  each  account  divided 
into  twelve  months.     See  illustration. 

The  reading  card  is  devised  on  the  loose  leaf  principle,  as  per  illustration, 
and  can  be  conveniently  carried  in  the  coat  pocket.  By  using  only  one  card 
for  each  location  and  entering  each  new  consumer's  name  and  contract  or 
account  number  thereon  the  reading,  as  shown  by  the  "  turn  on  slip  "  of  each 
customer  must  correspond  with  the  reading  reported  on  the  card  when  the 
gas  is  turned  off. 

(628)     GENERAL  LEDGER. 

A  ledger  intended  solely  for  representative,  nominal,  balancing,  or  con- 
trolling accounts,  and  personal  accounts  which  are  not  sales  or  purchase 
accounts. 

General  and  Private  ledgers  are  practically  synonymous  so  far  as  their 
titles  and  uses  are  concerned,  but  in  some  large  establishments  the  General 
ledger  is  used  exclusively  for  expense  accounts.     (See  Private  Ledger.) 


839 


Go. 


American  Business  and  Accounting  Encyclopedia 
(6-^9)     GOOD-WILL. 


629 


Good-will  is  "  the  value  of  that  reputation  which  a  business  has  acquired 
iluring  its  continuance,  which  induces  the  confidence,  or  expectation,  that  the 
same,  or  an  increasing,  patronage  will  continue  to  be  extended  so  long  as  the 
business  is  conducted  in  the  same  place  upon  the  same  principles." 

"It  is  usually  considered  a  speculative  asset  whose  actual  value  depends 
entirely  upon  the  prosperous  continuance  of  the  business  to  which  it  belongs, 
and  its  capacity  to  bestow  upon  the  purchaser  more  than  he  could  earn  by 
his  own  unaided  exertions.  On  account  of  its  extreme  liability  to  fluctuation 
it  is  considered  preferable  to  write  oflf  a  certain  proportion  year  by  year  until 
the  account  is  extinguished.  Frequently,  however,  good-will  is  an  inflation 
of  the  purchase  price  of  property  acquired  by  a  corporation  and  paid  for 
by  paid-up  stock,  and  in  such  cases  it  remains  undisturbed  until  the  directors 
order  a  re-valuation  of  the  property,  when  it  may  probably  be  charged  o^ 
as  '  depreciation.'  " 

In  considering  good-will  it  is  well  to  remember  that  American  business 
men  do  not  take  any  particular  interest  in  it  until  they  wish  to  transfer  a 
partnership,  or  secure  a  new  partner,  or  sell  out  to  a  corporation. 

At  such  time  partners,  or  the  persons  interested,  desire  to  take  the  utmost 
advantage  of  the  incoming  partner,  or  purchaser,  or  of  the  consolidation,  from 
which  they  desire  to  receive  as  much  stock  as  possible  in  payment  for  their 
interest.  On  these  occasions  the  question  of  good-will  becomes  a  very  impor- 
tant factor.  For  this  reason  we  append  a  few  standard  definitions  of  good- 
will, together  with  illustrations  as  to  how  it  should  be  treated  on  the  books 
of  account,  as  in  very  many  cases  it  is  undoubtedly  a  real  and  tangible  asset, 
without  recognition  of  which  the  vendors  would  not  consider  the  sale. 

"  Good-will  as  an  asset,  is  one  which  is  never  or  rarely  considered  as 
an  available  asset,  in  considering  the  value  of  the  assets  of  a  company.  It 
may,  however,  be  considered  as  a  legitimate  asset  when  it  represents  the  cost 
of  the  good-will  paid  when  acquiring  a  business,  even  if  the  shares  of  the 
company  then  starting  have  to  be  considerably  '  watered  '  in  consequence  of  the 
exorbitant  or  fancy  value  at  which  this  good-will  has  been  placed.  Frequently, 
when  a  partner  is  retiring,  the  firm  has  to  pay  a  sum  for  his  good-will,  which 
then  usually  appears  as  an  item  in  the  future  Balance  Sheets." — Manual  for 
Accountants,  Canada. 

"  Good-will  may  be  variously  described  as : 

'*  The  patronage  of  the  public. 

"  The  advantages  derived  from  an  established  connection  and  reputa- 
tion, and  the  benefit  accruing  to  a  business  by  reason  of  the  support  accorded 
by  its  customers,  and  the  likelihood  of  the  continuance  of  such  support." 

"  The  question  of  the  depreciation  of  good-will  is  one  upon  which  con- 
siderable diflFerence  of  opinion  exists.  It  has  been  pointed  out  that,  properly 
speaking,  good-will  does  not  depreciate,  and  that  its  inevitable  fluctuations 
should  not  disturb  the  amount  of  the  trade  profits.  On  the  other  hand,  the 
gradual  extinction  of  its  item  *  good- will '  greatly  strengthens  the  position  of 


840 


629 


American  Business  and  Accounting  Encyclopedia 


Go. 


any  company,  and  is  certainly  the  most  permissible  method  of  building  up 
a  secret  reserve." 

The  usual  definition  of  good-will  is  the  benefit  arising  from  connection 
and  reputation,  the  probability  of  the  old  customers  going  to  the  new  firm 
which  has  acquired  the  business.  It  is  based  in  one  form  or  another  upon 
the  earning  capacity  of  the  business  to  be  acquired,  and  in  this  connection 
it  is  important  to  remember  that  "  tlie  purchaser  pays  for  something  which 
places  him  in  the  position  of  being  able  to  earn  more  money  than  he  would 
be  able  to  do  by  his  own  unaided  exertions."  In  some  businesses  the  price 
of  the  good-will  is  based  upon  the  trade  done,  but  the  more  usual  course  is 
to  base  it  upon  the  average  net  profit  earned  in  the  past. 

"  It  is  not  very  usual  for  the  item  of  good-will  to  appear  in  the  books  of  a 
trading  firm  at  all,  but  when  it  does  appear  it  should  appear  at  the  actual  cost 
price,  and  should  not  be  treated  as  a  wasting  asset  subject  to  depreciation ; 
indeed,  it  would  be  quite  incorrect  to  write  oflf  good-will  out  of  revenue." 

"The  advantage  or  benefit  which  is  acquired  by  an  establishment  beyond 
the  mere  value  of  the  capital,  stock,  funds,  or  property  employed  therein,  in 
consequence  of  the  general  public  patronage  and  encouragement  which  it 
receives  from  constant  or  habitual  customers  on  account  of  its  local  position, 
or  common  celebrity,  or  reputation  for  skill  or  affluence  or  punctuality,  or 
from  other  accidental  circumstances  and  necessities,  or  even  from  partialities 
or  prejudices." — Story  on  Partnership,  Section  pg. 

"  If  a  person  who  has  previously  been  a  partner  in  a  firm  sets  up  in 
business  on  his  own  account  and  appeals  generally  for  customers,  he  only 
does  that  which  any  member  of  the  public  may  do,  and  which  those  carrying 
on  the  same  trade  are  already  doing.  It  is  true  that  those  who  were  former 
customers  of  the  firm  to  which  he  belonged  may  of  their  own  accord  transfer 
their  custom  to  him;  but  this  incidental  advantage  is  unavoidable,  and  does 
not  result  from  any  act  of  his.  He  only  conducts  his  business  in  precisely 
the  same  way  as  he  would  if  he  had  never  been  a  member  of  the  firm  to 
which  he  previously  belonged.  But  when  he  specifically  and  directly  appeals 
to  those  who  were  customers  of  the  previous  firm,  he  seeks  to  take  advantage 
of  the  connection  previously  formed  by  his  old  firm,  and  of  the  knowledge  of 
that  connection  which  he  has  previously  acquired,  to  take  that  which  constitutes 
a  good-will  away  from  the  persons  to  whom  it  has  been  sold,  and  to  restore  it 
to  himself." — Hers  hell. 

"  The  good-will  of  a  trade  is  nothing  more  than  the  probability  that  old 
customers  will  resort  to  the  old  place." — Eldon. 

"  The  value  of  that  reputation  which  a  business  has  acquired  during  its 
continuance,  which  induces  the  confidence  or  expectation  that  the  same,  or 
an  increasing  patronage  will  continue  to  be  extended  so  long  as  the  business 
is  conducted  in  the  same  place  upon  the  same  principles." 

With  regard  to  the  treatment  of  good-will  on  books  of  account,  we 
quote  the  following: 

"  Good-will,  if  inserted  in  the  books  at  all,  is  very  much  best  left  at  its 
original  value,  no  attempt  being  made  to  write  it  oflf  graduallv.     On  the 


« 

^ 


841 


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American  Business  and  Accounting  Encyclopedia 


629 


629 


American  Business  and  Accounting  Encyclopedia 


Go. 


! 


i 


'     M 


Other  hand,  if  the  books  are  those  of  a  private  firm,  it  will  probably  be  con- 
venient to  write  the  whole  amount  off  against  capital.  It  is  quite  incorrect 
to  write  good-will  off  against  profits." 

Opinions  are  divided  as  to  v.hether  it  is  desirable  that  good-will  should 
be  written  down  periodically  or  not,  but  all  accountants  are  agreed  that 
under  no  circumstances  should  it  be  written  up,  unless  something  further 
has  been  actually  acquired — that  is  to  say,  the  maximum  figure  at  which  good- 
will should  appear  in  a  Balance  Sheet  is  cost  price. 

While  the  value  of  good-will  is  frequently  computed  on  the  basis  of 
three  years'  net  profits  of  the  business,  Dicksee  makes  a  chart  which  shows 
conclusively  that  the  variations  of  a  business  are  irreconcilable,  and  that 
good-will  is  actually  a  fixed  asset  and  not  a  speculative  one.    He  says : 

"  This  latter  statement  may  appear  to  the  uninitiated  as  being  somewhat 
startling,  for  there  is  no  doubt  a  very  general  impression  among  those  ^vho 
are  not  very  familiar  with  accounts  that  all  the  items  set  down  on  the  right- 
hand  side  of  a  Balance  Sheet  are  actual  assets,  and  are  stated  at  figures  which 
are  supposed  to  represent  a  reasonable  estimate  of  their  values  at  the  date 
of  the  accounts.  Certainly,  so  far  as  is  reasonably  practicable,  the  value  of 
all  '  floating  assets '  should  be  stated  in  Balance  Sheets  on  the  basis  of  what 
they  are  actually  worth  to  a  going  concern  at  the  time  of  balancing,  but  it 
has  been  decided  by  ^Mr.  Justice  Romer  that  in  arriving  at  the  profits  of  an 
undertaking  it  is  incorrect  to  take  into  account  fluctuations  in  the  value  of 
what  his  Lordship  called  '  capital  assets,'  and  what  accountants  would  call 
*  fixed  assets.'  There  can  be  no  question  whatever  but  that  good-will  is  a 
fixed  asset,  and  not  a  floating  asset ;  that  is  to  say,  it  comes  under  the  category 
of  something  which  has  to  be  acquired  by  an  undertaking  in  order  to  enable 
it  to  carry  on  its  business.  Thus,  there  is  a  legal  authority  for  holding  the 
view  that  fluctuations  in  the  value  of  good-will  do  not  affect  profits." 

There  are  many  businesses  which  are  built  up  with  great  effort  after 
years  of  labor,  and  the  connection  which  results  in  a  certain  amount  of  orders 
being  not  only  received  but  guaranteed  to  be  reserved  for  the  purchaser,  is 
a  valuable  commodity  on  which  a  price  can  certainly  be  set.  The  value  of  a 
connection  is  probably  considered  in  every  commercial  transaction,  but  no 
particular  rule  to  be  followed  in  all  cases  could  possibly  be  formulated.  It  is 
generally  a  question  as  to  how  much  the  vendors  can  obtain  and  for  how  little 
the  purchasers  can  make  the  deal.  In  case  of  dispute  arising  between  the  two 
parties,  however,  it  may  be  well  to  know  that  there  is  a  commercial  custom 
which  fixes  the  amount  of  the  net  profits  for  three  years  as  a  fair  valuation. 

The  value  of  good-will  is  supposed  to  consist  of  the  profitable  nature  of  the 
business  to  be  acquired,  but  taking  the  case  of  a  corporation  purchasing  the 
business  of  a  single  proprietor  it  will  frequently  be  found  that  while  the  business 
has  been  in  existence  the  balance  of  the  profit  and  loss  account  has  been  credited 
to  the  proprietor's  investment  account  without  making  any  allowance  for  the 
value  of  his  time  in  managing  and  supervising. 

In  some  businesses  this  is  a  very  important  omission.  We  will  suppose  that 
the  original  proprietor  is  engaged  by  the  new  corporation  at  a  large  salary  to 

842 


continue  the  management  of  the  business,  and  is  also  paid  for  the  good-will 
of  the  business  a  large  amount  in  stock  of  the  corporation.  It  is  evident  that, 
under  the  circumstances  mentioned,  the  purchasing  corporation  would  have 
much  the  worst  of  the  deal. 

Good-will  being  frequently  valued  on  the  basis  of  so  many  years'  purchase 
of  average  annual  profits,  it  is  very  desirable  to  ascertain  whether  the  machinery, 
for  example,  may  soon  have  to  be  replaced  on  account  of  general  wear  and 
tear  not  covered  by  depreciation  reverse,  or  being  old-fashioned.  Everything 
being  legitimate  imd  the  values  claimed  being  susceptible  of  verification,  the 
number  of  years'  purchase  varies  from  four  to  five  years,  according  to  special 
conditions. 

Referring  to  the  difference  of  opinion  among  accountants  as  to  the  treat- 
ment of  good-will  on  the  books  of  account,  it  can  safely  be  said  that  whether 
it  is  advisable  or  not  to  write  off  a  certain  amount  of  this  asset  each  year 
from  current  profits  it  will  certainly  come  out  of  capital  invested  should  the 
corporation  be  wound  up. 

valuation. 

"  Not  only  the  value  of  a  good-will,  but  also  the  method  adopted  in  arriving 
at  the  value,  must  necessarily  depend  upon  circumstances,  for  the  annual  profits 
of  a  given  business  ascertained  in  the  ordinary  way  will  not,  as  a  rule,  be  the 
precise  basis  for  the  valuation,  while  the  number  of  years'  purchase  also 
varies  considerably,  depending  so  much  upon  the  particular  circumstances 
affecting  each  business.  The  annual  profits  to  be  taken  as  the  basis  of  valuation 
(assuming  same  to  be  agreed  upon  as  a  factor)  require  to  be  carefully  exam- 
ined and  adjusted  where  considered  necessary,  so  as  to  make  proper  allowance 
for— 

The  skilled  supervision  or  other  service  necessary  for  the  maintenance  of 
the  business,  which  has  been  exercised  in  the  past  by  the  proprietors.  This, 
on  a  sale  of  the  good-will,  would  have  to  be  undertaken  either  by  the  vendors 
(at  a  salary)  or  by  the  purchaser  himself,  or  by  a  manager  at  a  salary,  and 
should  be  allowed  for  accordingly. 

The  interest  on  the  capital  which  would  necessarily  be  employed  in  the 
business  (including  in  the  case  of  purchase  the  amount  about  to  be  paid  for  the 
good-will).  The  capital  employed  to  purchase  and  carry  on  the  business  would 
need  to  be  withdrawn  from  some  other  income  producing  position,  and  allow- 
ance for  the  resultant  loss  of  income  must  therefore  be  made. 

But  it  is  advisable  when  negotiations  for  the  purchase  of  the  good-will 
of  a  business  are  proceeding  upon  a  basis  of  so  many  years'  purchase  of 
the  average  annual  profits,  to  state  specifically  not  only  the  number  or  years* 
purchase,  but  also  the  number  of  years  over  which  the  annual  average  is  to 
be  computed,  the  rate  of  allowance  (if  any)  to  be  made  for  the  proprietors' 
services,  and  the  rate  of  interest  to  be  allowed  on  the  capital  to  be  employed 
(including  the  cost  of  good-will),  and  how  special  outgoings  are  to  be  treated 
in  ascertaining  the  amount  of  the  average  annual  profit. 

843 


I  I 


Go. 


American  Business  and  Accounting  Encyclopedia 


629 


The  number  of  years'  purchase  of  the  annual  profits  (as  adjusted)  will 
vary  according  to  circumstances,  and  will  depend  mainly  upon  the  probability 
of  the  continuity  of  the  business  with  similar  results  to  those  of  the  past,  not- 
withstanding the  change  in  the  proprietorship  or  management." 

The  value  of  good-will  is  supposed  to  consist  of  the  profitable  nature  of 
the  business  to  be  acquired,  but  taking  the  case  of  a  corporation  purchasing  the 
business  of  a  single  proprietor  it  will  frequently  be  found  that  while  the  busi- 
ness has  been  in  existence  the  balance  of  the  profit  and  loss  account  has  been 
credited  to  the  proprietor's  mvestment  account  without  making  any  allowance 
for  the  value  of  his  time  in  managing  and  supervising. 

In  some  businesses  this  is  a  ver>'  important  omission.  We  will  suppose 
that  the  original  proprietor  is  engaged  by  the  new  corporation  at  a  large  salary 
to  continue  the  management  of  the  business,  and  is  also  paid  for  the  good- 
will of  the  business  a  large  amount  in  stock  of  the  corporation.  It  is  evident 
that,  under  the  circumstances  mentioned,  the  purchasing  corporation  would 
have  much  the  worst  of  the  deal. 

Good-will  being  frequently  valued  on  the  basis  of  so  many  years'  pur- 
chase of  average  annual  profits,  it  is  very  desirable  to  ascertain  whether  the 
machiner}',  for  example,  may  soon  have  to  be  replaced  on  account  of  general 
wear  and  tear  not  covered  by  depreciation  reserve,  or  being  old-fashioned. 
Everything  being  legitimate  and  the  values  claimed  being  susceptible  of  veri- 
fication, the  number  of  years'  purchase  carries  from  four  to  five  years,  accord- 
ing to  special  conditions. 

Referring  to  the  diflference  of  opinion  among  accountants  as  to  the  treat- 
ment of  good-will  on  the  books  of  account,  it  can  safely  be  said  that  whether  it 
is  advisable  or  not  to  write  oflf  a  certain  amount  of  this  asset  each  year  from 
current  profits  it  will  certainly  come  out  of  capital  invested  should  the  corpora- 
tion be  wound  up. 

It  is  difficult,  if  not  impossible,  to  give  a  definition  of  good-will  which  will 
be  satisfactory  under  all  conditions,  because  of  the  varying  classes  of  businesses, 
and  the  diflferent  circumstances  connected  with  each  business. 

Good-will  depends  sometimes  upon  locality  or  particular  premises  or 
reputation  or  quality  of  goods  or  simply  the  name. 

All  good-will  is  property  and  may  be  made  the  subject  of  sale,  gift, 
mortgage  or  bequest. 

"  Good-will  is  composed  of  a  variety  of  elements.  It  diflFers  in  its  com- 
position in  different  trades  and  in  different  businesses  in  the  same  trade. 
One  element  may  preponderate  here  and  another  element  there.  For  my  part, 
I  think  that  if  there  is  one  attribute  common  to  all  cases  of  good-will  it  is 
the  attribute  of  locality,  for  good-will  has  no  independent  existence.  It  can- 
not subsist  by  itself.  It  must  be  attached  to  a  business.  Destroy  the  business 
and  the  good-will  perishes  with  it." 

Where  the  connection  of  a  business  continually  increases,  it  is  evident 
that  the  value  of  good-will  increases  in  the  same  proportion. 


844 


629-630 


American  Business  and  Accounting  Encyclopedia       Go.-Gr. 


Where  a  patent  is  improved  upon,  and  additional  j^atents  taken  out,  it  is 
also  evident  that  the  value  of  the  patent  is  in  proportion  to  the  demand  for  the 
articles  patented. 

In  cases  of  this  kind,  therefore,  it  is  not  necessary  to  write  off  the  asset, 
but  a  very  satisfactory  method  to  adopt  is  to  establish  a  reserve,  crediting 
the  reserve  account,  and  debiting  profit  and  loss  with  a  certain  agreed  amount 
per  annum. 

It  will  be  evident  that  by  adopting  this  course,  if  the  good-will,  or  the 
patent,  maintains  or  increases  its  value,  the  reserve  can  be  distributed  among 
the  stockholders  at  any  time.  If  the  good-will  or  patent  depreciates,  the  re- 
serve will  offset  the  depreciation. 

There  are  many  businesses  which  are  built  up  with  great  effort  after 
years  of  labor,  and  the  connection  which  results  in  a  certain  amount  of  orders 
being  not  only  received  but  guaranteed  to  be  reserved  for  the  purchaser,  is 
a  valuable  commodity  on  which  a  price  can  certainly  be  set.  The  value  of  a 
connection  is  probably  considered  in  every  commercial  transaction,  but  no 
particular  rule  to  be  followed  in  all  cases  could  possibly  be  formulated.  It  is 
generally  a  question  as  to  how  much  the  vendors  can  obtain  and  for  how  little 
the  purchasers  can  make  the  deal.  In  case  of  dispute  arising  between  the  two 
parties,  however,  it  may  be  well  to  know  that  there  is  a  commercial  custom 
which  fixes  the  amount  of  the  net  profits  for  three  years  as  a  fair  valuation. 


'Id' 


(630)    GRAIN  ELEVATOR  BUSINESS  ACCOUNTING. 

That  process  of  handling  of  grain,  known  as  elevation,  may  be  divided 
under  four  heads,  each  having  its  own  peculiar  conditions,  and  calling  for  a 
somewhat  different  system  of  accounting.  The  four  divisions  are  thus  stated : 
1 ,  from  wagon  to  car ;  2,  from  car  to  boat ;  3,  from  car  to  car ;  4,  from  boat 
to  car. 


CAR    RECORD 

Car 

«/«L    elf 

C^fl^e  oifCcain  f?epor"tr«j 

Irjspettffd 

I9  yifj 

^lofld<>J 

Lofldf  J 

f?efT^nf«l«6 

No. 

l()".t 

4-o7o 

CH<D 

rSfitpS'Ce. 

5Y-  ^«'")          '/'2- 

'/.r 

//& 

"A. 

•A. 

4o65- 

D5S  A 

S-Tokf  s  r  Co. 

5  V.  OnVi 

■//5 

•Ar 

VZc 

Vzi 

•/ii 

1                       1 

1 

Form    1. 


845 


h 


Gr. 


American  Business  and  Accounting  Encyclopedia 


630 


CHAMBER  OF  COMMERCE 
cwAiN  mfcPtcrioN 

\jMa\      CM.  D-  Ni.        -l-oyo 

CmhuI>      no.  TMKCC  C»  Yt  LLPW  COW  N 


CHAMBER  OF  COMMERCE 

CRAIN   1N3PE.CTI0N 


C^Af  NOTHKEECS)  WHiTL  OAT3 


C^  l^tr^efc" 


Act  e^   5^C.     Cii,>MA    4eaT    lyt-05V 

LBS     Cr«:«      SWCVtr 
^^     Senli.__L___Drff?. 


•/le 


Btp ±_ 


_w»;, 


*l)t-.±c 


OnNo._£l£2_lyt2:os_  &.CM-*g2 

r      '•      Gwnt'i.       S  yellow^  Co.-T 
^^     Sci.l/__±__0nl5jZi:Z£2_ 


Form  3. 


Form   2. 

The  first  consists  of  entries  connected  with  the  country  station,  to  which 
the  grower  brings  his  grain  there  to  be  bulked  until  sufficient  of  one  quality 
or  grade  be  accumulated,  when  one  or  more  cars  are  loaded  for  further 
shipment. 

The  second  consists  of  entries  connected  wtih  the  unloading  from  cars 
and  transferring  to  lake  or  sea-going  boats. 

The  fourth  consists  of  entries  connected  with  the  opposite  process,  the  un- 
loading from  boats  and  the  subdividing  of  the  cargo  into  car  loads  for  overland 
shipment  and  disposition. 

The  third  division  consists  of  entries  connected  with  the  transferring  of 
grain  from  car  to  car;  and  it  is  to  this  last-named  process  that  this  paper  is 
limited. 

The  question  naturaUy  arises,  why  the  necessity  of  this  process  of  car  to 
car  transference.  A  brief  consideration  of  this  query  will  prepare  the  way 
for  intelligent  consideration  of  the  system  of  accounting  connected  therewith. 

When  grain  is  loaded  first  into  cars  from  the  country  station,  it  very  often 
happens  that  the  only  check  upon  the  contents  of  the  car  as  to  weight  and 
quality  or  grade  is  that  of  the  most  interested  person,  the  owner.     It  is  very 


r 


GtUt. 


aWPPlKC  ORDER 

DVrTALO.  M-V     \^-  *•      lyff 

W sg^  ^%7 

J 3W^  _ 


r 


04s 


g2S 


4-CCtfO 


I^U.. 


^o»y 


R.n,  ^tt  Nol. 


atgfcw 


"at 


txaA.A.. 


RfttflM  EtrtTVik. 


Rfc*;  p1-  No.  _ifir*_ 

N  V.c>H.r?.rt. 


a^         yv  -TSa^Y* 


c«*>i 


Or  >U '1.1-12.  ^  |->  L.V 


lire' 


jCarDboi's 


Ftf^niikcJ- 


fV.__j5^ 


f5i*e 


#5  n>*o«r 


^(br? 


STRAIGHT    TRANSFER 


Form   5. 


4o7o 


CAR  NO 

CRAIN Cori^ 


BVFFALO.  MV.     Jii\.  »*  iy>7 
INITIAL           CH'tO. 


tvm-rr      PL  tV/  R.R. 


TD  CARNO.__6±£5 iNiTfAl-  T.D.5. 


DATE   LOAPgP         Jij.'^>/oJ        WfiCMT  5'too< 

SCALE  N0.__4:: DOORS    FWNISHEO. 

\JtlCMHAK         J«%     P'-o»^i> 


CONDITION  OF  CAR   ON    ARRIVAL  AT  ELEVATOR. 
Smis  OK. 


Oir  lf«lcio»   at"  i'tie 


REMARKS 


846 


FOKH    4. 


630 


American  Business  and  Accounting  Encyclopedia 


Gr. 


o               o 

1;n  LOADED     AT 

^/c 

Cor 

Gf-fli(^ 

F?«.t'iBr  Nc. 

1  Qj>''() 

o.,t^ 

Lbi 

Lbv 

Lbs. 

No. 

\()^fia\ 

Gp 

519       Lbi         Lbi. 

3rCo.          ^-oSb" 

Dibsa 

3 

V/.OWts 

15 

5-6 

5-0 

-t  V 

'to  000 

f 

B 

v^Cl^eck  iryirk   ii^plifs    erjti^y    off  Rfceip"^  ")  Ltf<J^e«~                                          j 

Form  6. 


obvious  that  before  railroad  charges  can  be  satisfactorily  determined,  and  be- 
fore what  is  known  as  official  weights  upon  which  the  grain  can  be  bought 
and  sold  in  the  open  market,  some  impartial  weight  and  inspection  is  imperative. 
Again,  there  are  times  when  the  market  offers  a  premium  for  the  higher  or 
fancy  grades ;  when  this  is  the  case,  it  is  profitable  to  all  parties  that  the  grain 
be  cleaned,  or  mixed  with  sufficient  of  the  higher  grades  to  meet  the  demand. 
Any  or  all  of  these  conditions  call  for  a  transfer  or  elevation  of  the  grain  from 
car  to  car. 

We  will  now  suppose  the  car  of  grain  has  left  the  original  point  of  ship- 
ment and  endeavor  to  follow  it  in  its  relation  to  systematic  accounting. 

Advices  being  received  from  the  railroad  that  the  car  is  ordered  to  the 
elevator,  at  once  entry  is  made  in  the  car  record  (Form  1),  columns  in  order 
showing  car  number,  car  initial,  owner  of  grain,  etc.,  as  indicated  in  heading. 
The  first  entry  date  is  the  date  car  is  reported  to  the  elevator  by  the  railroad. 
On  arrival  of  the  car  in  yard  limits,  the  grain  is  officially  inspected  for  grade 
or  quality,  and  the  inspection  card  (Form  2),  delivered  to  the  elevator.  This 
inspection  grade  is  now  entered  in  car  record  in  column  marked  "  grade," 
and  under  heading  of  "  inspected,"  date  of  inspection  is  entered. 


0                 0 

LOADED     AT 

cJTifj.    2.1/07            ^^-   ^ 

Reef 

Cor^                  1 

r*nif\ 

|Cor,) 

Oi-i-s 

Lbs. 

Lbs 

Lbs. 

No. 

1 VJ 

l()iti"ol 

Roofe 

Cbors 

E»Gir« 

Ctjj. 

Lbs. 

Lbs 

5^  Co. 

4^59 

TD.5.    5 

Y  C0.-1) 

Di-W. 

4 

4o7c 

60 

54oco| 

5.  Tr,  K^iijfer^ 

18  5^6 

_     SrCe. 

12-4  72. 

L.V.       5 

W.Oflts 

NYC 

^ 

^as" 

So 

4-0000 

^^^ 

^^- — 

__^^____  — 

Lco< 

td  o-oi  ~ 

^-0000 

s.t; 

apvj-f-- 

S"4ooo 

Form   8. 


847 


I ' 


i  ' 


Gr. 


American  Dusixkss  and  Accounting  Encyclopedia 


630 


I'pon  the  arrival  of  the  car  in  elevator  territory,  such  arrival  is  reported 
as  being  on  track,  and  again  in  car  record  date  of  such  arrival  is  entered. 
Upon  notice  of  the  elevator  the  car  is  "  placed  "  for  unloading,  and  work 
upon  the  grain  now  begins.  The  grain  having  been  placed  in  the  elevator 
scales,  it  is  weighed,  the  weight  being  automatically  "  punched  "  upon  scale 
card  (Form  3),  this  card  showing  whether  car  is  unloaded  or  loaded,  "in" 
or  "  out,"  the  car  number,  initial,  etc.  Should  the  grain  be  "  direct  trans- 
ferred "  or  placed  immediately  in  out-bound  car,  the  "  out  "  card  is  used, 
showing  first,  car  into  which  grain  has  been  loaded,  and  also  "  ex  "  car,  or 
that  from  which  the  grain  has  been  taken ;  should  the  grain  have  been  held 
in  the  elevator  for  cleaning,  mixing,  or  for  storage  pun:)Oses,  on  loading  out, 
the  *'  out  "  card  is  used,  as  in  case  of  direct  transfer. 

In  addition  to  the  "scale  card"  ( Fomi  3),  the  weighman  also  receives 
loading  order  sheet,  for  direct  transfer  car.  This  sheet  is  headed  "  straight 
transfer"  (Form  4),  or  when  the  grain  is  being  taken  from  store,  "loading 
order"  (Form  5),  is  used.  These  sheets,  accompanied  by  the  weight  card 
and  inspection  card,  are  daily  delivered  to  the  office  and  permanent  entry 
recorded.  The  inspection  card  is  now  attached  to  the  "  in  "  card,  and  entry 
made  upon  "unloaded"  sheet  (Form  G),  with  all  data  as  required  by  the 
heading  of  the  various  columns.  From  this  sheet  the  warehouse  receipt,  is 
made.  This  receipt  is  a  negotiable  document,  showing  car  number,  grade 
of  grain,  weight  and  date  of  unloading,  signed  by  persons  in  authority  and 
used  as  collateral  in  case  of  banking,  and  transferred  by  purchase  and  sale, 
representing  the  grade  and  grain  stated.  Cars  "  loaded  "  out  or  "  direct  trans- 
ferred "  are  entered  upon  the  "  out  "  or  "  loaded  "  sheet  (Form  7),  this  sheet 
also  showing  data  as  indicated  in  heading  of  columns. 

These  entries  being  made,  the  order  slips  and  weight  cards  are  filed 
away  as  original  documents,  the  sheets  (Fomis  G  and  7)  being  kept  in  loose- 
leaf  ledger  fonn  for  general  use  and  reference.  When  all  entries  for  the 
day  are  complete,  footings  are  made  which  show  the  following:  On  sheet 
No.  6  the  quantity  in  pounds  of  grain  unloaded,  according  to  class  of  grain, 
corn,  oats,  wheat,  etc.  On  sheet  Xo.  8,  the  cjuantity  loaded  and  straight  trans- 
ferred, these  footings  also  showing  whether  corn,  oats,  etc.,  and  whether 
simplv  loaded  from  store  or  if  direct  transferred. 


Or 

J0T^.   Zo"*r     )^oJ                              Dr 

cJfli^.     21*"*"    1907 

Ccr) 

Oo-n 

Cflr)c<')K*d  R^-tt"              Corr) 

Onis 

Cfl9celld    R^-ct: 

4-0  000 
4-0  ooo\/ 

r 

5"6ooo 
fGooov 

5..-T; 

S^ooo 

Cr 

Cr. 

Oits                   1 

Corn 

Ofl-n 

CorQ 

Dot* 

S6ooo 
56ooo/ 

A-oooo 

ZSS(» 

3  W.  0. 

r  40000 

CKrck    iryOf-ks    'i<^p1y     fD't?'^ 

1  II)  Lei^tf                                               1 

Tot 

IM     0. 

848 


630 


A&IERFCAN    lU'SINESS  AND  ACCOUNTING  EnCVCLOI'EDIA 


Gi«. 


These  footings  are  now  copied  in  daily  journal  (Form  0).  This  journal 
besides  being  auxiliary  to  the  grain  ledger,  also  affords  an  immediate  check 
upon  each  day's  loading  operations.  These  simple  transfer  entries  are  easily 
understood,  being  the  footings  under  classes.  The  canceled  receipt  column 
will  require  some  explanation. 

Before  issuing  a  loading  order  upon  any  car.  upon  which  warehouse  re- 
ceipt has  already  been  issued,  it  is  necessar}^  that  the  receipt  be  first  surren- 
dered. Upon  receiving  the  receipt,  the  order  to  load  is  given.  When  the 
grain  is  loaded  and  appears  upon  sheet  Xo.  <s.  it  is  included  in  footing  for 
that  date.  The  use  of  the  canceled  receipt  column  is  now  obvious.  The 
footing  of  items  in  this  column  must  agree  with  the  footing  of  grain  loaded, 
but  for  ledger  purposes,  the  number  of  the  receipt  and  also  grade  of  grain 
loaded  is  also  entered.  The  footing  agreeing,  a  check  is  made  upon  this 
part  of  the  day's  work. 

The  next  step  is  that  of  the  grain  ledger.  To  this  book  all  other  cards, 
slips,  sheets  and  journal  entries  are  but  tributary.  The  ledger  is  the  con- 
densed encyclopedia  of  the  elevator's  physical  operations.     It  is  the  ledger 


C»^tr>    \ri      Debit" 


ELEVATOR    D 


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Form   10. 

which  is  to  tell  what  has  been  handled  each  day :  what  is  the  total  amount 
of  grain  in  store;  also  what  receipts  are  outstanding,  and  the  class  and  grade 
represented.  It  is  not  presumed  that  any  one  style  of  ruling  and  entry  is 
imperative  or  sufficient  to  meet  all  classes  or  styles  of  book-keeping,  the 
present  paper  onh'  atteiupting  to  show  one  system  which  has  been  success  full  v 
applied  in  a  large  and  prosperous  elevator  for  over  seven  years  and  has  been 
found  satisfactory,  meeting  all  demands  in  this  instance. 

The  ledger  ruling  is  found  in  Form  10.  Each  sheet  is  divided  in  half, 
for  debit  and  credit  entries.  The  first  pages  of  the  ledger  are  used  for 
elevator  reports,  showing  under  heading  of  corn.  oats,  wheat,  barley  and  rye, 
the  quantity  of  grain  taken  in,  on  one  half  page,  the  remaining  half  page 
showing  grain  loaded  out.  monthly  footing  being  made  and  ruled  off.  "  balance 
m  store  "  being  carried  forward.  The  remaining  pages  of  the  ledger  are  used 
to  show  the  various  classes  and  grades  of  grain  taken  in  and  loaded  out, 
the  entries  being  made  to  conform  with  double  entry  ideas. 

849 


%>'■■ 


I 


H 


1! 


I 


Gr. 


American  Business  and  Accounting  Encyclopedia    63CM330A 


The  credit  sides  (Form  11),  showing  grain  under  description  receipted, 
the  debit  side  charging  the  entry  with  grain  dehvered  or  loaded  out.  Each 
entry  when  closed  being  marked  as  on  sheet  with  check  mark.  At  any  time 
balance  may  be  struck  and  the  open  entries  on  the  credit  side  when  footed 
together  will  be  found  to  agree  with  the  balance  on  the  first  page  of  the  ledger. 

— G.  Mason. 

(630A)    GROCERY  BUSINESS  ACCOUNTING  (WHOLESALE). 

The  working  force  of  a  wholesale  grocery  business  is  as  follows : 


OFFICE. 

Buyer 

Sales  manager 

Credit  man 

Book-keeper 

Cashier 

Assistant  book-keeper 

Billing  clerk 

Stenographer 

We  will  take  up  their  work  as  they  come 

The  books  and  records  used  are  as  follows : 

Sales  Books 

Journal  and  Cash  Book 

Ledger 

Receiving  Book 

Stock  and  Price  Book 

Letter  Heads 

Invoices 


WAREHOUSE. 

Receiving  clerk 
Shipping  clerk 
Stock-keeper 
Porters 
Draymen 

ROAD. 

Salesmen 

in  contact  with  the  stock. 

Order  Sheets 
Statements 
Checks 
Receipts 
Stock  Report 
Cash  Vouchers 
Credit  Memos. 


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Form   1.  Form   2. 

THE   BUYER. 

The  first  thing  in  order  after  the  organization  of  a  mercantile  company, 
and  the  selection  of  employes,  is  the  purchasing  of  the  stock.  The  man  who 
does  this  well,  is  kept  busy  in  this  one  capacity. 

He  has  a  card  index  outfit  on  his  desk  arranged  alphabetically  with  cards 
ruled  as  Form  1. 

After  he  has  received  prices  from  traveling  men,  or  by  quotation,  he 
notes  the  same  upon  card  as  illustrated,  and  files  same  in  the  case  after  the 
proper  index  letter.  The  reverse  side  of  card  can  be  used  for  memoranda 
about  this  particular  article,  always  using  a  separate  card  for  each  article  or 
class  of  articles.    After  he  makes  the  purchase,  if  from  a  salesman,  he  re- 

850 


630A 


American  Business  and  Accounting  Encyclopedia 


Gr. 


o 

Article 

Brdi)d 

^dptity 

Rdte 

List 

?ac\^Ji 

Cost 

Sell 

o 

Form  3. 

ceives  an  exact  copy  of  his  purchase  with  prices,  terms,  etc.  This  is  placed  in 
an  envelope  bearing  the  address  of  the  firm  from  whom  purchased  and  then 
filed  in  a  Purchase  File,  or  case.  If  he  buys  from  quotation,  the  letter  or  price 
list  is  filed  in  same  manner. 

When  the  invoice  for  purchase  is  received  it  is  first  sent  to  the  buyer's 
desk.  He  takes  from  his  case  the  copy  of  purchase,  compares  same  with 
invoice,  noting  prices,  terms  and  amounts,  attaches  copy  to  the  invoice  with 
his  O.  K.  and  remarks. 

The  invoice  then  is  passed  to  the  assistant  book-keeper,  who  verifies  the 
extensions,  and  places  same  on  file  until  the  goods  arrive. 

The  bill  of  goods  once  bought,  the  next  step  is  to  see  that  same  is  received 
in  good  condition. 

the  receiving  clerk. 

The  receiving  clerk  makes  out  an  original  and  duplicate  copy,  using  car- 
bon sheets,  of  all  goods  received  on  Form  2,  which  is  punched  to  fit  post  binder. 

A  separate  slip  is  used  for  each  shipment  received.  The  receiving  clerk, 
not  knowing  what  the  invoice  calls  for,  must  check  the  goods  correctly,  or 
the  error  at  once  is  discovered  when  the  receiving  slip  is  compared  with  the 
invoice.     The  privacy  of  prices  is  thus  kept,  and  the  trouble  of  mislaid  in- 


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851 


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American'  Busixess  and  Accounting  Encyclopedia 


630A 


Cf«^'it  tS«  -following 

\C\n 

o 
o 

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Net 

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Allow 
aoce 

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Form  u. 
voices  is  done  away  with.  When  goods  are  returned  from  customers  the  same 
sHps  are  used.  The  original  is  sent  to  the  office  with  the  freight  bill  to  be 
attached  to  the  invoice,  or  a  credit  memorandum  issued.  The  copies  are  filed 
upon  a  binder  until  the  end  of  the  month,  then  it  is  labeled  and  filed  away.  All 
freights  are  paid  once  a  week. 

stock- KEEPER. 

After  the  iroods  have  been  checked  thev  are  then  turned  over  to  the 
stock-keeper,  who  with  his  assistants,  arrange  and  classify  them  in  the  ware- 
house, using  the  alphabetical  arrangement  for  the  smaller  articles,  which  are 
usually  kept  in  shelves  upon  the  second  and  third  floors.  He  keeps  the  buyer 
posted  daily  by  a  stock  report  sheet,  of  those  goods  that  are  getting  low  and 
need  to  be  ordered. 

THE   SALES    MANAGER. 

The  sales  manager  takes  each  invoice  and  notes  the  cost  and  selling  prices 
in  a  Stock  and  Price  Book  arranged  as  Form  3. 

It  is  his  duty  to  keep  the  salesman  posted  as  to  prices,  new  goods  and 
prospective  customers,  to  arrange  for  specialty  men  and  territory.  He  meets 
all  the  city  and  traveling  salesmen  every  Saturday,  for  one  hour  and  talks 
over  the  situation,  and  arranges  for  the  next  week's  trip. 

Salesmen  are  provided  with  a  pad  of  order  sheets  like  Form  4. 

All  orders  are  written  upon  the  sheets,  and  mailed  to  the  house  every  day. 
The  total  sales  of  each  salesman  is  made  up  from  the  original  sheets  once  a 
week.    Each  salesman  is  given  a  check  for  expense  money,  and  same  is  charged 


O 


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830A 


American  Business  and  Accounting  Encyclopedia 


Gr. 


to  his  account  as  agent.  His  daily  expenses  are  noted  in  a  small  expense 
book  which  is  sent  in  every  Saturday. 

The  amount  of  this  book  after  being  O.  K.'d  by  the  sales  manager  is 
credited  to  the  Agent  account  and  charged  to  Traveling  Expense  account. 

No  salesman  is  allowed  to  use  money  he  collects  for  expense  purposes, 
but  is  provided  with  Form  5,  and  this  with  checks  or  cash  is  turned  in  daily. 
A  separate  accoimt  is  kept  as  his  personal  account. 

We  will  now  follow  the  order  sheet  in  its  regular  order  or  course  through 
the  business.  The  order  sheet  having  been  received  by  the  firm,  is  first  sent 
to  the  sales  manager,  who  notes  the  prices  and  terms,  and  O.  K.'s  same. 

THE    CREDIT    MAN. 

The  credit  man  next  receives  the  order  and  from  either  his  acquaintance 
with  the  purchaser,  or  from  mercantile  agency  reports,  places  his  O.  K.  upon 
it.  He  usually  finds  out  about  customers  from  other  jobbing  houses  using 
Form  C.  He  also  has  a  card  index  outfit  for  the  credit  rating  of  each  customer 
with  cards  like  Form  7. 

The  assistant  book-keeper  next  receives  the  order,  numbers  it  by  an  order 
register,  then  sends  it  to  the  shipping  department.  When  the  order  is  returned 
to  the  office  he  checks  same  on  order  register  to  avoid  any  being  lost  by  ship- 
ping department,  thus  making  it  impossible  to  ship  goods  without  the  proper 
charge  having  been  made. 


"^-1 

o 
o 

Cr«Jit  M«ioorooJi/r> 

190      1 
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T- 

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Diseai/i^t 

Article 

FVice 

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rer)din,  Yaur«  tr^^ly         ,.. 

,  v/e 

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Form   8.  Form  9. 

In  the  shipping  department  all  items,  when  gotten  out,  are  checked  on 
the  order  sheet  by  the  shipping  clerk,  then  double  checked  by  a  recheck  clerk 
or  packer.  Goods  not  in  stock  are  marked  B.  O.,  meaning  Back  Order.  Those 
not  obtainable  are  marked  out.  The  shipping  clerk  then  makes  the  dray  ticket, 
freight  bill  and  bill  of  lading,  using  a  form  printed  in  triplicate  with  carbon 
sheets.  The  recheck  clerk  now  checks  all  items  on  the  dray  ticket  as  they 
are  put  on  the  dray,  being  careful  to  see  that  no  article  is  omitted.  The 
signed  dray  ticket  and  bill  of  lading  are  returned  by  the  driver  to  the  shipping 
clerk.  The  dray  ticket  is  filed  on  a  binder,  and  the  bill  of  lading  is  attached 
to  corresponding  order  sheet  and  sent  to  the  office.  City  deliveries  are  re- 
ceipted for,  when  delivered,  in  a  receipt  book  made  with  perforated  sheets. 
These  are  torn  out  and  filed  like  the  dray  tickets. 

The  order  sheet  is  now  on  the  billing  clerk's  desk,  who  makes  the  exten- 
sions and  invoice,  noting  on  same  all  articles  that  are  to  follow  on  back  order, 
and  those  that  are  not  in  stock  and  cannot  be  obtained  in  the  city. 


t 
I 


i 

%. 


853 


Gr. 


American  Business  and  Accounting  Encyclopedia 


630A 


Back  orders  are  made  out  and  filed  in  a  Back  Order  File.  All  invoices 
are  made  with  a  typewriter.  The  invoice  is  rechecked  by  the  assistant  and 
mailed  together  with  the  bill  of  lading  and  a  letter  of  thanks,  also  an  order 
sheet  and  addressed  envelope  are  inclosed. 

THE   BOOK-KEEPER. 

The  book-keeper  now  receives  the  order  sheet.  In  this  day  he  has  the 
loose-leaf  ledger.  So  arranging  the  orders  alphabetically,  the  assistant  lists 
the  sales,  getting  the  total  for  the  day.  In  posting,  the  book-keeper  posts  direct 
from  the  order  to  the  ledger.  After  he  has  posted  an  order  to  its  account,  he 
then  drops  the  order  sheet  in  the  ledger,  and  so  continues  until  all  are 
posted.  He  now  begins  with  the  first  sheet,  and  with  the  adding  machine 
lists  from  the  ledger  the  amount  posted,  removes  the  sheet,  and  so  on  till  all 
are  taken  out.  He  now  compares  his  total  with  the  one  made  by  the  assistant, 
and  if  it  agrees  he  is  sure  his  postings  are  correct,  and  that  no  omissions 
have  been  made. 

Merchandise  returned  is  recorded  on  sheets  punched  like  order  sheets, 
but  one-half  size,  like  Form  8,  using  a  different  colored  paper. 

These  sheets  are  posted  once  a  week  in  the  same  manner  as  order  sheets, 
the  totals  charged  to  sales  account,  then  filed  on  sales  binder.  It  is  preferable 
to  use  this  sheet  rather  than  the  journal,  from  the  fact  there  can  be  more 
data  placed  upon  them  and  they  can  be  referred  to  easily,  and  properly  belong 
on  sales  binder  as  a  charge  to  sales  account.  These  credit  memos,  are  made 
in  duplicate,  one  copy  being  mailed  to  the  customer. 

The  ledger  accounts  are  arranged  in  two  general  divisions,  viz.,  general 
accounts  and  customers'  accounts. 

The  columnar  journal  and  cash  book  is  arranged  with  special  columns 
for  those  divisions.  This  arrangement  will  show  at  any  time  the  amount  due 
us  by  our  customers.    Other  special  columns  may  be  provided  if  desired. 

No  account  is  kept  on  the  ledger  with  firms  from  whom  we  purchase 

goods. 

All  invoices  are  usually  discounted  in  ten  days.  After  they  are  O.  K.'d 
and  verified  the  book-keeper  places  them  in  the  Paying  File,  numbered  from 
1  to  31,  on  the  day  they  are  to  be  paid.  This  file  is  gone  through  every  day 
and  the  bills  falling  due  paid.  The  date  of  payment,  amount  of  check,  dis- 
count and  deductions  are  noted  on  the  invoice,  thus  making  a  voucher  record. 
It  is  then  filed  in  Paid  Invoice  File,  each  firm's  invoices  being  bound  together 
in  order  of  payment.  The  next  step  in  the  accounting  of  the  business,  is  the 
collection  of  accounts. 

As  the  remittances  are  received  the  assistant  book-keeper  notes  if  pay- 
ments and  deductions  made  are  correct.  They  are  held  until  time  for 
banking,  when  they  are  then  classified,  entered,  and  the  bank  deposits  made  in 
duplicate,  one  copy  for  the  bank,  and  one  for  the  book-keeper's  file.  A  re- 
ceipt is  sent  on  Form  9  either  on  a  postal  or  enclosure  for  each  remittance 
received. — /.  W.  Umstattd. 

854 


630A-632     American  Business  and  Accounting  Encyclopedia      Gr.-Ha- 

(630B)    GROSS  PROFIT. 

"  A  term  generally  used  to  signify  the  difference  between  amount  of 
sales  and  amount  expended  in  placing  the  articles  sold  in  a  salable  condition, 
either  by  purchase,  or  purchase  and  manufacture." 

"  Gross  profit  less  expense  and  distribution,  leaves  net  profit." 

"  Gross  profit  is  the  diflFerence  between  the  actual  price  at  which  goods 
have  been  sold  during  a  period,  and  the  cost  of  either  acquiring  or  purchasing 
such  goods  and  getting  them  in  a  state  or  position  where  they  are  ready 
to  be  sold." 

That  surplus  which  remains  after  all  items  which  enter  into  cost  of 
production  or  purchase  or  expense  of  placing  on  sale  have  been  deducted 
from  the  amount  realized  from  sales  of  the  articles  manufactured,  purchased 
or  placed  on  sale  . 


See  Bonds. 


(630C)    GUARANTEED  BOND. 


(630D)    GUARANTEED  STOCK. 
See  Stock. 

(630E)    GUESTS'  LEDGER. 

See  Hotel  Accounting. 

(631)     HARDWARE  BUSINESS  ACCOUNTING  (WHOLESALE). 

purchasing  department. 

The  purchase  orders  are  written  in  triplicate  with  the  typewriter,  using 
two  carbons,  the  general  style  of  the  orders  being  as  per  Form  1,  the  usual 
plan  adopted  in  distributing  the  orders,  i.  e. — the  original  is  mailed  to  the  firm 
addressed,  the  duplicate  is  the  purchasing  agent's  record,  and  the  triplicate 
goes  to  the  receiving  clerk. 

The  stock  clerk,  as  soon  as  he  receives  the  report  that  the  goods  are  cor- 
rect as  billed,  enters  the  invoice  in  the  stock  book,  which  may  be  either  on 
the  loose  leaf  style,  as  per  Form  2,  or  on  the  card  system. 

It  will  be  noted  that  one  of  the  columns  is  headed  "  Selling  Price."  This 
should  be  inserted  with  a  lead  pencil,  so  as  to  easily  note  any  changes. 

SALES   department. 

A  number  of  orders  are  received  each  day  from  diflFerent  salesmen  and 
these  are  distributed  in  a  sales  record,  as  per  Form  3,  thus  each  salesman's 
orders  are  together,  and  the  results  of  the  business  of  each  salesman  may  be 
easily  secured.  In  addition,  a  recapitulation  is  made  for  the  year,  as  per 
Form  4. — E.  C.  Hopkins. 

(632)     manifolding. 

The  facility  of  the  billing  typewriter  to  make  several  perfect  copies  at 
once  is  being  applied  in  all  kinds  of  office  work.    It  is  used  in  requisition  sys- 

855 


Ha. 


American  Business  and  Accounting  Encyclopedia       631-63*4 


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631-632        American  Business  .\Nn  Accounting  Encyclopedia 


Ha. 


tems,  where  duplicate  orders  are  made  for  record  and  price  files  and  for 
the  use  of  receiving  and  checking  clerks.  It  is  used  in  billing  and  charging  sys- 
tems, where  carbon  copies  of  the  bills  are  condensed  on  the  pages  of  a  loose- 
leaf  sales  book.  It  is  used  by  retail  houses  in  daily  entry  billing  and  charging, 
where  the  items  are  entered  from  day  to  day,  carbon  copies  of  the  completed 
statements  being  used  at  the  end  of  the  month  for  posting  to  the  ledger.  It  is 
used  in  making  factory  tickets  when  copies  are  necessary  in  one  fonn  or  an- 
other for  reference  and  checking. 


TT».^  r.#l4s 

'"<■'■* 'y^'*                   Tmi  Bear  HftftDWANc  Co. 
•MO.  ^*:..                                 Miat*.  COM. 

/3*^ 

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AT  _  _  _o.|it:,c  _  Cpii ._ 

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o 

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o 
o 

Jayinry                                                                  SALES                                                                    |.jo7 

DATE 

FIELDS                HUSTON 

GORDON        1          DAYTON 

TOTAL.          1 

€e\r\. 

ArTy)Oijt 

Cos-t- 

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For.m   9. 

To  demonstrate  this  idea  more  fully  we  will  describe  one  of  its  most 
general  applications.  This  is  a  system  largely  used  by  wholesale  hardware 
houses  on  account  of  the  vast  variety  of  stock  carried,  and  the  infinite  detail 
necessary  in  filling  orders.  One  single  writing  of  the  order  is  all  that  is 
necessary  from  its  receipt  to  the  ]K)sting  of  the  ledger.     The  writing  of  the 

857 


Ha. 


American  Business  and  Accounting  Encyclopedia       631-632 


American  Business  and  Accounting  Encyclopedia 


Ha. 


o 

o 

_, - 

SALES                                            atSr^Oary   i.     i«^o-3 

a 

riELDS 

HUSTON 

GORDON 

DAYTON 

TLEISCH 

T-OTAL-            1 

No 

^~wi-|c 

ost  No 

Ainodr)t|Cost 

No  ArjoUf^t  Co  si" 

No  Ar)0))tj1 

Cost 

NoArjoOritCost' 

Sole* 

CosT     1 

22 

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r,rai 

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STOCK     GOODS. 

^•"KLm  u^tM  Am  Fucas  n  atMS.  Oaoasi  riLun  n  Ma  .airsMT. 
ROGERS  &  CO 
DETROIT  MICH 
PAKMLY  &  BftOm 
BIR  RAPIDS  MICH 
3456 
P  M   P   R 


Form   8. 


SALES  FOR  YEAR  1907 


DATE 


o 


\-)ol 


Mar. 

noy 

Juiv 
Ao*' 
5e|jV 
Oct 
Nov. 
Dfc. 


FIELDS 


Sales 

oeeoc 


Tolnl 


O 


Cost 


3/J^M 


ColT^ 


lOOdt 


H\JSTON 


Soles 


Coat 


Cori. 


GORDON 


TOTAL 


Snies 


CeiT 


"ConJISnlpb 


Cost 


CoP). 


SUMMARY  TOTAL.CR05S     SAUCS        t- 

Afytirjt  iKowrj  by  Cfvii'i  Mf <^.  t5»oH      / » 

TDTAL  NET    SALES      /_-_. 

TOTAL    NET    COST         ^ -. 

Lrss   cost  of  re^ryi     6oods      / 

/ 

Aid  is'/o^op  E»|sffr)ses     ptc.  y 

TUTAL  ACTUAL  COST  /-- 

GAIN      /_> 


Form  10. 

invoice,  the  charge  sHp,  acknowledgments  of  the  order  to  the  customer  and 
salesman,  salesman's  commission  record,  stock  clerk's  order,  packer's  copy, 
shipper's  copy  and  if  necessary  even  the  bill  of  lading  or  delivery  receipt,  or 
both,  is  all  accomplished  by  one  operation.  This  is  called  the  unit  system 
because  each  charge  or  sales  book  entry  is  on  a  separate  sheet. — H.  Hatnmitt. 

858 


to 
in 


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>  ROGERS  &  CO-  uTsanuD 

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manifolding — five  copies. 
859 


Ho. 


American  Business  and  Accounting  Encyclopedia 


633 


(633)     HOSPITAL  ACCOUNTING  RECORDS. 

The  principal  records  of  a  hospital  are  those  which  relate  to  its  peculiar 
requirements.  The  purchase  department  is  conducted  in  the  ordinary  manner 
with  triplicate  order  blanks,  etc.,  and  it  is  not  necessary  to  specially  refer  to  it. 

The  voucher  record  has  a  number  of  special  headings,  but  otherwise  is 
similar  to  the  ordinary  voucher  record.    Form  1  shows  that  a  proper  provision 


N» 

THE    GRACE  HOSPITAL  - 

■  Purcl->a*e  Order 

Oriqinal 
Duplicote  ond 
Triplicote 

To 

Date 

Please    ."Vipply   the   following  articles: 

Quantity 

Description 

Price 

Terms 

Credit 

Amount" 

Our  Order  Ha  must  be  (|uotcd  on  the  BiU 

1 

9up«rin<«nd«nt'    ^ 

Form    1. 


No' 


THE  GRACE   HOSPITAL 


\t\  Favor  of 


Descri|)1lo(^  oj  Vooclvr 


Apy)urj1 


SUPPLIES 


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f2> 
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F 


G       I     H 


I 


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rn 


School 


M 

Ldbordtbo 


N     ^ 


M.\ 


CffI 


Form   2. 

800 


633 


American  Business  and  Accounting  Encyclopedia 


Ho. 


Tv;»Cv«»><>«)Nr'rTT4'Vh*»— >T'*o»    v/      I      M 

If^rfc^tT,  t-,n.")  «:»>.«»  .I»«<ito,  VoVCtyr  INo. 


Na 


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betro.t.MIcI) 


.belUr*     I. 


TO  TMl 


OCTnOlT,  ntCMlCAM 


JBANN 


THL  GRACL  HOSPITAL 
ay 


Tr»«»»»»» 


S«^r'itj1»i^*^r 


Form  U. 


THE  grace:  hospital 

patient's  menw 
Mm!                   bflfe                                    1^/. 

CORRIDOR 

ROOM 

>%Di1»«» 

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coffi. 

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3 

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Form  4. 


THE  GRACE    HOSPITAL- Diet  Kiltfjci). 

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Si6ned 

*.  / 

Form   5. 


has  been  made  for  unpaid  vouchers,  as  it  happens  sometimes  that  the  pay- 
ment of  some  bill  or  bills  may  be  held  up  by  reason  of  dispute,  or  something 
of  that  kind. 

The  voucher  check  is  a  good  example  of  what  this   form   should  be. 
(Form  2.) 

861 


Ho. 


American  Business  and  Accounting  Encyclopedia 


633 


I 


eg  V 

55'^ 


O  m 

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affl 


^  ^  _  ti  o.      ^  ^  J3  it,       ti.^  ^        ^    O 


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Form  6. 


M. 
Or. 

ADMITTED 
D)&<HAR0EO 

HOSPITAL    OAVS 
C.  R. 

BATE  n 

MAUD 

LAUNDRY 

SUNDRY 

TOTAL     1 

DATE      1 

TOTAL   1 

'    ' 

— 

r~" 

— . 1 

■~^ 

Form   7. 


% 


THE  GRACE    HOSPITAL 

Poy  Roll  j-or  Mor^tt)  of- 


I^O_ 


(\Jot^< 


bor«» 


>ervice 


Fror) 


To 


Roref.erMa 


^nount 


Ad 


(^crd  lv>(iiance 


R«ceW«d  I5y 


Form  8A. 

The  proper  record  of  provisions  and  supplies  received  and  their  distribu- 
tion is  of  great  importance  to  the  hospital  management,  as  upon  this  depends 
the  accuracy  of  those  statistics  compiled  in  regard  to  the  average  maintenance 
expense  p^r  patient.    See  Forms  3  and  4. 

862 


633 


American  Business  and  Accounting  Encyclopedia 


Ho. 


F?o 


>/i&ions 


Pyymyc  N'jca^y.e 


Hos|).1nl 


House- 


Lavr^iryj    School 


Lobortitbo 


bescri|)t;orj 


Soi^dries 


Form  8B. 


J 


No. 

Prftier^r 

Address 

Adr)rtt»d 

Ho2>r 

Mfli^i^r 

Recorjineryfcd  bj 

I 

.  I 

l^ 

4- 

S 



6 

-        7 

^ 

^^*=^ 

Form  9-1. 


• 

Lxflf^iner 

R*nNnrks 

Reltblorj 

ib;rits 

Cfi^  Color 

ypcir»    \r\ 

CvIl    1 

Piflce 

bote 

^l^y 

SM^ 

1 

=^ 

^ 

% 

2 

3 

4 

5 

^ 

4 
[_?_ 

Form  9-2. 


There  is  a  standard  table  of  approximate  quantity  of  food  required  for 
hospitals  of  different  sizes. 

The  pay  roll  is  provided  with  distribution,  columns,  so  that  every  proper 
statistic  may  be  easily  obtained. 

We  show  a  patient's  register  at  date  of  entrance  and  register  of  treat- 
ment in  the  hospital.  The  comparative  monthly  record  should  also  be  found 
interesting  to  those  connected  with  this  kind  of  institution.     (Forms  5  and  G.) 

We  also  illustrate  special  form  of  patient's  ledger  on  the  card  system 
(Form  7.) 

863 


Ho. 


American  Business  and  Accounting  Encyclopedia 


633-636 


636-637        American  Business  and  Accounting  Encyclopedia 


IIo. 


ill 


• 

OtcB^ltoij 

Fotl^r-i 
Norje 

Motibnolily 

Mofljep* 
Nnrje 

Ep)|>i<y»>" 

A<Jdrf»j 

Relrftive  or 

How 
Related 

Address  '^p' 

1 

1 

I 

i 

4 

S 

_ 

& 

L^,-^—^ 

L^ 

L-oJ 

1— 

''-- J 

D 

Form  9-3. 


Assi^r)ed  To 

Pfly  or 
Free 

UiS£ly»r6e  t5ifl6nosis 

No. 

bisc^or^ed 

W«rd 

Roorj  b>iv*iio«j 

Hour 

bnte 

1 

Z 

^ 

^ 

y 

& 

I— 

_ ■ 

, ' 

1 

I^ 

Form  9-4. 

(634)     HORIZONTAL  ADDITION. 

Cross  addition.  The  addition  of  footings  across  a  page  necessary  in 
columnar  books  of  account  or  statistical  records  in  order  to  prove  the  totals. 

(635)     HORSES— DEPRECIATION  OF. 

Experience  shows  that  no  specific  rule  can  be  applied,  but  that  it  is  best  to 
have  property  of  this  kind  periodically  re-valued,  the  life  of  a  horse  in  some 
businesses  and  under  some  conditions  being  much  longer  than  in  others. 

(636)     HOTEL  ACCOUNTING. 

A  hotel  business  proper  includes  the  following  departments: 

Cafe 

Billiard  Room 

Bar 

Cigar  Stand 

News  Stand 

Accommodations. 

A  separate  account  should  be  kept  with  each  of  these  departments  in 
order  to  show  the  cost  of  running  them  and  the  income  derived  from  each 


department.  Cash  Books,  Purchase  and  other  records  should,  therefore,  be 
provided  with  special  columns  for  each  department  in  connection  with  receipts 
and  expenditures,  and  each  department  should  bear  its  proper  proportion  of 
general  expense  of  superintendent's  management,  general  office  work,  etc. 

In  large  hotels  all  provisions  and  supplies  are  received  in  a  store  room 
and  only  delivered  on  requisition,  being  charged  to  the  different  departments. 
This,  we  suppose,  is  true  with  everything  with  the  excei)tion  of  the  news 
stand.  The  billiard  room  is  usually  served  from  the  bar,  so  that  the  bar 
receives  credit  for  all  liquors  there  consumed. 

A  proper  monthly  comparative  statement  should  not  only  exhibit  percent- 
ages of  profit  or  loss,  increase  or  decrease  of  business,  but  also  the  average 
cost  of  feeding  each  guest,  this  being  a  check  on  the  steward. 

Where  a  hotel  owns  a  farm  or  dairy,  or  other  source  of  supplies,  these 
departments  should  be  considered,  so  far  as  the  hotel  accounts  are  concerned, 
as  entirely  separate  and  independent  organizations,  as  this  is  the  only  method 
of  preventing  confusion. 

We  illustrate  forms  of  hotel  guest  ledger,  house-keeper's  dailv  report, 
and  financial  statement.  These  are  all  conveniently  arranged  and  should 
be  found  practical  in  use. 


(637)       HOTEL   CARD   RECORDS. 

One  of  the  most  difficult  problems  which  confronts  the  managers  of 
hotels  is  how  to  secure  themselves  against  accidental  or  fraudulent  loss,  par- 
ticularly in  connection  with  charging  to  their  guests  the  various  items  which 
constitute  their  bills.  A  number  of  methods  are  employed  in  this  direction 
of  which  we  believe  the  following  to  be  one  of  the  best. 

The  pivotal  point  around  which  the  following  plan  revolves  is  a  card,  as 
illustrated,  and  which  is  handed  to  the  guest  at  the  time  of  registering  his 
name  upon  entering  the  hotel. 

It  serves  as: 

1.  His  credential  for  entering  the  dining-room  (where  the  custom  of  the 
hotel  so  requires). 


Name. 


Room  No. 


1 

RnoMc; 

Mfaic; 

News  Stan  n 

Extras 

Total 

, 

REMARKS 


KIP\VE.LL'S 

^■♦li  V  2i  ST                                               NCWVORK 

T.Hf   of  M<ii^i3»c<-".fjt- 

S»ol- 

R»1*rvJ!  PVbl'..S*J 

1 , 

864 


865 


I>  > 


, 


Ho. 


American  Business  and  Accounting  Encyclopedia 


681 


CONSECUTIVE 
NUMBER 

50 

SO 

50 

50 

50 

50 

50 

SO 

SO 

SO 

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50 

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5 

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Date 

5 

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5 

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Total  Charged 

$ 

25 

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2.  The  continuous  record  of  all  charges  for  meals  and  extras  booked 
against  him  during  the  life  of  the  card. 

3.  i\s  a  day  book  record  and  ledger  account  with  the  guest,  kept  up  at 
the  minimum  cost  of  clerical  labor. 

4.  As  the  basis  of  a  counter-check  between  the  book-keeper  and  cashiers. 

5.  As  a  condensed  and  analyzed  record  for  writing  up  cash  book  by 

book-keeper. 

6.  After  being  filed  away  alphabetically,  as  a  perpetual  reference  mem- 
orandum with  regard  to  each  individual  guest. 

A  guest  having  recorded  his  name  on  the  register,  the  clerk  takes  up  one 
of  the  cards  and  enters  the  particulars  which  the  spaces  in  the  center  call  for, 
giving  it  the  same  "consecutive  number"  as  the  one  which  identifies  the  line 
upon  which  his  name  is  written  in  the  guest  book. 

Presuming  for  the  time  being  that  the  hotel  is  exclusively  "European," 
the  guest  will  produce  his  card  upon  leaving  the  dining-room,  together  with 
the  waiter's  slip,  representing  the  charge  against  him.  The  slip  will  be  num- 
bered with  the  number  of  the  card. 

The  cafe  cashier  will  punch  the  card  with  the  amount  charged  on  the 
slip,  retaining  the  latter. 

These  waiter's  slips  will  be  sorted  into  numerical  order  by  the  cashier 
(cafe)  as  the  day  proceeds,  and  afterwards  sorted  in  with  all  that  are  not 
obsolete — same  becoming  obsolete  when  bills  representing  them  have  been  paid. 

If  the  news  stand  or  any  other  department  in  the  building  is  under  the 
direct  control  of  the  hotel,  or  has  an  arrangement  with  them  to  that  effect, 
those  iri  charge  of  same  may  be  furnished  with  punches  of  a  distinctive  char- 
acter, and  charge  purchases  against  the  guests.    These  items  will  be  recorded 

866 


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American  Business  and  Accounting  Encyclopedia 


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No.  267  1-4 

DAY  RATE 

V'EEK  RATE 

ROOM  NO. 

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American  Business  and  Accounting  Encyclopedia 


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FINANCIAL   STATEMENT. 


in  their  cash  register,  and  tickets  bearing  the  numbers  of  the  guest's  cards 
will  be  made  out,  and  turned  in  to  the  book-keeper  to  be  checked  against  the 
same  as  :lescribed  below.  When  the  guest  wishes  to  make  a  settlement  he 
produces  his  card.  The  cashier  makes  a  memorandum  on  the  face  of  it  of 
the  amount  charged  for  room,  foots  up  the  total  of  items  punched  and  records 
the  gross  figure  in  the  space  provided  at  the  left  hand  bottom  corner  of  the 
card.  He  then  (or  at  the  close  of  the  day)  hands  the  card  to  the  book-keeper. 
The  book-keeper  makes  an  independent  calculation  by  departments  of  the 
items  punched,  for  his  analyzed  recapitulation  on  the  reverse  side  as  shown  in 
Diagram  2.  His  total  must  agree  with  total  charged  on  the  face.  From  this 
recapitulation  he  enters  up  his  cash  book,  which  is  provided  with  columns 
to  correspond. 

It  will  be  observed  that  this  method  of  charging  limits  the  credit  of  the 
guests  (apart  from  room  charges)  to  an  amount  ecjual  to  the  capacity  of 
the  card.  This  is  liable  occasionally  to  be  a  consideration  of  no  small  amount. 
The  proprietor  may  frequently  find  himself  in  a  difficult  or  embarassing 
position  when  he  notices  that  the  charges  running  up  against  a  certain  cus- 
tomer are  in  excess  of  what  he  believes  to  be  a  reasonable  limit  in  that 
particular  case.  At  the  same  time  to  approach  the  guest  on  the  matter  is  an 
alternative  that  he  would  be  pleased  to  avoid.  Under  this  system,  however, 
the  difficulty  is  met  more  than  half  way. 

It  will  be  noticed  that  spaces  are  provided  on  the  reverse  side  of  the  card 
both  for  the  number  of  the  room  and  for  remarks,  as  well  as  for  a  repetition 

808 


B37-643        American  Business  and  Accounting  Encyclopedia        Ho.-In. 

of  the  customer's  name.  It  is  suggested  that  so  soon  as  the  book-keeper  has 
finished  with  them  the  cards  be  filed  away  alphabetically  in  a  card  index  file, 
which  should  be  kept  at  the  elbow  of  the  counter  clerk.  Immediately  a  guest 
registers,  or,  if  possible,  as  he  approaches,  the  clerk  will  turn  to  this  file  and 
inform  himself,  not  only  as  to  the  room  which  he  has  previously  occupied, 
but  as  to  any  personal  tastes  and  prejudices  which  the  guest  may  have  dis- 
played and  which  have  been  noted  down  on  a  previous  occasion. 

In  this  way  there  will  be  gradually  collected  together  and  systematically 
tabulated  an  amount  of  information  which  will  be  of  great  practical  value. 

(638)     HYPOTHECATED  SECURITIES. 

Assets  pledged  or  mortgaged  as  security  for  money  advanced.  It  is  quite 
usual  to  carry  the  amounts  received  on  account  of  such  loans  in  a  Collateral 
Account,  the  amount  of  such  Collateral  Account  being  deducted  on  the  balance 
sheet  from  the  values  of  the  assets  deposited  as  collateral.  Mortgages  are 
usually  treated  as  liabilities. 

(639)     IMPRESSION  BOOK. 

A  book  in  which  bills  or  letters  are  copied.  It  is  a  common  practice  to 
copy  bills  in  an  impression  book  and  post  thence  to  the  customer's  account  in 
the  ledger.  Some  manufacturing  stationers  make  a  specialty  of  manufac- 
turing impression  books  with  extra  columns  ruled  at  the  right-hand  side  of 
each  page  for  distributing  the  sales  into  different  departments. 

This  device  is  being  rapidly  supplanted  by  the  use  of  carbon  copies. 

(640)     IMPREST  SYSTEM  OF  PETTY  CASH. 

See  Petty  Cash. 

(641)     INCOME. 

The  gain  which*  proceeds  from  property,  lal)or,  or  business.  It  is  applied 
particularly  to  individuals.  The  income  of  the  state  or  government  is  usually 
called  revenue.  The  word  is  sometimes  considered  synonymous  with  profits, 
the  gain  as  between  receipts  and  payments. 


See  Corporations. 


(642)     INCORPORATION. 


(643)     INDEX. 
A  book  arranged  to  furnish  ready  reference  to  another  book. 


bound  index. 


A  bound  volume  which  is  usually  provided  with  vowelized  tabs,  either 
across  the  top  of  the  pages  or  down  the  outside  edge. 


sm 


II 


IM. 


American  Business  and  Accounting  Encyclopedia       642-647 


CARD   INDEX. 


Numerous  examples  have  been  given  under  the  heading  of  "Card  System." 
These  indexes,  together  with  those  on  the  loose  leaf  principle,  are  superior 
to  the  bound  indexes  because  they  can  be  cross-indexed  with  facility  if  any- 
thing new  arises,  and  a  page  which  has  been  completely  filled  may  be  removed 
and  a  new  page  substituted. 

Labor-saving  devices  are  not  used  as  often  as  might  be  expected,  so 
that  in  a  majority  of  cases  the  procedure  in  hunting  up  the  order  would  be 
something  like  the  following.  The  customer  writes:  ''Make  me  one  ledger 
same  as  last."  The  order  clerk  first  goes  to  the  ledger  index  and  looks  up  the 
page  of  the  account.  He  then  refers  to  the  ledger  and  finds  the  page  of  the 
sales  book,  which  simply  shows  that  the  ledger  of  so  many  pages  was  fur- 
nished, but  gives  no  other  particulars.  From  the  sales  book  he  turns  to  the 
order  which  gives  the  factory  number,  under  which  he  can  find  a  duplicate 
sheet  of  the  ledger  for  which  the  order  has  been  received.  In  a  card  index 
a  column  would  probably  have  been  provided  on  the  card  for  the  factory 
number,  so  that  reference  would  have  been  direct  and  instantaneous. 

(644)     INSOLVENCY. 
Inability  to  pay  one's  debts. 

(645)     INSTALLMENT. 

A  portion  of  a  debt,  or  sum  of  money,  payable  at  specified  recurring 
nitervals. 


See  Stock. 


(646)       INSTALLMENT    BOOK. 


(647)       INSTALLMENT    COLLECTIONS. 


A  system  for  monthly  collections  should  be  simple,  labor-saving,  and 
easily  worked.       An  outHne  is  given  here  of  a  system  which  meets  these 

requirements. 

A  four  drawer  cabinet  for  cards,  two  sets  of  alphabetical  guide  cards, 
two  sets  of  date  cards,  are  required,  besides  the  ruled  and  printed  card  forms 

shown  here. 

Suppose  John  Smith  buys  a  $60  bicycle  on  the  $10  monthly  installment 
plan.  From  his  signed  contract  the  book-keeper  can  make  out  an  index  card, 
giving  number  of  account,  name  and  address  and  date  when  installment  falls 

due. 

This  card  goes  into  the  first  drawer  of  the  cabinet  under  "S." 

From  the  contract  is  also  made  out  Smith's  instalment  card  which  serves 

as  a  ledger  account. 

This  is  filed  in  the  second  drawer  under  the  date  card  15  together  with 

other  accounts  due  on  the  same  date.    Smith's  card  above  shows  that  he  has 

870 


647-648        American  Business  and  Accounting  Encyclopedia 


Ih. 


paid  $10  on  account  and  that  this  payment  has  been  entered  on  page  187  of 
your  cash  book. 

A  duplicate  of  this  instalment  card  may  be  given  to  the  customer  so  that 
he  may  keep  tab  on  his  payments.  On  the  back  of  the  duplicate  card  may  be 
printed,  'This  card  shows  the  date  on  which  your  monthly  instalment  should 
reach  our  office.     Kindly  give  the  matter  prompt  attention." 

Suppose  Smith  has  been  ill  for  a  few  days  and  writes  you  that  he  wishes 
a  week  longer  to  pay  his  June  instalment.  If  you  grant  the  extension,  note 
on  the  index  card,  and  move  card  forward  under  22. 

At  the  end  of  the  month,  or  at  diflferent  periods,  say  1st  and  15th  of  each 
month,  all  cards  showing  instalments  overdue  should  be  moved  to  the  third 
drawer  "Overdue." 

Note  the  fact  on  the  index  card.  Deal  with  these  from  time  to  time  as 
thought  best,  changing  position  to  diflFerent  date  if  arrangement  to  pay  is 
made. 

The  fourth  drawer  is  "Collections."  Here  file  alphabetically  all  accounts 
which  have  passed  through  the  overdue  drawer  into  the  hands  of  your  solicitors 
or  collectors. 

This  system  eliminates  the  use  of  an  installment  ledger,  and  provides  a 
simple  way  of  keeping  track  of  any  special  arrangement,  regarding  payment.  It 
arranges  accounts  conveniently  for  the  purpose  of  notification,  shows  exactly 
what  payments  should  be  made  on  any  certain  day,  and  can  be  modified,  altered 
or  enlarged  to  suit  the  business. — D.  G.  French.' 

(648)     INSTALLMENT  BUSINESS  ACCOUNTING. 

PIANOS. 

The  fact  that  some  business  men  do  not  first  endeavor  to  figure  out  how 
much  capital  it  will  require  to  do  a  certain  amount  of  business  is  responsible 
for  a  number  of  failures.  It  does  not  appear  to  be  understood  in  the  install- 
ment business  that  although  the  assets  are  in  existence,  they  cannot  be  realized 
because  the  installments  are  not  due,  and  in  time  of  emergency  loans  cannot 
be  easily  obtained  on  installment  accounts. 

In  connection  with  this  condition  a  problem  was  recently  propounded  and 
solved  in  great  and  interesting  detail. 

Jones  is  a  piano  man  with  several  thousand  dollars  saved :  Jones  is  the 
man  with  the  "experience,"  Smith  is  the  man  with  the  "money."  Now  Jones 
and  Smith  decide  to  go  into  the  retail  piano  business,  and  Jones  invests  his 
money  in  the  establishment  of  the  store,  in  a  stock  of  pianos,  etc.,  etc.  They 
figure  to  do  a  certain  amount  of  business  on  certain  terms  and  under  certain 
conditions  of  expense,  say  as  below: 

In  Jan.  they  sell     5  pianos  and  replace  with  new. 

In  Feb.  they  sell     7  pianos  and  replace  with  new. 

In  Mar.  they  sell     8  pianos  and  replace  with  new. 

In  Apr.  they  sell  12  pianos  and  replace  with  new. 

In  May  they  sell  11  pianos  and  replace  with  new. 

In  June  they  sell     8  pianos  and  replace  with  new. 

871 


•  I 

J 


Ik.  American  Business  and  Accounting  Encyclopedia  648 

In  July  they  sell     4  pianos  and  replace  with  new. 

In  Aug.  they  sell     6  pianos  and  replace  with  new. 

In  Sept.  they  sell     8  pianos  and  replace  with  new. 

In  Oct.  they  sell  20  pianos  and  replace  with  new. 

In  Nov.  they  sell  18  pianos  and  replace  with  new. 

In  Dec.  they  sell  19  pianos  and  replace  with  new, 

120 

They  figure  their  expenses : 

January    *    ^^^ 

February    ^^^ 

March     «20 

April    ^-000 

May   ^'«00 

June    «20 

July    '60 

August   ^^^ 

September    ^~^ 

October I'-^OO 

November    ^'^^O 

December    ^'^-^^ 

Pianos  cost  $?00  each  on  an  average,  and  are  bought  on  six  months'  time. 

Pianos  sell  for  $320  on  an  average,  say  each  fifth  piano  for  cash,  the 
others  for  $15  down  and  $10  a  month. 

Question  1.    How  much  money  should  Smith  put  in? 

Question  2.  If  he  put  in  $10,000,  other  conditions  being  the  same,  then 
what  should  be  the  terms  of  the  time  sales  ? 

Question  3.     If  he  puts  in  $20,000  then  what  terms  of  time  sales  can 

they  afford? 

QUESTION    NO,    1. 

How  much  money  should  Smith  put  in  ? 

ANSWER. 

i^o  1^060— the  first  year  $8,760,  the  second  year  $11,640,  the  third  year 
$660. 

EXPOSITION. 

The  capital  necessary  to  conduct  a  business  must  be  at  least  that  amount 
which  will  meet  the  deficit  between  receipts  and  expenditures,  so  our  first  step 
is  to  ascertain  the  receipts  and  expenditures  for  the  installment  period  of  this 
business  (which  is  four  years).  The  inclosed  statement  No,  1  shows  the 
monthly  deficit  between  receipts  and  expenditure  and  the  total  deficit  to  be 
$21,060,  or  the  cash  that  must  be  supplied. 

If  pianos  sell  for  $320  on  an  average,  every  fifth  one  for  cash,  while  the 
others  are  sold  for  $15  down  and  $10  a  month,  the  selling  price  must  be  $30u 
for  cash  and  $325  on  time  (payable  $15  cash  and  31  installments  of  $10— 
$325).  Jones  furnishes  the  capital  for  stock,  so  that  Smith  has  only  the 
purchased  pianos  to  pay  for  at  the  end  of  six  months. 

872 


648 


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question  no,  2. 

If  Smith  puts  in  $10,000,  other  conditions  being  the  same,  then  what  should 
be  the  terms  of  time  sales? 

answer. 

$15  cash  and  20  installments  of  $15,50  each — $325.     We  have  found  by 
statement  No.  1  that  the  deficit  is 

•"^  '"^'"'JO first  year 

11>*^"^0 second  year 

$20,400 

$      660 third  year 

$21,060 


Now  it  is  quite  evident  that  with  $10,000  capital  we  cannot  meet  the 
deficit  of  the  first  two  years,  $20,400,  but  will  require  $10,400  more  capital, 
which  we  must  secure  by  increasing  the  installments  of  these  two  years.  The 
installments  received  the  first  two  year§,  as  per  statement  No.  1 ,  are  420  and 
1,572 — 1,092;  by  increasing  these  installments  $5.22  each  we  receive  the 
necessary  amount. 

This  would  make  the  installments  $15.22.  but  the  nearest  amount  that 
would  divide  equally  into  $310  is  $15.50,  so  we  must  make  the  installments 
20  of  $15.50  each;  which  with  one  cash  payment  of  $15  equals  $325.  See 
statement  No.  2. 

S73 


In. 


American  Business  and  Accounting  Encyclopedia 


fi'8 


QUESTION   NO.  2. 


If  tnitk  put*  In  tlMM^  ttli^r  oomHtiom  Mng  th«  tamt,  thMi  what  sbmild  te  the  Terms 

•ffTMHetaleeT  ANtwa-tlS Cash uid fo Inetalmentt ef  $15 eaek, or $3ee Cash. 
DEMONSTRATION.        DeUilcd  Cash  Receipt  and  Expenditure. 

Cub  >is.oo— $310.00  la  $^5.50  liut«liiMnto.    Proacnt  Value  $285.00  and  $15.00  Casta— S300.00. 


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so  hMtalMMotsol  $15.50 aadi  Paymsat  of  $15  ooCasfe.  Sjas.oo    C4plUire4alfo4.f10.eee. 
laaMmmt  Pwtod  Expeodltara  luHalment  Period 


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WNk  $io,aoo  Capital  vc  aaiat  have  20  iutalownts  of  $15  so  aad  1  Cairii  paxawnt  of  $15  00  to  meet  Expenditure  over  Purchase* . 

(Sac  detailed  slalcaicM  atlarhcd  I 


QUESTION    no.    3. 

If  Smith  puts  in  $20,000,  then  what  terms  of  time  sales  can  they  aflford? 

ANSWER. 

$15  cash  and  25  installments  of  $12.40  each  equals  $325. 
We  have  found  by  statement  No.  1  that  the  deficit  is 

874 


648-652        American  Business  and  Accounting  Encyclopedia  I». 

^  S''^<^0 first  year 

^^'"^^ second  year 

660 third  year 

$21,060 

Now,  it  is  quite  evident  that  with  $20,000  capital  we  cannot  meet  the 
deficit  of  the  first  three  years,  namely,  $21,060,  but  will  require  $1,0G0  more 
capital,  which  we  must  secure  by  increasing  the  installments  of  these  years. 
Installments  received  the  first  three  years,  as  per  statement  No.  1,  are  420, 
1,572  and  2,(570 — i,G62 ;  by  increasing  these  installments  22  cents  each  we 
receive  the  necessary  amount. 

This  would  mean  installments  of  $10.22,  but  the  nearest  amount  that 
will  divide  equally  into  $310  is  $12.40,  so  we  must  make  the  installments  25 
of  $12.40  each,  which  with  one  cash  payment  of  $15  equals  $325.  See  state- 
ment No.  3. 

We  base  answer  on  the  supposition  that  all  installments  are  paid  when 
due;  if  not,  of  course  more  capital  would  be  required.  We  also  presume  no 
dividends  are  paid  until  the  end  of  the  installment  period. 

If  pianos  purchased  had  to  be  paid  for  in  cash,  $14,400  more  capital 
would  be  necessary  the  first  year.— fF.  P.  Dcspard. 

(649)     instalLxMent  notes. 

In  some  installment  furniture  businesses  it  is  supposed  to  be  necessary 
to  have  the  customer  sign  a  separate  note  for  each  installment.  This  not 
only  involves  a  considerable  amount  of  work,  but  is  entirelv  unnecessary. 
In  most  cases  a  regular  form  note  may  be  used  by  a  slight  change  of  tlie 

wording,  making  it  read,  "  Equal  monthly  installments  of  $ payments 

to  be  made  on  the  first  of  each  month  hereafter  until  the  entire  sum  has  been 
paid."  If  payments  are  not  made  in  equal  installments,  the  wording  may  be 
changed  as  follows :  "  Payments  to  be  made  on  the  dates  and  in  the  sums 
specified  on  the  back  hereof." 

Another  good  plan  is  the  coupon  note,  there  being  attached  to  the  original 
note  as  many  coupons  as  there  are  payments.  The  coupons  are  filled  out 
to  show  dates  and  amounts  of  payments  and  torn  oflF  and  delivered  to  the 
customer  as  receipts.  These  coupons  may  be  made  in  duplicate  if  desired, 
although  this  seems  scarcely  necessary. 

(652)  installment  profits. 
It  should  always  be  borne  in  mind  that  the  cost  of  collection  in  install- 
ment accounts  is  greater  than  the  collection  of  accounts  in  ordinary  business, 
as  the  payments  are  spread  over  a  longer  period.  The  risk  of  loss  is  also 
considerably  larger.  It  is  therefore  desirable  in  making  up  financial  statements 
to  take  mto  consideration  probable  losses,  and  also  depreciation  on  the  <roods 
sold,  if  they  are  retaken  because  of  default  of  payment.  The  proportion  of 
the  succeeding  years  expense  of  collection  should  also  be  considered  so  that 
the  new  year's  business  will  not  be  burdened  with  the  expense  of  collecting  a 

875 


In. 


American  Business  and  Accounting  Encyclopedia        650-651 
(650)     installment  payment  record. 


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652-654        American  Business  .vnd  Accounting  Encyclopedia 


In. 


large  number  of  accounts,  the  profits  of  which  inflate  the  gross  profit  of  the 
preceding  year. 

A  good  plan  is  used  by  some  installment  concerns  and  consists  of  making 
a  list  of  outstanding  accounts,  showing  amount  of  monthly  payment,  amount 
paid  and  amount  overdue,  balance  due  and  months  to  run.  An  extra  column 
is  provided  in  which  after  careful  examination  the  amount  considered  at  all 
doubtful  is  entered,  as  also  the  estimated  average  of  collection  expense. 
Charge  this  amount  to  an  Installment  Loss  account  and  credit  Contingent 
account.  This  Contingent  account,  therefore,  acts  as  a  reserve.  This  has 
been  found  satisfactory  because  if  an  excessive  amount  has  been  debited  to 
the  Installment  Loss  account,  it  can  be  easily  adjusted. 

In  the  case  of  a  single  proprietor,  of  course,  this  method  would  not  be 
so  desirable,  but  in  the  case  of  a  corporation  where  the  shareholders  expect 
to  receive  dividends  from  the  amount  of  surplus  shown  in  the  Balance  Sheet 
it  is  a  very  desirable  procedure. 


(653)     INSTITUTION  RECORDS. 

See  Hospital. 

(654)     INSURANCE. 
A  contract  by  which  one  party  for  an  agreed  consideration  undertakes 
to  compensate  another  for  a  certain  specified  loss  or  partial  loss. 

POINTERS  FOR  BUSINESS  MEN  AS  TO  FIRE  INSURANCE. 

The  insured,  in  making  application  for  insurance,  is  bound  to  state  all 
that  he  knows  himself,  and  all  that  it  imports  the  underwriter  to  know.    Rea- 


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American  Business  and  Accounting  Encyclopedia        654-655 


655 


American  Business  and  Accounting  Encyclopedia 


In. 


sonable  ground  of  apprehension  of  loss  and  actual  facts  known  to  the  insured 
denoting  impending  dangers,  must  be  stated  to  the  insurance  company,  as 
otherwise  the  policy  is  void. 

A  fire  insurance  policy  is  not  assignable,  and  if  assigned  without  the 
consent  of  the  company  it  is  void. 

The  conditional  insurance  clause  provides  that  only  the  market  or  cash 
value  of  the  property  at  the  time  of  the  fire  can  be  recovered  from  the 
insurance  company. 

The  clause  entitled  "  other  insurance  "  provides  that  the  policy  shall  be 
void  in  case  the  policy-holder  now  has,  or  shall  hereafter  make  or  procure 
any  other  contract  of  insurance  on  the  property  covered  in  whole  or  in  part 
by  the  policy.  This  clause  may  be  waived  by  agreement  with  the  insurance 
company. 

The  standard  form  of  policy  contains  a  clause  which  renders  the  policy 
void  if  the  property  insured  is  a  factory  building  and  is  operated  after  ten 
o'clock  at  night  or  some  other  given  hour,  or  is  not  operated  for  ten  consecu- 
tive days  or  some  other  specified  time.  This  clause  may  be  waived  by  agree- 
ment with  the  insurance  company,  but  many  manufacturers  have  shut  down 
work  in  their  factory  buildings  from  time  to  time,  not  knowing  that  if  during 
that  time  a  fire  should  occur  they  would  have  no  claim  on  the  insurance 
company. 

The  insured  is  required,  in  case  of  loss,  to  give  immediate  notice  to  the 
company  in  writing.  The  damaged  goods  must  be  inventoried,  and  a  proof 
of  loss  duly  sworn  to  and  filed  within  sixty  days. 

If  the  insured  desires  to  store  a  gasoline  automobile  on  private  premises 
it  is  necessary  to  first  obtain  the  consent  of  the  insurance  company  in  writing. 

The  standard  form  of  fire  insurance  was  not  written  in  the  interest  of 
the  insured.  Therefore,  attention  should  be  given,  to  all  the  details  and  re- 
quirements relating  to  the  insurance. 

(655)      PROPERTY   insurance  RECORDS. 

A  separate  account  should  be  kept  for  real  property,  such  as  buildings 
and  machinery,  the  value  of  which  seldom  changes,  and  another  for  personal, 
property  or  stock,  the  value  of  which  constantly  changes. 


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CHICAGO      PLANT 

RECAPITULATION  OF  INSURANCE 

AT   CLOSE   OF  BUSINESS,  SATURDAY 19 

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Form  3. 


As  the  standard  fire  insurance  policies  base  the  payment  of  loss  on  actual 
cash  value  of  the  property  at  the  time  of  the  fire,  the  property  value  must 
accordingly  be  kept  on  that  basis.  The  buildings  and  machinery  should, 
therefore,  be  appraised,  and  it  is  then  an  easy  matter  to  keep  track  of  changes 
by  having  reports  made  of  additions,  removals,  replacements,  etc.  Deprecia- 
tion should  be  deducted  each  year  according  to  conditions. 

Form  1  is  the  Ledger  account  with  the  real  property  as  above  referred  to. 

878 


In. 


American  Business  and  Accounting  Encyclopedia 


655 


655-657       American  Business  and  Accounting  Encyclopedia 


In. 


CHICAGO  KANT    StS^^      ^FCTion      /SL                 r.ri^-f   trnoAA                                          1 

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Form  4. 

Form  2  is  a  satisfactory  record  for  reporting  additions,  removals  and  re- 
placements. It  contains  separate  space  for  report  of  increase  or  decrease  in 
insurable  value.  In  case  of  a  reconstruction  job  or  a  substitution  of  machines 
there  is  sometimes  nearly  as  much  insurable  value  removed  as  there  is  added. 

With  regard  to  the  constantly  changing  value  of  merchandise  stock,  this 
is  a  very  difficult  problem  to  solve.  The  inventory  figures  may  be  taken 
as  a  basis,  adding  each  day  the  value  of  goods  received  and  deducting  the 
value  of  goods  going  out.  but  this  method  always  involves  considerable  expense. 


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ir'o&M   o. 

Form  3  is  a  weekly  recapitulation,  which  may  be  adjusted  to  meet  differ- 
ent requirements. 

In  the  case  of  a  factory,  daily  reports  as  to  material  received  and  issued, 
and  completed  work  delivered,  may  be  used  for  the  purpose  of  computing 
value. 

Form  4  is  a  policy  register  or  list  of  insurance  in  force  on  each  risk. 
Separate  sheets  should  be  provided  for  each  section,  /.  c. — building,  machinery 
and  stock.     Expiring  policies  should  be  ruled  oflf  each  day. 


POLICIIS     CXPIRINO     DURING                                19                                                      1 

— " 

* 

COMMMV 

*m»\jmT 

MTI 

MtMiuM 

Mn.it 

C«McCu.« 

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^^ 

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■— ' 

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Form   G. 


880 


^  Form  5  is  a  "line  book,"  or  list  of  policies  held  in  each  company.— F. 
Erion, 

(656)       INSURANCE   expirations. 

A  labor-saving  system  to  keep  insurance  expirations,  in  insurance  offices, 
real  estate  offices  and  building  and  loan  associations,  is  an  inexpensive  card 
carrying  the  name  of  the  insured,  the  date  of  expiration,  the  name  of  the 
insurance  company,  number  and  amount  of  the  policy. 

The  cards,  keeping  an  accurate  account  of  several  thousand  insurance 
policies,  can  be  kept  in  a  small  tray  indexed  by  years  and  months.  The  days 
can  be  designated  by  index  cards  numbered  one  to  31.  Three  sets  of  indexes 
by  days  is  sufficient. 


0«Tt  or  tlPIII«TtO«                              '""' 

M.                 MM 

■MM 

xiic»jfmm-nmit 

•Ten 

eoiinun 

mmmt 

■nm. 

This  device  enables  one  to  see  at  a  glance  the  insurance  policies  expiring 
on  a  certain  day ;  and  a  few  moments'  daily  examination  is  all  the  time  needed 
to  keep  all  expiring  policies  covered. 

The  cumbersome  agency  record  as  a  reference  on  expirations  is  done 
away  with.  In  insurance  offices  the  use  of  a  card  of  this  kind  as  a  reminder 
that  orders  for  the  renewal  of  expiring  policies  must  be  looked  up  and  the 
policies  renewed,  is  indisjjensable. 

These  cards  have  been  used  by  a  building  and  loan  association  which  ha> 
some  2,000  insurance  expirations  to  cover.  Two  years'  use  have  proven  the 
cards'  reliability  and  labor-saving  worth. — P.  Lawrence. 


((io7)     FIRE  INSURANCE  RECORDS. 

The  following  is  an  outline  of  a  card  system  used  in  a  large  insurant 
agency  business  for  keeping  track  of  policies  and  risks.    This  has  been  foun  ' 
very  satisfactory  in  use,  and  is  undoubtedly  worthy  of  examination  by  thu- • 
who  require  records  of  this  kind. 

Illustration  1  is  the  record  made  at  the  time  the  policy  is  written.  Thi- 
is  a  card  and  is  filed  in  a  cabinet  under  the  head  of  "new  business."  This 
card  is  made  in  duplicate,  a  copy  being  mailed  to  the  home  office. 

881 


In. 


American  Business  and  Accounting  Encyclopedia       657-660 


Mo()t1) 


Expires 


Noy. 


Day 


2S 


Year 


oL 


Ntir\e  of  A66/}reJ 


Addre56 


3p\ili)  Jof)q 


Geroare/5Y///e,  NJ. 


Hci.cyNog^,,    |Conp.9Y  THEANERICAIN  FIRB  IN52JRANCECQ 

Soo.oo-Qani_ PrerxiDn    |      2oSo 


658-659       American  Business  and  Accounting  Encyclopedia 


Ik. 


So  o«-Coy/-/^orje 


2SSo.  oo 


Rnte 


IS-  too 


T^rrs 


3Yr3 


Re^i^fer  Folio    3qft 


Form   1. 


Assured \)r>\ith    John 


A^ 


reiS 


Oer/)arc/3y/7/e,  /V.J. 


Corvpopy 


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f:p. 


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Acre 


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Policy    No. 


2o2ot> 


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Form  2. 


Form  2  is  a  card  record  of  the  insurance  companies  covering  the  risk, 
this  information  being  necessary  in  case  of  an  adjustment  being  necessary  in 
case  of  fire. 

It  will  be  seen,  therefore,  that  by  this  system  of  record  we  obtain  the 
following  information: 

Date  of  expiration;  amount  of  insurance  carried  by  us  on  insured; 
amount  of  insurance  carried  by  other  companies  on  the  same  or  exposing 
risks;  rate  at  which  insurance  is  written  and  premium  premises  cover. 

(660)       CO-INSURANCE   CLAUSES. 

the  80  PER  cent,  co-insurance  clause. 

The  New  York  standard  eighty  per  cent,  co-insurance  or  average  clause 
reads  as  follows: 

"  This  company  shall  not  be  liable  for  a  greater  proportion  of  any  loss  or 
damage  to  the  property  described  herein  than  the  sum  hereby  insured  bears 
to  eighty  per  centum  of  the  actual  cash  value  of  said  property  at  the  time 
such  loss  shall  happen. 

882 


Xjaaxi  No.~. 

.      .-.  Policy  No _ 

Agencj 

526(N 

J^aine  . 

Amt.  of  Loan  5 
Loan  Matures 

In 
Po 

trrrct  * 

licy  Matures   —   _ _ 

Ad<1rfTS!* 

"^ 

PAYMENTS  OF  INTEREST 

PAY.ME.\TS  OF  INTEREST                         | 

Year 

Date  Paid 

Amt.  Paid 

Remarks 

Year 

Date  Paid 

Amt.  Paid 

Remarks 

1907 

1917 

1908 

1918 

1909 

_ 

1919 

1910 

1920 

1911 

LOANS  REFUNDED                                 | 

1812 

J 

Date         1 

Amt.  Refunded  | 

How  Reftinded 

191.^ 

1914 

Ulfi 

tf» 



L 

— 

— 

— 

r- 

— 

— 

(658)    insurance  policy  loan  record. 


No. 


No. 


Grade 


Occupation 


Name  of  Assured 


Age 


Month  Paid 


Year 


County 


Policy  No. 


Employed  by 

No.  lO'/J 


Date  ok  Policy 


Day 


Month 


Year 


Applied, 
Paid  by 

Check  No. % 

Days  Disabled 


L 


Total  Amt.  Paid,  % 


(659)    indemnity  record. 


883 


In. 


American  Business  and  Accounting  Encyclopedia     6r)9A-660 


y^pks^ 


/J!n>\^ 


/6^ 


POi-ICY  No.O~ 
/nsuR£0 


DftT£:- 


ISO Term  Months. 


Pa/o /90^ 


^DORJZSS-- 


/^frertfu/f  $. 


T^y-R/L  VAi.u£ Stock  0 


/Vo.  /^£^sSEr>f<3£:R^- 


Occ  a/='AT/o/y  /n^uKEO . 
DESCf^ffTton  STOct<  _ 


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((>59A)      BURGLARY   INSURANCE  RECORD. 

COINSURANCE  CLAUSES   (Cont'd). 

"  In  case  of  claim  for  loss  on  property  described  herein,  not  exceeding 
five  per  cent,  of  the  maximum  amount  named  in  the  policies  written  thereon 
And  in  force  at  the  time  such  loss  shall  happen,  no  special  inventory  or  ap- 
praisement of  the  damaged  property  shall  be  required. 

"  If  the  insurance  imder  this  policy  be  divided  into  two  or  more  items 
these  clauses  shall  apply  to  each  separately. 

"  In  the  event  of  the  insurer  having  insurance  in  force  to  an  amount 
equal  to  or  exceeding  eighty  per  cent,  of  the  actual  cash  value  of  his  property, 
the  co-insurance  clause  has  no  bearing  whatever  upon  an  adjustment  any 
more  than  if  it  was  contained  in  the  policy.  If,  on  the  other  hand,  the  in- 
surance falls  below  eighty  per  cent,  of  the  property  value  and  a  partial  loss  is 
sustained,  the  clause  becomes  operative  (though  in  case  of  total  loss  it  would 
be  of  no  effect).  Following  is  an  example  illustrating  the  working  of  this 
clause  in  the  case  of  a  partial  loss : 


Total  cash  value  of  the  property  insured 

Insurance  required  under  eighty  per  cent,  clause 

Actual  insurance,  six-eighths,  or $6,000 

Insured  becomes  co-insurer  for  deficiency  with  eighty 

per  cent,  clause  two-eighths,  or 2,000 

884 


$10,000 
8.000 


8,000 


660-661        AMiiKicAN  Business  and  Accounting  Encyclopedia 

Loss  occurs  at  forty  per  cent.   ($4,000)  of  total  cash 

value  at  which  companies  pay  six-eighths,  or. . .     3.000 
And  insured  pays  two-eighths,  or 1,000 


IH. 


4,000 


"In  case  of  total  loss  under  the  same  conditions  as  above,  the  liability 
of  the  insurance  companies  would  be  limited  to  the  maximum  amount  of 
their  policies,  $0,000." 

THE   100   per   cent,    co-insurance   CLAUSE. 

The  New  York  standard  one  hundred  per  cent,  co-insurance  or  average 
clause  reads  as  follows: 

"  This  company  shall  not  be  liable  for  a  greater  proportion  of  any  loss 
or  damage  to  the  property  described  herein  than  the  sum  hereby  insured  bears 
to  one  hundred  per  cent,  of  the  actual  cash  value  of  said  property  at  the  time 
such  loss  shall  happen. 

"  In  case  of  claim  for  loss  on  the  property  described  herein  not  exceeding 
five  per  cent,  of  the  maximum  amount  named  in  the  policies  written  thereon 
and  in  force  at  the  time  such  loss  shall  happen,  no  special  inventor}-  or  ap- 
praisement of  the  undamaged  property  shall  be  required. 

"If  the  insurance  under  this  policy  shall  be  divided  into  two  or  more 
items,  these  clauses  shall  apply  to  each  item  separately. 

"  In  the  event  of  the  insurer  having  insurance  in  force  to  an  amount 
equal  to  or  exceeding  one  hundred  per  cent,  of  the  actual  cash  value  of  his 
property,  the  co-insurance  clause  has  no  bearing  whatever  upon  an  adjust- 
ment any  more  than  if  it  was  not  contained  in  the  policy.  If,  on  the  other 
hand,  the  insurance  falls  below  one  hundred  per  cent,  of  the  property  value 
and  a  partial  loss  is  sustained,  the  clause  becomes  operative  (though  in  case 
of  a  total  loss  it  would  have  no  effect).  Following  is  an  example  illustrating 
the  working  of  this  clause  in  case  of  partial  loss: 

Total  cash  value  of  property  insured $10,000 

Insurance  required  under  one  hundred  per  cent,  clause  10,000 

Actual  insurance,  six-tenths,  or $6,000 

Insured  becomes  co-insurer  for  deficiency  to  com- 
ply with  one  hundred  per  cent,  clause,  four- 
tenths,   or    4,000  10.000 

Loss  occurs  at  forty  per  cent.   ($4,000)  of  total  cash 

value,  of  which  the  companies  pay  six-tenths,  or     2.400 
And  insured  pays  four-tenths,  or i,600  4.000 

"  In  case  of  a  total  loss,  under  same  conditions  as  above,  the  liability  of 
the  insurance  companies  would  be  limited  to  the  maximum  amount  of  theii 
policies,  $6,000." 

(661)     INTEREST. 

The  amount  charged  for  the  use  of  money,  usually  on  a  percentum  basis. 
The  legal  rates  of  interest  in  the  United  States  vary  greatlv  in  the  dif- 
ferent States  and  Territories. 

885 


In. 


American  Business  and  Accounting  Encyclopedia 


650A-r>60 


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JJUZ^ 


/6^ 


Burglary- 
Pot-icr/VoO- 

lnSUR£0 


Dn-rc- 


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LocATior/  RtsA<. 


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Pte£t7/^£S  0CCUPf£O   »f9£. 

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(()59A)      IJURGLARY   insurance  record. 

co-insurance  clauses  (Cont'd). 

"  In  case  of  claim  for  loss  on  property  described  herein,  not  exceeding 
five  per  cent,  of  the  maximum  amount  named  in  the  policies  written  thereon 
and  in  force  at  the  time  such  loss  shall  happen,  no  special  inventory  or  ap- 
praisement of  the  damaged  property  shall  be  required. 

"  If  the  insurance  under  this  policy  be  divided  into  two  or  more  items 
these  clauses  shall  apply  to  each  separately. 

"  In  the  event  of  the  insurer  having  insurance  in  force  to  an  amount 
equal  to  or  exceeding  eighty  per  cent,  of  the  actual  cash  value  of  his  property, 
the  co-insurance  clause  has  no  bearing  whatever  upon  an  adjustment  any 
more  than  if  it  was  contained  in  the  policy.  If,  on  the  other  hand,  the  in- 
surance falls  below  eighty  per  cent,  of  the  property  value  and  a  partial  loss  is 
sustained,  the  clause  becomes  operative  (though  in  case  of  total  loss  it  would 
be  of  no  effect).  Following  is  an  example  illustrating  the  working  of  this 
clause  in  the  case  of  a  partial  loss: 

Total  cash  value  of  the  property  insured $10,000 

Insurance  required  under  eighty  per  cent,  clause 8,000 

Actual  insurance,  six-eighths,  or $6,000 

Insured  becomes  co-insurer  for  deficiency  with  eighty 

per  cent,  clause  two-eighths,  or 2,000  8,000 

884 


660-661        AMiiKicAN  Business  and  Accounting  Encyclopedia  In. 

Loss  occurs  at  forty  per  cent.   ($4,000)  of  total  cash 

value  at  which  companies  pay  six-eighths,  or. . .     3.000 
And  insured  pays  two-eighths,  or 1,000  4,000 

"  In  case  of  total  loss  under  the  same  conditions  as  above,  the  liability 
of  the  insurance  companies  would  be  limited  to  the  maximum  amount  o! 
their  policies,  $(),()()0." 

THE  100   per   cent,    co-insurance   CLAUSE. 

The  New  York  standard  one  hundred  per  cent,  co-insurance  or  average 
clause  reads  as  follows: 

"  This  company  shall  not  be  liable  for  a  greater  proportion  of  any  loss 
or  damage  to  the  property  described  herein  than  the  sum  hereby  insured  l^ears 
to  one  hundred  per  cent,  of  the  actual  cash  value  of  said  property  at  the  time 
such  loss  shall  happen. 

"  In  case  of  claim  for  loss  on  the  property  described  herein  not  exceeding 
five  per  cent,  of  the  maximum  amount  named  in  the  policies  written  thereon 
and  in  force  at  the  time  such  loss  shall  happen,  no  special  inventor}-  or  ap- 
praisement of  the  undamaged  property  shall  be  required. 

"If  the  insurance  under  this  policy  shall  be  divided  into  two  or  more 
items,  these  clauses  shall  apply  to  each  item  separately. 

"  In  the  event  of  the  insurer  having  insurance  in  force  to  an  amount 
equal  to  or  exceeding  one  hundred  per  cent,  of  the  actual  cash  value  of  his 
property,  the  co-insurance  clause  has  no  bearing  whatever  upon  an  adjust- 
ment any  more  than  if  it  was  not  contained  in  the  policy.  If.  on  the  other 
hand,  the  insurance  falls  below  one  hundred  per  cent,  of  the  property  value 
and  a  partial  loss  is  sustained,  the  clause  becomes  operative  (though  in  case 
of  a  total  loss  it  would  have  no  effect).  Following  is  an  example  illustrating 
the  working  of  this  clause  in  case  of  partial  loss: 

Total  cash  value  of  property  insured $10,000 

Insurance  required  under  one  hundred  per  cent,  clause  10,000 

Actual  insurance,  six-tenths,  or $6,000 

Insured  becomes  co-insurer  for  deficiency  to  com- 
ply with  one  hundred  per  cent,  clause,  four- 
tenths,   or    4,000  10,000 

Loss  occurs  at  forty  per  cent.   ($4,000)  of  total  cash 

value,  of  which  the  companies  pay  six-tenths,  or     2.400 
And  insured  pays  four-tenths,  or 1,600  4,000 

"  In  case  of  a  total  loss,  under  same  conditions  as  above,  the  liability  of 
the  insurance  companies  would  be  limited  to  the  maximum  amount  of  theii 
poHcies,  $6,000." 

(661)     INTEREST. 

The  amount  charged  for  the  use  of  money,  usually  on  a  percentum  basis. 
The  legal  rates  of  interest  in  the  United  States  vary  greatly  in  the  dif- 
ferent States  and  Territories. 

885 


Uu  American  Business  and  Accounting  Encyclopedia       661-663 

By  the  "  legal  rate  "  is  meant  that  rate  of  interest  which  would  be  fixed 
by  a  court  of  law  in  case  no  rate  had  been  determined  by  agreement  or 
contract. 

(662)      INTEREST  ADJUSTMENT  OR  APPORTIONMENT. 

The  distribution  of  accrued  interest  not  yet  due,  either  payable  or 
receivable. 

(663)      INTEREST    COMPUTED  ON    DAILY    BALANCES. 


Date.  Dr. 

Jan.  2 $  326.29 

3 439.58 

4 1,627.88 

5 1,242.88 

6 

7 1,280.88 

8 

9 1,660.27 

10 

11 1,210.76 

12 

13 

14 1,038.41 

15 

16 14.21 

17 39.21 

18 1,054.71 

19 838.04 

20 

21 994.55 

22 1,134.25 

23 1,095.70 

24 1,082.15 

25 949.15 

26 

27 

28 846.90 

29 864.20 

30 927.19 

31 


Cr. 


$247.34 


43.31 


Interest 

Balances. 

Numbers 

Dr. 

Days. 

Dr.     Cr. 

$      326.29 

1 

3 

765.87 

1 

8 

2,393.75 

1 

24 

3,636.63 

3,636.63 

2 

73 

4,917.51 

4,917.51 

2 

M 

6,577.78 

6,577.78 

2 

132 

7,788.54 

7,788.54 

7,788.54 

3 

234 

8,826.95 

1 

88 

8,579.61 

1 

M 

8,593.82 

1 

M 

8,633.03 

1 

M 

9,687.74 

1 

97 

10,525.78 

10,525.78 

2 

211 

11,520.33 

1 

115 

12,654.58 

1 

127 

13,750.28 

1 

137 

14,832.43 

1 

148 

15,781.58 

15,781.58 

' 

15,781.58 

3 

474 

16,628.48 

1 

166 

17,492.68 

1 

175 

18,419.87 

1 

184 

18,376.56 

1 

183 

$293,508.03 

2,935 

To  find  amount  of  interest  chargeable  on  above  daily  balances  at  5  per 
cent.,  multiply  total  of  balance  of  daily  balances  by  rate  and  divide  by  360, 
obtaining  $40.76  as  the  answer.  A  shorter  way  is  to  divide  the  days  by  the 
rate  and  with  remainder  divide  total  of  balance  of  daily  balances.  The  two 
columns  to  the  right  of  the  "  Balances  '*  column  illustrate  another  method 
of  obtaining  the  same  result. 

886 


665-668       American  Business  and  Accounting  Encyclopedia 


Ik. 


(665)     interest  on  capital  assets. 

It  is  still  customary  in  some  corporate  businesses  to  make  a  charge  for 
interest  on  investment  of  capital  assets,  it  being  supposed  that  unless  this  is 
done  the  correct  amount  of  profits  earned  by  the  trading  transactions  is  not 
properly  exhibited. 

The  capital  invested  in  a  concern  is  so  invested  for  the  purpose  of  making 
a  profit  by  the  use  of  said  investment,  for  which  purpose  the  business  is 
established.  The  capital  assets,  therefore,  should  be  treated  just  as  any  other 
assets,  as  both  fixed  and  floating  assets  represent  an  investment  made  for  iden- 
tical purposes. 

The  charging  of  interest  on  capital  assets  is  simply  an  unnecessary  division 
of  the  profits  made  by  the  business,  and  cannot  be  justified  by  any  reasonable 
argument. 

(666)     interest  and  discount. 

For  comparative  and  statistical  reasons,  the  disadvantage  of  combining 
two  revenue  items  in  one  account  is  becoming  generally  recognized.  The 
proper  way  to  offset  Interest  paid  out  against  Discount  received  is  to  play 
them  against  one  another  in  the  Profit  and  Loss  account. 


(667)     simple  interest. 

Simple  interest  is  interest  on  the  amount  of  the  principal  during  the 
period  of  the  use  of  the  money.    Thus: 
Yo  on  $100.00  for  2  years  is  $12.00. 


In  some  building  societies  simple  interest  is  allowed  on  monthly  payments 
on  shares  until  said  shares  are  matured,  or  fully  paid. 

A  good  rule  to  ascertain  the  amount  of  such  interest  on  twelve  monthly 
payments  of  $1  each  is  as  follows: 

Divide  number  of  months  (12)  by  two  and  add  half  a  month=6i4. 
Multiply  by  number  of  months  (12)=78  months  on  which  to  compute  inter- 
est on  $1  at  6  per  cent,  per  annum. 

1 X  6  X  78  468 


12  = 


12=39c 


(668)     COMIOUND  interest. 

Compound  interest  is  interest  on  the  amount  of  principal  and  interest 
accrued  and  unpaid.    Thus: 

6%  on  $100.00  for  2  years  is 

First  year  6%  on  $100.00 $  6.00 

Second  year  6%  on  $106.00 6.36 

Total $12.36 

887 


. 


In. 


American  Business  and  Accounting  Encyclopedia 
(G69)     INVENTORY. 


669 


A  schedule  of  assets  or  property. 

The  annual  account  of  stock  of  a  business. 

An  itemized  list  of  goods  or  valuables  with  prices  attached. 

Inventories  of  goods  are  taken  at  cost,  except  where  realizable  value  is 
affected  bv  market  fluctuations.  It  has,  however,  been  contended  that  the 
value  of  a'  stock  in  trade  should  be  computed  on  selling  prices  less  average 
trade  profit,  for  the  reason  that  any  profit  realized  over  and  above  the  average 
trade  profit  is,  in  reality,  a  profit  on  buying  and  not  on  selling.  Thus,  if  a 
merchant  has  an  opportunity  to  purchase  a  stock  at  much  less  than  market 
prices  and  sells  the  stock  at  regular  retail  prices,  the  profit  on  the  transaction 
is  much  greater  than  if  the  stock  had  been  purchased  in  the  ordinary  way,  and 
the  excess  profit,  it  is  claimed,  was  obtained  in  the  buying  and  not  in  the 

selling. 

"  The  fundamental  principle  in  valuing  inventories  is,  valuation  at  cost  or 

market  price,  whichever  is  the  lower. 

schedule   a DEPRECIATION   OF  VALUES. 

1.  Either  state  the  value  at  market  price,  $10  per  cwt. :  or, 

2.  Value  the  tobacco  at  original  cost  price,  $11,  and  create  a  reserve 
account,  charging  the  current  profit  and  loss  account  with  $'2  per  cwt.  and 
crediting  reserv'^e  account. 

On  the  balance  sheet  deduct  the  reserve  account  from  the  inventory. 

Should  the  market  price  remain  constant,  charge  reserve  account  and 
credit  inventor)^  account :  should  again  the  market  price  go  up.  charge  reserve 
account  and  credit  profit  and  loss  account. 

SCHEDULE  B APPRECIATION  OF  VALUES. 

1.     Either  value  the  tobacco  at  cost  price,  .$12  per  cwt.;  or, 
•?.     \alue  the  tobacco  at  market  price,  $15  per  cwt.,  and  charge  profit 
and  loss  account  with  $3  per  cwt.  and  credit  reserve  account. 

Should  the  market  price  remain  permanent,  charge  reserve  account  and 
credit  profit  and  loss  account;  again,  should  the  market  go  down  to  cost 
price,  charge  reserve  account  and  credit  inventory  account. 

COMMENTS. 

Profits  should  not  be  anticipated ;  no  profits  have  been  realized  until  goods 
have  been  sold  and  accounts  collected. 

Hence,  such  anticipated  profits,  if  taken  into  account  at  all,  should  go 
to  temporary  reserve  account,  not  to  profit  and  loss  account." 

For  taking  inventory,  it  is  convenient  to  have  specially  ruled  blanks  (See 
Form  ),  which  can  be  obtained  of  most  manufacturing  stationers.  These  blanks 
are  provided  with  columns  for  quantities,  description,  price,  check  column, 
amount,  while  the  heading  of  the  sheet  is  arranged  to  provide  for  date  of  in- 
ventory, name  of  clerks  taking  it,  and  name  of  clerks  checking  extensions. 

888 


669-670 


American  Business  and  Accountinc.  Encyclopedia 


In. 


As  an  inventory  progresses,  odd  lots  of  shop-worn  articles  and  poor  sellers 
should  be  given  a  distinguishing  mark,  so  that  special  attention  may  be  given 
them  with  a  view  to  adopting  some  method  for  their  disposition. 

One  person  should  call  off  the  items  and  another  enter  them,  after  wliich 
they  should  be  "  called  back."  As  soon  as  the  goods  are  taken  down  and  you 
leave  for  another  part  of  the  stock,  mark  the  place  "  taken,"  so  that  if  any 
of  the  goods  are  sold  before  the  inventory  is  completed  they  may  be  deducted 
from  the  total  amount.  To  do  this  properly  a  book  should  be  kept  of  "  go<xls 
sold  during  the  inventory,"  and  at  the  close  deduct  the  total  amount  from 
the  inventory. 

It  will  be  quite  an  advantage  to  head  the  pages  of  the  inventory,  men- 
tioning the  separate  parts  of  the  store,  as,  for  instance :  "  First  floor,  east 
side ;  "  "  Second  floor,  west  side ;"  "  Cellar,"  etc.,  in  order  that  it  may  be 
convenient  for  ready  reference  in  time  to  come,  as  well  as  for  present  use,  as  a 
''  stock  memorandum  "  from  which  to  order  up  such  goods  as  may  be  needed 
for  future  trade,  making  it  also  easy  to  locate  the  stock. 

A  large  number  of  book-keepers  do  not  seem  to  thoroughly  understand 
the  method  by  which  inventory  is  brought  into  the  books,  and  we  therefore 
append  the  following  explanation : 

At  the  close  of  the  year  the  books  will  show  amount  of  goods  pur- 
chased and  amount  of  goods  sold,  but  not  the  amount  of  goods  on  hand. 
To  remedy  this  omission,  inventory  is  taken  and  the  amount  charged  as  an 
asset  and  credited  either  to  purchase  account  as  a  reduction  of  cost,  or  it 
may  be  credited  direct  to  profit  and  loss.  It  should  be  understood,  however, 
that  while  the  amount  of  the  inventory  can  be  credited  as  above  indicated 
direct  to  profit  and  loss,  the  inventory  itself  is  not  a  credit  to  profit  and  loss, 
but  only  represents  the  excess  of  sales  over  purchases.  Thus,  the  purchases 
for  a  year  amount  to  $8,705.04,  and  the  sales  $1'?,395.40;  the  inventor)-  at 
the  close  of  the  year  is  $-2,G74.80,  and  by  deducting  the  inventory  from  the 
purchases,  we  find  that  the  cost  of  the  goods  sold  was  $0,091.14 ;  thus  show- 
ing a  gross  profit  on  the  sales  of  $0,304.20. 

The  ideal  method,  however,  is,  in  our  opinion,  to  carrj'  three  accounts  on 
the  books,  one  for  purchases,  one  for  sales,  and  one  for  inventory.  At  the 
close  of  the  year  open  a  temporary  account  called  a  "  Trading  Account ;  " 
credit  Purchase  account  and  charge  Trading  account  with  the  amount  of  the 
net  purchases ;  charge  Sales  account,  credit  Trading  account  with  the  amount 
of  net  sales;  charge  Inventory  account,  credit  Trading  account  with  the 
amount  of  new  inventory,  and  to  close  out  the  old  inventory  credit  Inventory 
account  and  charge  Trading  account.  The  balance  of  the  Trading  account 
will  then  show  gross  profit.  Into  this  Trading  account  should  also  be  closed 
labor  of  manufacturing  product  and  other  costs  of  production.  (See  also 
Trading  Account.) 

(070")       perpetual   INVENTORY. 

In  any  business  a  perpetual  inventory  involves  a  certain  amount  of  extra 
labor,  but  those  who  have  had  experience  assert  that  the  result  more  than 
compensates. 

889 


f 


In. 


American  Business  and  Accounting  Encyclopedia 

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Form  6, 

In  a  wholesale  hardware  business  it  is  a  good  plan  to  sectionalize  goods 
under  such  headings  as  Machinist's  Supplies,  Carpenter's  Supplies,  etc.,  as 
well  as  to  provide  separate  cards  or  sheets  for  each  article.  This  suggestion 
holds  good  for  peq^etual  inventories  devised  for  any  kind  of  business. 

The  time  at  which  to  start  a  perpetual  or  book  inventory  is,  of  course,  at 
date  of  actual  inventory. 

By  the  use  of  such  a  form  as  is  here  illustrated,  the  inventory  may  be 
taken  at  any  time  desired  during  the  month,  and  in  practice  it  is  found  that 
as  a  rule  the  discrepancy  between  the  perpetual  inventory  and  the  actual  in- 
ventor}' is  very  small.  In  some  cases  where  goods  have  been  stolen  the  per- 
petual inventory,  of  course,  does  not  disclose  that  fact  until  the  supply  of 
those  goods  has  been  exhausted  and  it  is  necessary  to  place  a  new  order.  Then 
the  inventory  card  is  looked  up  and  it  shows  that  there  ought  to  be  a  larger 
quantity  of  goods  on  hand  than  is  reported. 

eeiLtNS 


670 


American  Business  and  Accounting  Encyclopedia 


Ix. 


ELECTRICAL  OEPT     fTIVT 

Steek  Record  of                                                                                                                                                                                                                O  X  •  « J 

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892 


The  cards  or  sheets  should  be  ruled  on  both  sides  so  that  they  will  last 
a  considerable  time. 

In  many  businesses  the  store's  department  is  divided  into  twenty-six  sec- 
tions. Actual  inventory  of  one  of  these  sections  is  taken  each  day  and  the 
result  compared  with  the  perpetual  inventor}-  card,  but  if  this  cannot  be  con- 
veniently arranged,  a  proof  can  be  fairly  well  arrived  at  by  unexpectedly 
taking  some  one  article  and  comparing  the  actual  inventory  with  the  quantity 
on  hand,  as  shown  by  the  inventory  ledger. 

The  next  illustration  is  somewhat  elaborate,  as  it  affords  information 
which  is  evidently  intended  for  others  than  the  stores-keeper.  We  suppose 
for  the  benefit  of  the  purchasing  agent. 

The  third  form  is  a  shipping  order,  a  duplicate  of  which  is  handed  to 
the  stores  clerk. 

Illustration  Xo.  4  is  well  arranged.  This  fomi  is  the  monthly  summary 
and  is  printed  on  the  back  of  the  card.  The  daily  record  is  printed  on  the 
front  of  the  card. 

Illustration  Xo.  5  is  a  form  of  perpetual  inventory  to  be  used  for  articles 
of  which  there  is  but  one  size  or  style. 

Illustration  Xo.  (1  is  intended  to  be  used  when  there  is  more  than  one 
size  or  style  of  which  it  may  be  necessary  or  advisable  to  keep  a  separate 
account. 

In  the  latter  form  all  withdrawals  from,  stock  are  to  be  entered  uniler  the 
heading  of  "Quantities  Shipped."     These  forms  show  only  one  item  with- 

893 


In. 


American  Business  and  Accounting  Encyclopedia        670-673 


•  i 


drawn  each  day,  but  if  there  are  several  withdrawals  it  is  only  necessary  to 
foot  the  separate  items,  deduct  the  total  from  last  amount  on  hand  as  shown 
by  last  balance  and  enter  the  final  balance. 

(Also  see  Manufacturing  Accounts  and  Costs.) 

(671)     INVESTMENT. 

A  title  frequently  given  by  merchants  who  are  sole  proprietors  of  the 
business  to  an  account  representing  their  original  capital  and  the  accretions 
to  or  deductions  therefrom. 

In  a  partnership,  the  amount  contributed  by  each  partner  tO  the  capital 
of  the  partnership. 

Generally,  a  sum  paid  in  purchase  of  property. 

(672)     investment  fund. 
The  amount  diverted  from  profits  for  the  purchase  of  securities  when  the 
surplus  cannot  be  profitably  used  in  the  development  of  a  business.     Called  a 
"  Fund,"  when  a  specified  appropriation  is  made  yearly  for  the  purpose  of  es- 
tablishing a  reserve  against  certain  eventualities. 

(673)     INVOICE. 

A  bill  for  goods  sold  or  purchased. 

An  inventory. 

Every  store  should  have  some  system  of  keeping  track  of  invoices  from 
the  time  they  are  received  until  they  are  finally  entered  upon  the  books.  It 
should  be  a  system  that  will  fix  the  responsibility  beyond  question  for  every- 
thing that  is  done  in  connection  with  each  invoice.  A  good  plan  is  to  have 
a  rubber  stamp,  something  like  this: 

Invoice  No 

Computation  Ex'd  by . 

Checked  by 

Marked  by 

Prices  Ex'd  by 

Entered  by   

As  fast  as  the  invoices  are  received  put  this  stamp  upon  them.  The 
invoice  should  then  be  examined  as  to  the  correctness  of  computations,  and 
the  one  that  does  this  should  put  his  name  on  the  second  line  in  the  form. 
The  person  who  checks  the  bill  to  ascertain  that  all  the  goods  billed  have  been 
received,  writes  his  initials  on  the  third  line;  the  one  that  marks  the  goods 
should  write  his  on  the  fourth,  and  the  one  who  examines  the  prices,  to  see 
that  you  are  not  being  overcharged,  should  write  his  on  the  fifth  line.  This 
leave's  the  sixth  for  the  name  of  the  book-keeper,  who  finally  enters  the  invoice 

on  the  books. 

For  large  business  systems  and  factories,  see  Manufacturing  Cost  and 

Purchase  Orders. 

894 


674-676        American  Business  and  Accounting  Encyclopedia         In.-Ir. 

(674)     invoice  book. 

Generally  a  book  in  which  purchase  invoices  are  posted.  These  books 
are  manufactured  with  total  and  distribution  columns,  thus  possessing  the 
features  of  both  a  file  of  original  bills  and  a  purchase  record.  Suitable  for 
small  businesses. 

(675)     invoice  copy  book. 

An  impression  book  in  which  invoices  are  copied.  Where  this  method 
is  employed  the  postings  to  customers'  accounts  are  usually  made  from  the 
impression  book. 

This  method  is  now  almost  generally  superseded  by  the  use  of  carbon 
sheets,  the  invoices  being  typewritten. 

(676)     IRRIGATION  COSTS. 

classification  of  accounts  for  operation  and  maintenance. 

The  classification  of  the  Operation  and  Maintenance  Cost  Ledger  accounts 
presents  some  difficulties,  partly  from  dififerences  of  opinions  as  to  the  extent 
to  which  the  analysis  should  be  carried  and  partly  from  an  unsettled  condition 
as  to  the  terminology  for  various  portions  of  irrigation  projects,  and  for  opera- 
tions connected  therewith.  There  are  differences  of  opinion  as  to  whether  the 
nature  of  the  expense  incurred  should  always  be  shown.  We  will,  however, 
presume  that  it  is  an  accepted  principle  of  cost  accounting  that  the  accounts 
should  show  the  purpose  of  all  expense  whether  or  not  they  indicate  the  nature 
of  it. 

Our  Operation  and  Maintenance  Cost  accounts  should  then  divide  into 
those  for  Operation  and  those  for  Maintenance. 

Operation  is  the  process  of  using  an  irrigation  project  for  the  develop- 
ment, storage,  carriage  and  distribution  of  water  for  irrigation  and  other 
purposes,  and  is  properly  chargeable  with  all  and  only  the  necessary  expense 
therefor  that  could  not  be  eliminated  if  no  repairs  were  required ;  and 

Maintenance  is  the  process  of  keeping  an  irrigation  project  up  to  a  fair 
standard  of  excellence  by  providing  necessary  repairs,  renewals  and  incidental 
betterments,  the  expense  for  which  is  not  separable  from  repairs  and  re- 
newals, and  is  properly  chargeable  with  all  and  only  the  necessary  expense 
therefor  which  is  over  and  above  the  actual  minimum  cost  of  operation. 

In  other  words,  operation  should  include  the  labor  costs  for  incidental 
repairs  made  by  operating  employes  who  are  not  allowed  additional  pay  there- 
for, and  maintenance  should  exclude  all  costs  for  repairs,  etc.,  where  the 
costs  for  operation  could  not  have  been  reduced  had  not  such  incidental  re- 
pairs been  required  and  made.  Betterments  which  are  separable  from  repairs 
and  renewals,  as  new  or  enlarged  structures,  should  be  charged  to  Construc- 
tion Costs  and  carried  in  the  Construction  Cost  Ledger. 

Wherever  there  are  two  or  more  features  or  groups  of  features  of  any 
kind  as  shown  thereon,  additional  similar  accounts  should  be  provided. 

895 


In. 


American  Business  and  Accounting  Encyclopedia 


676 


OPERATION    AND   MAINTENANCE   COST   LEDGER. 


Operation 

General  Expense 

Services,  Engineering 

Services,  Accounting  and  Clerical 

Labor,  Men 

Labor,  Animals 

Supplies,  Miscellaneous 

Equipment 

Corrals 

Labor,  Men 

Labor,  Animals 

Forage 

Supplies,  Miscellaneous 

Depreciation  in  Equipment 

Dam,  Headgates,  and  (miles  of  canal 

or  other  features) 
Distribution,  Labor,  Men 
Distribution,  Labor.  Animals 
Protection.  Labor,  Men 
Protection,  Labor.  Animals 
Supplies,  Miscellaneous 


Distribution,  Labor,  Men 
Distribution,  Labor,  Animals 
Protection,  Labor.  Men 
Protection.  Labor,  Animals 
Supplies,  Miscellaneous 

-Power  Plant  (Steam,  Electric  or 

Water  Electric) 
Labor,  Men 
Labor,  Animals 
Fuel 

Lubricants 

Supplies,  Miscellaneous 
Equipment.  Tools 

-Pumping  Stations  (single  or  in 
groups — of  same  kind) 

Labor,  Men 

Labor,  Animals 
Supplies,  Miscellaneous 

-Coal  Mine 
Labor,  Men 


-Canals,  Class  A- 
C,  etc.) 


-miles  (or  Class  B, 


Labor,  Animals 
Supplies,  Miscellaneous 
Equipment,  tools,  etc. 


Having  thus  outlined  the  accounts  designed  to  show  the  operating  costs 
for  distribution  of  water  and  protection  of  the  system,  we  must  now  provide 
accounts  which  will  set  out  the  costs  of  maintenance  which,  as  already  stated, 
will  include  repairs,  renewals  and  those  betterments  where  the  costs  are  not 
separable  from  those  for  repairs  and  renewals.  The  subdivision  of  the  project 
into  the  features  on  which  maintenance  costs  should  be  kept  will  probably  be 
different  from  the  arrangement  of  the  accounts  for  operation.  On  canals  the 
distance  the  ditch  rider  can  cover  and  the  number  of  turnout  gates  he  can 
operate  are  the  controlling  factors  in  operating  costs.  Maintenance  costs, 
however,  may  be  more  largely  dependent  upon  topography,  character  of  the 
soil,  climatic  conditions,  design  and  material  of  the  structures,  etc.  Accord- 
ingly, in  the  following  outline  the  first  arrangement  of  the  features  is  ac- 
cording to  whether  their  construction  was  mainly  earth  work,  masonry,  timber, 
or  metal. 


Maintenance 
Canals,  Class- 


-miles 


Cleaning,  Labor,  Men 
Cleaning,  Labor.  Animals 
Raising  Banks.  Labor.  Men 
Raising  Banks,  Labor.  Animals 
Brushing,  Labor,  Men 
Brushing.  Labor.  Animals 
Repairing  Breaks,  Labor,  Men 
Repairing  Breaks,  Labor,  Animals 


Repairing  Concrete  Lining,   Labor, 
Men 

Repairing  Concrete  Lining,   Labor, 
Animals 

Repairing  Concrete  Lining,  Ma- 
terials and  Supplies 

Repairs.  Miscellaneous,  Labor,  Men 

Repairs.  Miscellaneous,  Labor,  Ani- 
mals 

Repairs.  Miscellaneous,  Materials 
and  Supplies 


896 


676 


American  Business  and  Accounting  Encyclopedia 


Ir. 


Reinforced  Concrete  Structures 
Structure   (Important  structures  sin- 
gly,   others    in    groups    of    like 
kind) 
Excavation  and  Backfilling,  Labor, 

Men 
Excavation  and  Backfilling,  Labor, 

Animals 
Pumping,  Labor,  Men 
Pumping,  Labor,  Animals 
Pumping  Supplies,  Miscellaneous 
Repairing  Concrete.  Labor,  Men 
Repairing  Concrete,  Labor,  Ani- 
mals 
Repairing  Concrete,  Cement 
Repairing  Concrete,  Steel 
Repairing  Concrete,  Lumber 
Repairing  Concrete,  Materials    and 

Supplies,  Miscellaneous 
Plain  Concrete  Structures 
Timber  Structures 
Steel  and  Iron  Structures 
(accounts  under  each  as  for  Rein- 
forced Concrete  Structures) 

Power  Plant 

Building 

Repairs,  Labor,  Men 
Repairs,  Labor,  Animals 
Repairs,  Lumber 
Repairs,  Stone,  Brick,  Cement, 

Lime,  etc. 
Repairs,  Steel  and  Iron 
Repairs,  Miscellaneous  Materials 

and  Supplies 


Steam  Boiler  and  Furnace 

Repairs,  Labor,  Men 
Repairs,  Labor,  Animals 

Repairs.  (classified  materials) 

Same  for  Engines.  Dynamos  and 
other  Electrical  Appliances, 
Pumps,  etc. 

Transmission  Line 

Repairs.  Labor,  Men 
Repairs,  Labor.  Animals 
Repairs,  Poles 
Repairs.  Wire 

Repairs.  Insulators  and  Miscel- 
laneous 

Pumping  Stations  (singly  or  in  groups) 

Building  or  Barge 

Repairs,  Labor,  Men 
Repairs,  Labor,  Animals 
Repairs,  (materials  classified) 

Pumps 


Repairs,  Labor,  Men 
Repairs,  Labor.  Animals 
Repairs,  (materials  classified) 

Telephone  System 

Repairs,  Labor,  Men 
Repairs,  Labor,  Animals 
Repairs,  Instruments 
Repairs,  Poles 
Repairs,  Wire 

Repairs,  Insulators  and  Miscel- 
laneous 


The  reasons  for  providing  that  the  accounts  shall  first  be  arranged  in  two 
groups,  respectively  covering  the  expenses  of  operation  and  of  maintenance, 
may  be  restated  as:  First,  the  features  upon  which  the  expenses  should  be 
collected  are  not  the  same  for  the  two  classes,  because  the  operation  of  two 
canals  of  practically  the  same  dimensions  with  an  equal  number  of  gates  to  be 
handled  should  probably  cost  about  the  same  amount,  while  the  cost  of 
maintenance  will  be  dependent  upon  other  conditions  and  will  often  be  re- 
quired separately  for  portions  of  the  canal  running  through  different  ma- 
terials and  for  structures  of  various  kinds  thereupon:  second,  operation  costs 
will  be  practically  a  level  expense  year  after  year,  for  any  given  system,  but 
maintenance  costs  will  vary  in  different  years,  and  on  some  features  will  in- 
crease wnth  the  age  of  structures :  and,  third,  comparisons  of  the  relative  econ- 
omy of  different  structures  can  best  be  obtained  by  contrasting  the  pure 
maintenance  cost  on  each. 

From  accounts  arranged  as  herein  proposed  it  will  be  possible  to  derive 

the  following  data: 

1.  Actual  annual  cost  of  operation  of  any  project. 

2.  Actual  annual  cost  of  operation  of  miles  of  canals  and  a  unit  cost  per  mile 
thereon. 

897 


Ir.-jo. 


American  Business  and  Accounting  Encyclopedia 


676-682 


3.  Actual  annual  cost  of  development  of power  and  unit  costs  thereon. 

4.  Actual  annual  operating  cost  of  supplying acre  feet  of  water  to farms 

and acres  of  land  and  unit  costs  on  each. 

5.  Actual  annual  cost  of  maintenance  of  any  project. 

6.  Actual  annual  cost  of  maintenance  of  any  feature  or  group  of  features. 

7.  Actual  annual  total  cost  of  operation  and  maintenance  of  any  project. 

8.  Average  annual  costs  of  operation  and  maintenance  of  any  project,  and  of 
each. 


(677)     ITEMIZING. 
The  act  of  setting  forth  particulars  in  detail  instead  of  in  totals. 


(678)     JOINT  STOCK  COMPANY. 

A  business  organization  whose  capital  stock  is  fixed  in  amount  and 
divided  into  shares,  but  the  members  of  which  are  individually  liable,  as  in 
case  of  a  partnership,  and  in  case  of  suit,  all  members  must  be  joined  both  in 
suing  and  being  sued. 

A  corporation  not  possessing  the  special  advantages  granted  by  corpora- 
tion laws. 

(679)     JOURNAL. 

A  book  of  original  entry  for  record  from  which  postings  are  made  to 
ledger  accounts. 

A  book  used  for  cross,  adjusting  or  closing  entries  under  the  double- 
entry  system. 

The  journal  is  now  restricted  mostly  to  the  correction  of  errors,  trans- 
ferring of  balances,  adjustment  of  entries,  and  such  items  as  cannot  be  con- 
veniently entered  in  subsidiary  books  of  account  referring  particularly  to  the 
department  of  business  to  which  the  entries  relate. 

(680)     SALES  and  purchase  journals. 
The  ordinary  journal  is  a  book  provided  with  two  money  columns  for 
sales  or  purchase  records,  the  first  column  being  used  as  a  "  make-up  "  column, 
and  the  total  of  each  bill  carried  to  the  second  column  for  posting. 

(681)     departmental  journal. 
Where  a  business  is  divided  into  several  departments,  a  separate  column 
is  provided  for  the  amount  of  each  sale,  or  purchase,  in  each  department. 

(682)     credit  journal. 

In  some  cases  merchandise  returns  and  allowances  are  carried  in  the 
sales  and  purchase  journals,  a  separate  column  being  provided  for  the  pur- 
pose. Where,  however,  sales  credits  of  this  kind  are  very  numerous  they  are 
usually  recorded  in  a  separate  journal — called  a  "  Credit  Journal." 

It  was  once  the  custom  to  "  journalize  "  everything  before  posting — that 
is,  sales  were  copied  in  the  General  journal  from  the  Sales  journal,  purchases 
were  treated  in  the  same  manner,  and  even  the  cash  book  was  "  journalized  " 
before  -^osting. 

898 


682-686        American  Business  and  Accounting  Encyclopedia        Jo.-La. 

In  these  days  this  method  of  book-keeping  is  confined  to  those  who  know 
no  better,  and  every  effort  is  made  to  prevent  useless  labor  and  save  the  useless 
expenditure  of  time.  To  effect  this,  the  cash  book  is  now  very  generally 
used  for  entries  of  discount,  freight,  and  allowances  which  properly  belong 
to  the  cross-entry  journal.  Separate  columns  are  provided  for  such  entries, 
the  totals  only  of  which  are  posted  at  the  end  of  each  month  to  their  repre- 
sentative accounts. 

(683)       COLUMNAR   journal. 

We  append  an  illustration  of  a  modern  columnar  journal  arranged  to 
prove  ledgers  by  sections.  This  form  of  journal  can  be  modified  to  suit 
almost  any  business.  All  columns  other  than  the  ledger  columns  are  marked 
with  a  check  mark  in  the  folio  column,  the  totals  only  being  posted  once  a 
month.     The  items  of  the  ledger  columns  must  be  posted. 

The  motto  of  the  book-keeper  should  be :  "  Post  direct  and  use  the  journal 
as  little  as  possible." 

See  Cash  Journal  and  Journal  Cash  Book. 


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(684)     KEY  FIGURES. 


See  Check  Figure. 


(685)     LABOR  ACCOUNT. 

An  account  representing  expenditure  for  labor  employed. 

"*  (686)     LABOR  adjustment. 

Accrued  labor  not  yet  due  which  must  be  included  in  the  liabilities  when 

closing  the  books. 

899 


La.  American  Business  and  Accounting  Encyclopedia        686-688 


LABOR   RECORDS. 

See  Manufacturing  Cost  and  Pay-roll. 

(687)     LANDLORD'S  FIXTURES. 

Fixtures  which  become  the  landlords'  property  when  erected  in  buildings 
held  on  lease.  Improvements  on  lease-hold  property  which  cannot  be  re- 
moved by  the  tenant  when  the  lease  expires. 

(688)     LAUNDRY  BUSINESS  ACCOUNTING. 

A  chart  showing  the  numerous  expense  accounts  should  be  carefully 
compiled,  and  these  can  with  advantage  be  classified  under  three  headings. 


688-689       American  Business  and  Accounting  Encyclopedia       La  -Le. 


PRIMARY    expenses. 


Insurance 

Phone 

Rent 

Repairs,  wagon 


which  will  consist  of 


Taxes 

Wages,  management 

Horse  and  Barn  expense. 


OPERATING    EXPENSES. 


Basket  expense 

Blueing. 

Blankets,  mangle  coverings 


Caustic  soda, 

Ch.  Lime  or  other  bleaching 
agent. 


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Coal  or  power. 

Commissions,  agents. 

Duck  and  coverings. 

Gasoline  or  gas. 

Lists,  parcel, 

Lighting, 

Machinery  repairs, 
Machine  oils. 
Office  supplies, 
Oxalic  and  other  Acids, 


Packings,  engine 

Paper,  wrapping. 

Shirt  finishes. 

Starch, 

Shortages,  damages, 

Sodas, 

Soaps, 

Tags,  marking 

Twine,  parcelling 

Water. 


INCIDENTAL   EXPENSES. 

To  include  advertising,  interest,  exchange,  postage,  telegrams,  and  that 
sore  point,  depreciation.  When  considering  depreciation,  the  age  of  the  plant, 
location  and  local  conditions  should  guide  you. 

This  list  of  operating  expenses  includes  almost  all  the  supplies  used. 

It  will  be  found  best  to  purchase  not  less  than  two  or  three  weeks  sup- 
plies at  a  time,  as  a  small  stock  may  mean  loss  of  time  through  delay.  The 
duplicate  purchase  orders  and  perpetual  inventory  in  the  regular  style  should 
be  used.  The  stores  should  be  in  charge  of  some  particular  washman  and 
supplies  only  issued  on  requisition. 

The  pay-roll  should  be  provided  with  distribution  columns  for  each  de- 
partment of  the  work,  and  a  classification  giving  the  value  of  the  work 
processed  in  each  department  should  be  used  and  arranged  to  give  all  the 
information  possible  about  this  particular  part  of  the  business.  The  form 
should  be  made  up  every  week. 

There  should  also  be  a  report  showing  the  sources  from  which  work  is 
secured,  such  as  local  and  out-of-town  hotels,  agents,  local  routes  and  parcels 
dropped  at  the  office. 

The  parcel  register  is  the  basis  for  all  laundry  accounting.  A  list  of 
the  contents  of  each  parcel  was  registered,  as  a  rule,  by  most  laundries,  but 
this  practice  is  gradually  becoming  a  thing  of  the  past.  When  complaints 
are  made,  the  regular  list  should  be  returned  and  instructions  to  this  effect 
should  be  given  at  the  top  of  all  lists  used. 

Form  4  shows  a  page  from  our  Driver's  Individual  Cash  Book.  These 
t)Ooks  are  made  out  by  route  clerk  as  soon  as  deliveries  are  made.  Each  driver 
has  two  books,  one  for  every  other  day.  The  book  used  on  Monday  will  be 
checked  by  cashier  on  Tuesday  and  so  on. 

Drivers  cash  in  every  evening.  Any  parcels  left,  unsettled  for,  are  kept 
track  of  on  Outstanding  Form  G. 

Complaints  will  come  in  any  business.  Form  fi  is  used  in  reporting  any 
differences,  no  matter  what  they  may  be. — W .  Hurley. 


^ 


(G89)     LEDGER. 

The  center  and  pivot  of  double  entry. 

The  record  which  fumishes  the  business  man  reliable  information  as  to 
his  position,  gains  or  losses. 

901 


li 


il! 


I! 


Lb. 


American  Business  and  Accounting  Encyclopedia       689-698 


A  summary  of  details  entered  in  auxiliary,  or  subsidiary,  records.    Thus 
the  Cash  Book  contains  the  details  of  the  Ledger  cash  account. 


See  Bank  Accounting. 


(690)       BALANCE   ledger. 


MTE 


MEMO 


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OEBITS 


CREDITS 


FO 


MEMO 


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BALANa  iwre 


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DATE 


BALANCE 


(691)     CARD  ledger. 
See  Card  System. 

(692)  creditors'  ledger. 
A  purchase,  or  accounts  payable  ledger. 

(693)  customers'  ledger. 
A  sales,  or  accounts  receivable  ledger. 

(694)  EXPENSE  ledger. 

A  ledger  specially  devoted  to  the  carrying  of  expense  accounts.    A  nom- 
inal ledger. 

(695)  guest's  ledger. 
See  Hotel  Accounting. 

(696)  HANDS  ledger. 


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(697)       EMPLOYES    LEDGER. 

A  term  sometimes  used  to  describe  a  combination  employes  ledger  and 
pay-roll.     (See  illustration.) 

(698)       INDEX    LEDGER. 

All  ledgers  which  are  arranged  alphabetically,  with  index  sheets  inter- 
spersed between  the  end  of  one  letter  and  the  commencement  of  another, 
or  with  more  or  less  distribution  on  the  ledger  itself  by  means  of  leather  tabs 
attached  to  the  tops  or  sides  of  the  pages,  are  called  "  Self-Indexing  Ledgers." 

902 


American  Business  and  Accounting  Encyclopedia 


Lb. 


o 


n 


903 


Lb. 


American  Business  and  Accounting  Encyclopedia 


698 


698-707        American  Business  and  Accounting  Encyclopedia 


Lb. 


MODERN  CARD  LEDGER. 


The  principal  difficulty  experienced  in  a  bound  self-indexing  ledger  is 
that  the  Ba's,  for  instance,  may  considerably  overrun  the  space  allotted  to 
them  when  manufacturing  the  ledger.  In  a  loose-leaf  ledger  this  difficulty 
is  entirely  obviated,  for  as  many  additional  sheets  may  be  added  to  any  sec- 
tion as  may  be  desired. 

One  form  of  self-indexing  ledger  combines  both  of  the  above  mentioned 
features,  i.  e.,  an  index  sheet  intersecting  the  various  letters  of  the  alphabet, 
and  tabs  for  the  subdivisions  of  each  letter. 

(G99)     individual  ledger. 
A  personal  ledger — customers'  or  depositors'  ledger. 


(700)     invoice  ledger. 


A  purchase  ledger. 


904 


(701)       LOOSE-LEAF   LEDGER. 

See  Loose-Leaf  Records. 

(702)       NOMINAL   ledger. 

A  title  sometimes  used  to  indicate  a  ledger  carrying  only  expense 
accounts. 

(703)     perpetual  ledger. 

Both  card  and  loose-leaf  ledgers  are  called  '*  Perpetual,"  because  there 
is  no  transfer  of  accounts  to  new  ledgers  at  the  end  of  the  year.  Filled  cards 
or  leaves,  or  those  containing  closed  accounts  are  removed.  Xew"  cards  or 
leaves  are  inserted  to  continue  running  accounts  and  to  carry  new  accounts. 

(704)     personal  ledger. 
An  individual  ledger — customers'  or  creditors'  ledger. 

(705)     petty  ledger. 

A  ledger  in  which  sundry  accounts,  or  accounts  with  customers  who 
are  not  expected  to  be  regular  purchasers,  are  kept. 

(706)       PRIVATE    ledger. 

(707)     general  ledger. 

So  far  as  their  titles  and  uses  are  concerned,  the  general  and  private 
ledgers  are  practically  synonymous.  In  large  corporations  the  controlling  ac- 
counts are  usually  carried  in  the  private  ledger  so  that  the  Secretary  (who 
usually  keeps  this  ledger)  may  draw  up  his  own  trial  balance  and  call  for 
the  aggregate  of  balances  of  the  individual  ledgers  from  the  individual  ledger 
book-keepers.  The  private  ledger  also  contains  such  other  accounts  as  the 
proprietors  of  the  business  desire  to  preserve  from  the  observation  of  the 
ordinary  business  employes. 

905 


% 
* 


i 


\\ 


II 


' 


Lb.  American  Business  and  Accounting  Encyclopedia        708-714 

(708)     purchase  ledger. 
A  creditors',  or  accounts  payable,  ledger. 

(709)   SALES  LEDGER. 

A  customers',  or  accounts  receivable,  ledger. 

(710)       SECTIONALIZED   LEDGER. 

A  ledger  in  which  accounts  are  classified  as  per  charts  illustrated  under 
that  heading. 


(711)       SELF-INDEXING   LEDGER. 


See  Index  Ledger. 


(712)   STOCK  LEDGER. 


(713)   STORES  LEDGER. 

(a)  A  stores  or  stock  ledger — record  of  goods  received,  issued,  and  bal- 
ance on  hand. 

(b)  A  record  of  shares  or  stock  issued  to  subscribers.     (See  Stock.) 

(714)       SUSPENSE    LEDGER. 

t 

A  ledger  to  which  are  transferred  doubtful  accounts  until  such  time  as 
it  can  be  ascertained  whether  or  not  they  are  collectible. 

A  representative  account  entitled  "  Suspense  Ledger  Account  "  is  carried 
in  the  general  ledger,  to  which  the  amounts  of  accounts  transferred  to 
suspense  ledger  are  debited,  and  to  which  are  credited  all  sums  collected  in 
payment  or  part  payment  of  such  accounts. 

The  balance  of  suspense  ledger  account  should  therefore  always  agree 
with  the  total  of  the  balances  drawn  off  from  the  suspense  ledger. 

Some  forms  of  suspense  ledgers  are  illustrated  below. 


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714 


American  Business  and  Accounting  Encyclopedia 


Lb. 


suspense  ledger. 

Ledger  Folio 

1 

Date 

Folio 

Debits 

Date 

Folio 

Credits 

Particulars  of  security 
Sent  for  collection  to 
Attorney's  report 

Name  and  address  of  Trustee  or  Receiver,  etc. 
Claim  filed 
judgment  secured 
Particulars  of  settlement 

Remarks 

DOUBTFUL  ACCOUNT  LEDGER 


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907 


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American  Business  and  Accounting  Encyclopedia 


714A 


(ri4A)     LEDGER  POSTINGS. 

The  copy  of  entries  covering  items  and  amounts  from  books  of  original 
entr\'  (such  as  sales,  purchase  and  cash  records),  to  a  record  or  other  form 
of  summary. 

Under  the  heading  of  "  Checking  Systems  "  we  pointed  out  the  frequency 
of  errors  in  this  field  of  accounting  work  and  devoted  considerable  attention 
to  the  best  methods  of  preventing  and  promptly  detecting  mistakes  in  posting 
figures. 

We  think  the  following  description  of  the  adaptation  of  the  check  figure 
11  to  British  currency  may  be  of  interest  to  many  of  our  subscribers.  The 
general  explanation  of  the  ease  with  which  this  check  figure  is  adapted  to 
British  currency  is  thus  presented  by  a  mathematician : 

"  The  check  figure  is  obtained  by  an  application  of  the  theorem  that 
where  N  is  any  number  in  the  scale  of  r,  and  D  the  excess  of  the  sum  of  the 
digits  in  the  odd  places  over  the  sum  of  those  in  the  even  places,  the  remainder 
after  dividing  N  by  r  +  1  is  the  same  as  the  remainder  on  dividing  D  by  r  -f-  1-" 

Most  of  our  subscribers,  however,  will  probably  be  more  interested  in 
arithmetical  than  mathematical  solutions  and  may  be  surprised  at  the  facility 
with  which  British  currency  may  be  decimalized.  Our  first  example  shows 
how  the  check  figure  cannot  be  used  with  undecimalized  currency,  either  by 
treating  the  i :  s :  d  as  a  whole  number,  or  footing  by  the  ordinary  denomi- 
nations. 


TAP.LE 

NO.  1. 

£ 

s. 

:  d. 

497 

13 

.  9 

19  —  14   5 

345 

12 

.  7 

12  —  10   2 

618 

9 

.  2 

16  —  10   6 

13- 

-11   2 

1460 

35 

.  8 

18—9 

=  9 

1461 

15 

.  6 

14  —  10 

=  4 

Illustration  Xo.  2  clearly  illustrates  how  the  check  figure  is  obtained  by 
adding  ciphers  to  shillings  and  pence. 


TABLE 

NO.  2. 

£ 

•  s. 

:  d. 

497 

.  13 

.  09 

23  —  10   13  —  11   2 

345 

12 

.  07 

17—5   12  —  11   1 

618 

.  09 

.  02 

25—1   24  —  22   2 

5 

1460 

34 

.  18 

16  —  11           5 

Illustration  Xo.  3  furnishes  a  further  proof  of  the  accuracy  of  the  cal- 
culations. 


908 


<14A-719    American  Business  \nd  Accounting  Encyclopedia 


Lb. 


table  no.  3. 


11 


497.13.09 


451937  =  2 
111  345.12.07 


313746  =  1 
111  618.09.02 


561900  =  2 


11       14603418 


1327583  =  5 


(Tlo)     LEGACY. 


A  capital  receipt. 


(T16)     LEGAL  BOOK-KEEPING. 

See  Attornevs'  Accounts. 

(717)     legal  costs. 

Those  incurred  in  purchase  of  property,  or  the  promotion  or  organization 
of  corporations,  may  be  capitalized,  /.  c,  added  to  the  cost  of  as.sets  purchased 
with  capital,  or  carried  as  assets  and  written  off  gradually  with  other  expenses 
of  organization. 


(718)     legal  interest. 


See  Interest. 


(710)     legal  tender. 

That  currency  which  has  been  made  suitable  by  law  for  the  puqwses  of 
a  tender  in  the  payment  of  debts. 

In  the  United  States  the  following  descriptions  of  money  are  legal 
tender : 

All  the  gold  coins  of  the  United  States  are  a  legal  tender  in  all  payments 
at  their  nominal  value  when  not  below  the  standard  weight  and  limit  of  toler- 
ance provided  by  law  for  the  single  piece,  and  when  reduced  in  weight  below 
such  standard  of  tolerance,  they  are  a  legal  tender  at  valuation  in  proportion 
to  their  actual  weight. 

Treasury  notes  and  standard  silver  dollars  for  all  payments. 

Silver  coins  of  a  smaller  denomination  than  one  dollar,  for  all  sums  not 
exceeding  ten  dollars. 

The  minor  coins — five,  three,  two  and  one-cent  pieces — for  all  sums  not 
exceeding  twenty-five  cents. 

909 


Li.  American  Business  and  Accounting  Encyclopedia       720-721 

(720)     LIABILITIES. 

The  debts  and  obligations  of  a  corporation,  partnership,  or  merchant. 
That  which  is  due  or  owing  for  vahie  received.  That  HabiHty  exists  without 
vakie  received  is  true,  but  in  these  days  it  is  difficult  to  recover  when  it  can 
be  proved  that  no  consideration  passed. 

For  sectionalization  of  habilities  see  Balance  Sheet. 


(721)     LIFE  INSURANCE  ACTUARY  TABLE. 

The  following  is  the  Actuary  Table,  known  as  the  American  Experience 
Table: 

AMERICAN    EXPERIENCE  TABLE   OF   MORTALITY. 


Number 

Number 

Expectation 

Number 

Number 

Expectation 

Age. 

Living. 

Dying. 

of  Life. 

Age. 

Living. 

Dying. 

of  Life. 

10 

100,000 

749 

48.72 

53 

66,797 

1,091 

18.79 

11 

99,251 

746 

48.08 

54 

65,706 

1,143 

18.09 

12 

98,505 

743 

47.45 

55 

64,563 

1,199 

17.40 

13 

97,763 

740 

46.80 

56 

63,364 

1,260 

16.72 

14 

97,022 

737 

46.16 

57 

62,102 

1,325 

16.05 

15 

96,285 

735 

45.50 

58 

60,779 

1,394 

15.39 

1ft 

95,550 

732 

44.85 

59 

59,385 

1,468 

14.74 

17 

94,818 

729 

44.19 

60 

57,917 

1,546 

14.10 

18 

94,089 

727 

43.53 

61 

56,371 

1,628 

13.47 

19 

93,362 

725 

42.87 

62 

54,743 

1,713 

12.86 

M 

92,637 

723 

42.20 

63 

53,030 

1,800 

12.26 

SI 

91,914 

722 

41.53 

64 

51,230 

1,889 

11.67 

22 

91,192 

721 

40.85 

65 

49,341 

1,980 

11.10 

23 

90,471 

720 

40.17 

66 

47,361 

2,070 

10.54 

24 

89,751 

719 

39.49 

67 

45,291 

2,158 

10.00 

25 

89,032 

718  , 

38.81 

68 

43,133 

2,243 

9.47 

26 

88,314 

718 

38.12 

69 

40,890 

2,321 

8.97 

27 

87,596 

718 

37.43 

70 

38,569 

2,391 

8.49 

28 

86,878 

718 

36.73 

71 

36,178 

2,448 

8.00 

29 

86,160 

719 

36.03 

72 

33,730 

2,487 

7.55 

30 

85,441 

720 

35.33 

73 

31,243 

2,505 

7.11 

31 

84,721 

721 

34.63 

74 

28,738 

2,501 

6.68 

32 

84,000 

723 

33.92 

75 

26,237 

2,476 

6.27 

33 

83,277 

726 

33.21 

76 

23,761 

2,431 

5.88 

34 

82,551 

729 

32.50 

77 

21,330 

2,369 

5.49 

35 

81,822 

733 

31.78 

78 

18,961 

2,291 

5.11 

36 

81,090 

737 

31.07 

79 

16,670 

2,196 

4.74 

37 

80,353 

742 

30.35 

80 

14,474 

2,091 

4.39 

38 

79,611 

749 

29.62 

81 

12,383 

1,964 

4.05 

39 

78,862 

756 

28.90 

82 

10,419 

1,816 

3.71 

40 

78,106 

765 

28.18 

83 

8,603 

1,648 

3.39 

41 

77,341 

774 

27.45 

84 

6,955 

1,470 

3.08 

42 

76,567 

785 

26.72 

85 

5,485 

1,292 

2.77 

43 

75,782 

797 

26.00 

86 

4,193 

1,114 

2.47 

44 

74,985 

812 

25.27 

87 

3,079 

933 

2.18 

45 

74,173 

828 

25.54 

88 

2,146 

744 

1.91 

46 

73,345 

848 

23.81 

80 

1,402 

555 

1.66 

721-725       American  Business  and  Accounting  Encyclopedia 


Li. 


47 

72,497 

870 

23.08 

90 

847 

385 

1.42 

48 

71,627 

896 

22.36 

91 

462 

246 

1.19 

49 

70,731 

927 

21.63 

92 

216 

137 

.98 

50 

69,804 

962 

20.91 

93 

79 

58 

'     .80 

51 

68,842 

1,001 

20.20 

94 

21 

18 

.64 

52 

67,841 

1,044 

19.49 

95 

3 

3 

.50 

Insurance  companies  usually  have  several  cash  books,  an  agent's  cash 
book,  a  home  office  cash  book,  a  foreign  cash  book  for  receipts,  and  a  cash 
paid  book  for  expenditures,  but  they  aim  to  assemble  everything  from  cash 
books  and  journals  into  a  General  Cash-Journal  provided  with  columns  for 
each  of  the  accounts  carried  in  the  general  ledger.  This  Cash-Journal,  there- 
fore, furnishes  the  trial  balance  without  posting  to  a  ledger,  but  for  the  sake 
of  obtaining  monthly  totals  on  each  account,  it  is  customary  to  close  this 
book  at  the  end  of  each  month,  posting  the  totals  to  the  representative  ac- 
counts in  the  general  ledger. 

We  show  illustration  of  a  cash-journal  used  by  a  life  insurance  company. 

(722)     LIMITED  CORPORATIONS. 

See  Corporations. 

(723)     LIMITED  PARTNERSHIP. 

See  Partnership. 


(724)     LIST  PRICES. 


Gross  selling  prices. 


(725)     LITHOGRAPHING  BUSINESS  ACCOUNTING. 

General  expenses  should  be  classified  and  an  hourly  rate  set  on  every 
machine,  this  rate  being  determined  by  adding  together  all  expenses  which 
accrue  to  the  machine  during  the  working  week  or  year. 

The  classification  of  general  expense  includes  floor  rent,  machine  rent, 
heat,  power,  light,  taxes,  insurance,  factory,  office,  administrative  and  general 
expense.  To  the  percentage  of  general  expense  set  on  each  machine  must  be 
added  the  wages  of  press-men,  feeders,  tenders,  etc. 

The  actual  rate  per  hour  having  been  determined,  the  necessary  time  to 
print  any  one  job  may  be  accurately  calculated. 

The  first  essential  to  obtain  an  order  is  to  furnish  an  estimate,  and  we 
show  a  suitable  form  of  estimate  record.  This  is  made  in  duplicate,  the  dupli- 
cate being  retained  in  the  office  for  reference.  It  also  permits  comparison  with 
the  actual  cost. 

The  order  having  been  obtained,  it  is  entered  in  the  order  book  and  at  the 
same  time  a  job  order  and  instruction  docket  should  be  made  out.  A  suitable 
form  is  a  strong  manilla  envelope  with  complete  instructions  on  one  side  and 
a  detailed  cost  record  showing  time,  material,  etc.,  on  the  other  side.  (See 
Form  12). 


010 


911 


Li, 


American  Business  and  Accounting  Encyclopedia 


725 


'    A  JJ 


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725-726        American  Business  and  Accounting  Encvclopedia 


Li. 


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From  this  instruction  docket  the  details  are  copied  into  a  cost  book,  or  if 
the  envelope  is  properly  arranged  the  charge  to  the  customer  may  be  entered 
thereon  and  posting  made  direct  to  the  customer's  account.  A  daily  time  sheet 
should  be  issued  to  each  workman  on  which  the  workman  notes  the  number  of 
his  machine  and  the  time  he  works  on  his  job. 

A  stock  record  should  be  kept  of  goods  purchased,  withdrawn  and  bal- 
ances on  hand.  The  store  room  should  be  in  charge  of  a  competent  employe 
and  no  goods  issued  except  on  written  requisition  signed  by  the  foreman. 

A  department  slip  is  useful  in  showing  an  overseer  the  various  jobs  on 
hand,  the  date  they  are  required,  etc.,  without  looking  up  dockets. — G.  Low. 


(726)  LIVE  STOCK  COMMISSION  BUSINESS  ACCOUNTING. 

This  furnishes  information  for  the  book-keeper  of  a  concern  selling  horses 
on  commission  and  also  dealing  with  mules.  The  following  special  accounts 
should  be  carried : 


913 


Li. 


American  Business  and  Accounting  Encyclopedia 


726 


Mule  Trading  account;  which  is  charged  with  all  purchases  of  mules, 
also  boarding  expenses,  and  is  credited  with  the  totals  of  the  sales  of  mules. 

Commission  on  Horses;  being  credited  with  amount  charged  for  selling 
horses,  and  fees  for  offering  same  at  auctions. 

Boarding  or  Feed  account,  which  is  debited  with  all  payments  for  feed, 
water,  etc.,  and  credited  with  amount  of  all  charges  for  boarding  horses  sold  on 
commission  and  mules  in  stable. 

Equipment  Trading  account ;  to  this  account  all  sundry  articles  are 
charged  which  do  not  belong  to  the  Stable  Equipment,  but  which  will  be  dis- 
posed of  when  selling  horses  or  mules,  and  the  amount  then  charged  for  same  is 
credited  to  this  account. 

The  Expense  account  should  be  subdivided  under  the  various  headings, 
such  as:  Auctioneer,  Rent  and  Taxes,  Wages,  General  Expenses,  Salaries, 
Office  Expense,  etc. 

The  preceding  accounts  will  show  the  detail  of  revenue  and  expenditure 
peculiar  to  this  business. 

The  most  important  record  is  the  commission  sales  register  which  con- 
tains full  particulars  in  connection  with  each  sale,  and  is  provided  with  the 
following  columns: — 

Entry  Number 
Date  Horse  Arrived 
Name   of  Owner 
Description  of  Horse 
Reserve  Bid 
Date  Offered  for  Sale 
Sold  To 

Amount  Sold  For 
Amount  Paid  at  Sale 
Balance  Paid 
Date  Delivered 

At  the  sales  the  clerk  is  beside  the  auctioneer  and  in  this  book  he  records 
the  sales  and  cash  received. 

An  ordinarv'  columnar  cash  journal  will  be  found  useful  and  when  remit- 
ting to  the  owner  an  account  sales  is  made  out  showing  charges  for  commission, 
boarding,  etc. 

To  keep  an  accurate  record  of  the  cost  of  boarding  it  is  necessary  to  have  a 
suitable  register  provided  with  columns  headed  for  each  day  in  the  week  and  a 
line  for  each  stall.  Each  day  the  consignment  number  of  the  horse  in  each  stall 
is  entered  in  the  register.  The  pages  may  be  totaled  at  the  end  of  each  week  and 
this  will  show  the  number  of  horses  and  mules  which  have  been  fed.  These 
totals  furnish  the  figures  showing  the  exact  cost  of  boarding  by  taking  the 
amount  of  the  boarding  or  feed  account  and  adding  the  proportion  of  expenses. 


(737)     LOAN  ACCOUNT. 

An  account  representing  money  invested  on  loans  with  or  without  collateral 
Becurity. 

914 


727-730       American  Business  and  Accounting  Encyclopedia 

(728)     LOCATION  OF  ERRORS. 

See  Detection  of  Errors. 


Lo. 


(729)    LOGISMOGRAPHY. 

A  theoretical  explanation  of  principles  of  accounting,  based  on  the  business 
being  responsible  to  the  proprietor  for  all  its  transactions. 

(730)     LOOSE-LEAF  RECORDS. 

While  loose-leaf  records  are  not  recommended  for  general  or  private 
ledgers,  cross-entry  journal  or  cash  books,  it  is  found  desirable  in  many  large 
businesses  to  provide  separate  loose-leaf  cash  books  for  customers'  ledgers 
and  assemble  them  in  one  binder  and  with  the  usual  methods  adopted  for  safe- 
guarding, i.  e — depositing  all  receipts,'  making  all  expenditures,  except  petty 
cash,  by  check  and  using  the  imprest  petty  cash  system,  no  valid  objections 
have  been  presented. 


SOME   OF   THE   ADVANTAGES. 

The  advantages  of  the  above  combination  bound  book-loose-leaf  methods 
are  as  follows : 

1.  If  a  cashier  be  kept,  other  than  the  book-keeper,  it  becomes  necessary 
if  bound  books  are  used,  to  have  two  cash  books  for  alternate  days,  or  if  there 
are  two  or  more  branches,  the  business  of  which  is  combined  in  one  set  of 
books,  as  it  should  be,  the  original  cash  record  may  be  sent  in  to  the  main 
office,  if  loose-leaf,  avoiding  the  necessity  of  making  a  transcript, 

2.  The  loose-leaf  sales  book  enables  one  to  make  out  the  shipping  order, 
the  customers'  invoice  and  the  sales  book  record  in  one  writing. 

3.  The  personal  accounts  receivable  and  payable  are  kept  under  a  lexicon 
index,  enabling  the  book-keeper  to  find  an  account,  just  as  he  would  a  name  in 
the  telephone  book. 

4.  Each  sheet  contains  but  one  account  and  is  capable  of  indefinite  ex- 
tension, thus  avoiding  all  necessity  of  transfers  from  one  part  of  the  ledger 
to  another  with  consequent  re-indexing. 

5.  All  closed  and  inactive  accounts  may  be  removed  to  an  inactive  binder, 
thus  relieving  the  ledger  of  all  "  dead  wood." 

6.  All  the  security  afforded  by  the  bound  book  is  obtained  with  none  of 
its  cumbersome  features. 

7.  The  controlling  accounts  enable  the  proprietor  to  see  at  a  glance  the 
aggregate  amount  owed  to  and  by  him  on  open  account,  without  taking  a  trial 
balance. 

The  system  of  loose-leaf  record  may  be  abused,  as  is  shown  by  the  fol- 
lowing example.  A  large  business  house  adopted  a  loose-leaf  Accounts  Re- 
ceivable Ledger  and  used  a  large  leaf  providing  for  two  separate  accounts  on 
each  side  of  each  leaf  and  a  regular  bound  index  was  provided.  The  Nominal 
and  Capital  accounts  were  carried  in  the  same  ledger  with  the  accounts  of 

915 


ill* 


Lo.-Lu.        American  Business  and  Accounting  Encyclopedia        730-732 

customers,  so  that  they  successfully  combined  all  the  disadvantages  of  the 
bound  ledger  with  all  the  objections  to  the  loose-leaf  ledger. — S.  Loog. 

(731)     LOSS  AND  GAIN. 

See  Profit  and  Loss. 

(T32)     LUMBER  BUSINESS  ACCOUNTING. 

This  is  a  system  of  book-keeping  used  by  a  lumber,  salt  and  shingle  manu- 
facturing firm'  manufacturing  1,000,000  barrels  of  salt.  40,000,000  feet  of 
lumber  and  00,000,000  shingles  yearly.  The  company  owns  a  large  merchandise 
store,  wholesale  store  (called  department  W),  machine  shop,  two  saw  mills, 
blacksmith  shop,  electric  plant,  planing  mill,  shingle  mill,  stave  mill,  headhig 
mill,  salt  block,  cooper  shop,  its  own  railroad,  car  repair  shop,  locomotive 
repair  shop,  three  logging  camps,  grading  camps  and  a  harness  shop. 

Each  one  of  the  above  named  departments  are  run  by  foremen  who  are 
responsible  for  all  work  turned  out  through  their  department.  The  foreman 
makes  all  requisitions  for  supplies  and  material  of  the  stock-keeper,  which 
place  in  this  business  is  called  department  W.  Requisitions  are  made  (Form 
1),  which  are  signed  by  the  foreman  when  the  supplies  are  delivered.  The 
stock-keeper  retains  the  slip,  from  which  he  makes  a  memorandum  charge 
to  that  particular  department  in  a  loose-leaf  binder,  the  pages  of  which  have 
columns  ruled  for  each  department,  and  each  department  column  is  sub- 
divided into  two  columns,  one  headed  supplies  and  the  other  repairs  and 
renewals. 

At  the  end  of  the  month  the  pages  on  which  the  charges  were  made 
are  turned  into  the  office,  and  each  department  is  charged  with  the  supplies 
and  repairs  and  renewals  received,  and  department  W  is  credited  with  the 
total.  The  same  requisition  slip  is  used  when  parts  of  machinery  or  other 
material  which  is  not  kept  by  department  W  is  needed,  sending  them  into 
the  office,  from  which  place  the  order  is  issued,  the  slip  being  retained  to 
check  oflf  with  the  invoice  when  received,  the  invoice  being  O.  K.'d  by  the 
foreman  sending  in  the  requisition  as  to  quantity,  (luality  and  price. 

All  invoices  are  paid  by  the  voucher  system;  vouchers  are  made  out  in 
duplicate:  the  original  (Form  2),  together  with  a  check,  is  sent  to  the  party 
from  whom  the  purchase  was  made,  the  vouchers  to  be  returned  properly  re- 
ceipted, which  are  then  filed  away.  The  duplicate  (Forms  3  and  4)  is  re- 
tained in  the  office,  and,  together  with  the  invoices  paid  under  that  voucher, 
is  filed  away.  The  duplicate  is  shown  obverse  and  reverse.  All  vouchers 
are  numbered  consecutively,  so  that  quick  reference  may  be  had.  The  original 
voucher  is  white  and  the  duplicate  yellow.  Blue  vouchers  are  used  for  jour- 
nal, cross  and  adjusting  entries,  so  as  to  distinguish  them  from  cash  trans- 
actions. On  the  outside  of  the  duplicate  voucher  the  debits  and  credits  of 
the  transaction  are  recorded  from  which  the  entry  is  made  in  the  voucher 

record. 

The  blue  vouchers  or  journal  vouchers  are  ruled  and  worded  same  as 
Form  3.    One  will  notice  the  receipt  is  omitted  on  the  duplicate  voucher.    The 

916 


732 


American  Business  and  Accounting  Encyclopedia 


Lu. 


THE  VINCENT  SALT  AND  LUMUER  CO 


ti.n. 


W»  •)«<  -TUj  tij.  f  .V.winf  SmU  . 


.r.ri'^l) 


s.ut 

1 

o 
o 

•i 
o 

M»NiiTCr       M'CH 

't» 

r._n 

«....* 

T.-n*'  »**t»            *..•  .»..•  <»• 

0-.  ^*—  •• v.,  _ 

Ca. 

N. 

- 

N..»t>- 

V... 

K.^ 

^... 

»* 

J 

FOSM    1. 


Form  1L 


THE   VINCENT  SALT  AND  LUMBER  CO 
MANISTEE  MICH 


IN  FAVOR  or 


N0_ 
-OR 


AbDRESS- 


AWw  acc.t' ttvytti  aryi  !«»■)«  twrwf 


nSERCO 


Afpwti  t«r  firytnf 


bATC. 


J907 


Rwwv.4  •)  Tl)«  Vif)(.Cf)t  Sairo')<l  U/r^bcrC* 


1^  f vH  p«<(i\ii)r*f  cbo'W  «€c1" 


.Dollars 


IN  FAVOROF 


NO- 
.OR 


ADDRESS. 


r«r 


^w»»<  !»■  fti")*" 


FoRic  2. 


Form  3. 


outside  of  the  original  voucher  is  not  ruled  as  duplicate  voucher,  as  shown  in 
Form  3.    The  journal  vouchers  are  not  made  out  in  duplicate. 

The  vouchers  are  entered  in  the  voucher  record  (Fomi  5),  in  numerical 
order,  charging  and  crediting  those  accounts  as  indicated  on  the  outside  of 
duplicate  voucher,  which  are  made  by  the  head  book-keeper. 

Note. — Department  R  is  the  merchandise  store.  Bottom  of  page  is  ruled 
same  as  left-hand  page. 

All  vouchers  are  indexed  in  a  book  posted  in  detail.  The  pages  of  the 
voucher  record  will  be  in  balance  at  any  time,  for  the  total  debits  must  equal 
the  total  credits. 

At  the  end  of  the  month  the  footings  only  of  the  various  columns  are 
posted  to  the  private  ledger.  The  items  in  the  private  and  general  ledger  col- 
umns are  (Form  G)  provided  for  that  purpose.  This  book  is  divided  into 
fourteen  sections.  The  first  section  on  the  left  is  for  the  name  of  the  partv  in 
whose  favor  the  voucher  was  drawn.  In  the  next  column  is  recorded  the  year. 
The  columns  following  are  for  the  twelve  months  of  the  year,  each  column 
being  subdivided  so  as  to  record  sixteen  transactions  in  one  month  by  the  same 
party.    Ten  pages  are  allowed  for  indexing  under  each  letter  of  the  alphabet. 

917 


'    1 ' 


II 


li 


I 


'I 


II 


'I 

I 


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American  Business  and  Accounting  Encyclopedia 


732 


VOl^CHER  NO. 


ACCOUNTS  TO  CHARGE 


Dtpt-.  v.  eMrt|)«*«s : 

t)t|St-R. 


E4LR.R. 


ACC ODNTS  TO  CREDIT 


Veuct)**'*  f^'^o^l*- 


FORM    4. 


I^^ljm  gvW 


ACCOUNTS    TO  CHARGE 


R>»<Mf^  <o4  R«ij«wU 


Of  lit-  W 


VfUtt  itt'pt 


De|*-R 


C«^t 


f*)MJf«9« 


Til  ( 

Tel. 


belief bl  C«^wHf 


dflSi 


Orilcf^ 


GOTt.«<«tr 


EILRP 


p^„ALc<»^>- 


ActH 


Form  5. 


All  logs  are  cut  by  its  own  camp  and  sent  down  to  the  mills  over  its  own 
railroad  and  dumped  in  the  log  pond.  The  railroad  is  known  as  the  E.  &  L. 
R.  R.,  and  being  quite  a  large  one,  separate  books  are  kept  for  this  department. ' 
The  logs  are  scaled  in  the  woods,  the  scabs  recording  number  of  logs  and  board 
feet  are  sent  to  the  office  on  the  last  of  the  month,  and  entered  in  the  log  record 
book.  At  the  end  of  every  week,  scabs,  showing  the  number  of  logs  cut  and 
number  of  feet  sawed  by  both  mills,  are  sent  to  the  office,  and  are  entered  in 
the  log  record  book.  The  total  logs  sent  down  by  the  camp,  and  the  total  logs 
sawed  can  thus  be  ascertained  and  a  good  check  kept  on  same. 

When  an  order  for  lumber  is  received,  an  acknowledgment  of  it  (Form 
10)  is  filled  out,  which  is  signed  by  both  parties.  They  are  made  out  in  dupli- 
cate, each  retaining  one.  They  specify  the  kind  of  lumber  and  number  of  feet 
contracted  for,  and  at  what  price.  Shingle  orders  are  acknowledged  on  same 
blanks.  When  lumber  is  shipped,  the  lumber  tally  sheet  is  sent  to  the  office, 
from  which  the  invoices  are  made  and  sent  to  the  customer.    Invoices  (Form 

918 


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American  Business  and  Accounting  Encyclopedia 


Lu. 


ACCOWJTS  TO  CREDIT 


(Mil 


Bf  oT  Fwd 


\hhk 


h)  f****"  wf- 


(W-lToUrt 


i5r,rr.,a 


PgVt^O^S 


R.J 


^tv«'tvLi<l^«r 


&«)L 


(Vpt-W 


D.^R 


D>s  on  VeucWt 


0>«>  M      NfwM   MtvcH    CMprr    BwUn   IWiBIW 


ACCOUNTS   TO  CHARGE 


Rcpoir>  M)4  R«^«woU 


Fojut  5A. 

11)  are  made  out  in  duplicate,  the  original  is  sent  to  the  customer,  and  the  dup- 
licate is  retained  in  the  office,  it  being  filed  in  an  invoice  binder.  Each  invoice 
is  numbered  consecutively,  sO  that  quick  reference  may  be  had.  The  postings 
are  made  from  the  invoice  in  the  invoice  binder  to  the  customer's  account  in 
the  general  ledger.  At  the  end  of  every  month  the  invoices  are  filed  on  a  larger 
file,  large  enough  to  hold  invoices  covering  one  year's  business.  Only  the 
current  month's  invoices  are  kept  on  the  smaller  file,  making  it  much  easier  to 
handle. 

Each  invoice  is  entered  in  the  Sales  Summary  (Form  l?),  recording  the 
date,  number  of  invoice,  total  number  of  feet  and  selling  price.  Columns  are 
provided  for  each  kind  of  lumber,  salt  and  shingle  sales,  so  that  at  the  end  of 
the  month  a  perfect  record  is  obtained  of  the  number  of  feet  sold  and  amount 
realized  of  the  various  kinds.  The  total  of  the  various  columns  will  agree  with 
the  footings  of  the  totals  column.  The  footings  only  of  the  various  columns 
are  posted  to  the  credit  of  their  respective  account  in  the  private  ledger. 

As  the  orders  for  lumber  are  generally  large  ones,  several  shipments  must 
be  made,  and  at  diflFerent  times,  before  the  order  is  filled.  The  following 
(Form  13)  is  the  card  on  which  is  recorded  order  number,  name  of  customer, 
manner  of  shipments,  date,  number  of  feet  and  amount.  Each  shipment  made 
is  recorded  on  the  card  bearing  the  same  order  number.  In  doing  this,  it  can 
be  quickly  ascertained  the  number  of  feet  shipped  on  an  order.  They  are  filed 
alphabetically,  the  name  of  customer  governing. 


VOiXHER    INDEX                                                                                                       j 

Drawf)  11)  ^avor  o^- 

V»or 

^••)'"M 

Ftkruarf 

Morel, 

Apr.l 

Mo  >f 

l<>06 

45r7 

O07 

II4S" 

12.00 

J-RAkUH- 

Form  C. 

919 


i  Ij 


.   \ 


I  '' 


'   r 

II 


Lu. 


American  Business  and  Accounting  Encyclopedia 


73a 


LOGS  PUT  IN  AT       1_ | 

'irj 

lO* 

iJS 

^4■ 

^ 

lb 

f^- 

Ni 

„,v| 

'4. 

ZO^L 

u4*» 

Mtt- 

>li 

l*1tJN. 

"t*- 

H«r\l«cl 

Cc4«r 

P 

N 

B«CCI) 

Mk 

k-*J 

k«a 

' 

F 

ORM 

7 

The  salt  shipments  are  invoiced  and  entered  in  the  sales  summary,  same 
as  lumber  sales.  The  book  (Form  14)  is  used  to  record  the  number  of  barrels 
and  tons  shipped  of  each  kind  of  salt. 

A  petty  cash  book  is  used  to  record  cash  sales.  The  foreman  making  the 
sale,  enters  the  particulars  of  the  sale  and  amount  in  the  above  named  book,  and 
signs  his  name  to  it.  This  is  verified  by  the  cashier,  who  also  signs  his  name 
to  it  for  a  receipt  of  the  money.  From  time  to  time  the  cashier  credits  the 
various  kinds  of  sales  in  the  cash  book  (Fomi  15.  L.  H.),  and  checks  them  off 
the  petty  cash  book  (Form  15.  R.  H.)  as  having  been  entered.  An  ordinary 
single  entry  journal  is  used  as  petty  cash  book. 

A  check  register  (Form  Ifi),  is  used  to  record  all  checks  issued. 

Each  and  ever>'  morning  the  cashier  is  requested  to  draw  off  a  cash  state- 
ment, recording  the  amount  of  money  on  hand  in  the  various  banks  (Form  IT  ), 
and  in  the  drawer,  and  checks  drawn  on  banks  during  the  previous  day.  An 
account  is  kept  in  the  general  ledger  with  the  E.  &  L.  R.  R.  in  which  is  recorded 
all  transactions  during  the  month  and  from  which  account  the  entries  are  trans- 
ferred to  the  various  accounts  in  the  E.  &  L.  R.  R.  books.  Entries  are  also 
made  direct  from  the  check  books  of  the  E.  &  L.  R.  R.  These  transactions  are 
not  entered  in  the  check  register. 

An  account  with  the  proprietor  is  kept  in  like  manner,  first  posting  to  his 
account  in  the  general  ledger  (Form  18),  and  then  transferring  them  to  his 
private  books,  also  making  direct  entries  from  his  private  check  books. 

The  foreman  of  each  department  keeps  the  time  of  the  employes,  using 
the  ordinary  pocket  time  book,  which  is  left  at  the  office  each  day  and  from 
which  the  pay  roll  clerk  copies  the  time  and  rate  in  the  general  pay  roll  book, 
the  amount  of  the  wages  of  each  department  is  charged  to  wage  account  to 
that  department. 


LOG  MARK 

B.rt.») 

EIrv 
No  H- 

AtK 
No  4- 

C>)trrH 
No  ^^ 

Ba%%'w«a4 
Noi»- 

°I#< 

^? 

R«k-Yo9 

Oi)>kJ 

K.i)4 

N« 

Rcp^rV» 

.Ol 

Form  8. 


920 


732 


American  Business  and  Accounting  Encyclopedia 


Lr. 


LOGS   SAV/ED  BY                                       MILL                                                                          | 

Qirk 
Mark 

Nof»- 

No' 

f 

No^ 

Not*- 

No^ 

Not^ 

P.i)« 
NoH- 

HcniKk 
NoH- 

Ccaar 

ToiT^rwc 

a-i.\) 

r^pU 

Oirc»j 

K.i)ds 

Total 

R«F\ark» 

Don 

^ 

Form  M 


The    VINCENT    SALT  AND  LUMBER  CO 
MANISTEE     MICH  « 


T»rt\%  504a^»  »)<t"  C«»l)  \f^'\  <lA  c\    i^'f^t*^ 


_•  O^tr^ijal  irj^pcCtft* 


or  rf*}f»  co'jtTMtr^ttt 

M*nt  cr  "r-"'-****  "^hc  vtNctNT  mlt  and  lumber  CO 

__^ mCVDCNT 


vlMCtNT   bAUT  *ND  LUMBER  CO                                                                  v,..,^,^  ^^, ,  .^1 
C*SM   REPORT 

R.:j«rvt 

ltd 

c»»...r   1 

Cl)icafo  E>cl)«t)fi  n«i)U 
E  ILRB  C. 

n«i)iitit  c*  s««ti^  &«^u 

RfC«>v«c) 

B«!oic«                                                        a  >k~>Mi    { 

I.j1»rert- 

1 

Form  10. 


Form   17. 


Form  12. 


!.'l| 


if 


11 


Lu. 


American  Business  and  Accounting  Encyclopedia 


732 


Ori.r  N« 


3^ppf  J  >*»<  DjIT 


F^ft*  An»*»'it" 


Form  13. 


SALT  SHIPPING-  BOOK 


THE  VINCENT  SALT  AND  LUMBER  CO 


Dot? 


Car 
InttTal 


N^Wif**'^"'^ '^"''^    iDtitr^ottor)      |Cof)si(^ 


9« 


Gran 
C>blv 


I5bls 


Gran 


Rervarks 


Form  14. 


Ri^t^l-  l)or)cl  po^t 


CASH  RECEIVED  BOOK 


RECEIPTS  FOR. 


no— 


PARTICULARS 


Antr  grcit'F'wd 


ACCOUNTS    TO    CREDIT 


Lt>r  Cosh 
5olc» 


&tr)lrol  L€<<^r 


F  t  L  R  R     Sur)dr<n 


PRIVATE    LEDGER 


Aritr  ForwordrJ 


Paitr?>^S 


Accoui^ 


1 


Form  15. 


Form  15A. 


922 


732 


American  Business  and  Accounting  Encyclopedia 


L.V. 


ACCOUNTS  TO  CRtOfT 

FIRST  HMTtONAL  DETROIT 

rVtUSTEL  SAVIMS  BANK 

CHICAGO  eXCHANCe          1 

IVmA  Lti**r 

Um 

m\ 

W,-<l5«'.w,U 

W.IHJmw*!* 

Clai 

H  >p"'+- 

W^r«wals 

n«i 

Wlli 

liraw«U 

twl 

A»^»uijH 

^ 

P» 

AccewfjiT 

^ 

tr 

:i.M 

Anl- 

[kM 

A^+ 

IteU 

3iM 

A-*- 

bW 

awJ  A^+- 

&I 

Form  16. 


A  separate  pay  roll  book  is  kept  for  the  E.  &  L.  R.  R.,  the  total  of  which  is 
charged  to  E.  &  L.  R.  R.  wages  account. 

The  merchandise  store  is  charged  with  all  purchases  and  expenses  and 
credited  with  all  sales.    A  statement  is  sent  to  the  general  office  at  the  end  of 


FIRST  NA-nONAL  BANK 

VINCmT  SALTI  LUMBER  Co[[)l56URSEI1ENTS  FOR 

ACCOUNTS  TO  CHMtfrE                1 

y 

Ck 

An+ 

^^ 

h 

IV,.U.t;  Pritr  of 

PtrtTcuUr* 

«ii«.y 

•1^ 

W.^ 

'•IP 

;.f«lUrrJL'<«' 

n„^VMimT 

jsUi 

t*. 

^ 

yi 

^ 

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^MV 

s5"-» 

CUM 

!rt^ 

^ 

N 

^ 

F« 

Acrt* 

Form  16A. 


each  month  containing  all  transactions  not  yet  recorded  in  the  general  books. 
The  difference  between  the  debit  and  credit  sides  together  with  inventory  will 
indicate  whether  it  is  run  at  a  loss  or  gain. 


THE  VINCENT  SALT  AND  LUMBER  CO 

MAMf 

n 

AODRE5<i 

i 

DATE 

MEMO 

FO 

• 

DEBITS 

CREtSITS 

• 

FO 

MEMO 

DATE 

BALANCE 

Form  18. 


The  private  ledger  (Form  19),  contains  all  accounts  excepting  accounts 
with  customers,  such  as  capital,  investment  accounts,  office  salaries,  accounts 
with  the  different  departments  of  the  business  and  accounts  showing  profit  and 
loss.  The  general  ledger  contains  only  customer  accounts,  the  loose  leaf  system 
being  used. — M^.  A.  H.  Steffens. 


923 


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ii  I 


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Amekran  Business  and  Accounting  Encyclopedia 


733 


The  following  system  has  been  used  in  a  large  factory  for  five  years  and 
found  very  satisfactory.  This  factory  has  four  large  mill  rooms  which  cut  an 
average  of  one  million  feet  of  lumber  per  month.  This  lumber  is  delivered  to 
each  of  these  departments  by  the  truck  load  and  each  department  is  charged 
daily  for  the  lumber  used. 

When  a  car  of  lumber  is  unloaded  it  is  entered  on  a  small  yellow  card, 
showing  date  received ;  car  initial ;  who  from ;  location  in  yard ;  and  everythmg 
]:)ertaining  to  that  car.  It  is  also  entered  on  a  large  white  card,  (only  date,  car 
number  and  amount  being  necessary  in  this  case,  as  this  card  acts  as  a  Control- 
ling account  to  the  small  card  which  is  the  individual  car  account). 

There  are  two  yards,  two  large  sheds,  two  large  coolers  into  which  the 
trucks  of  lumber  are  run  after  they  come  out  of  the  kiln,  and  eleven  dry  kilns. 
Evervthing  in  the  way  of  piles,  bins,  kilns  and  tracks  are  numbered.  The  yard 
is  laid  off  in  eight  rows  and  spaced  for  six  foot  piles.  The  pile  numbers  in  the 
first  rf)w  run  from  one  to  one  hundred,  the  second  row  from  101  to  200  and 

so  on. 

\\'lien  the  trucks  are  ready  to  go  in  the  kiln  a  tag  is  filled  out  and  tacked 
on,  which  shcnvs  the  date  ;  kiln  :  track  number ;  car  number  ;  and  amount.    This 


(T33j       LUMliElJ   INVENTORY, 

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American  Business  and  Accounting  Encyclopedia        733-734 


784 


American  Business  and  Accounting  Encyclopedia 


Lu. 


tag  has  a  coupon  attached  which  is  filled  out  and  is  numbered  the  same  as  the 
main  tag.  This  coupon  is  detached  and  entered  in  the  kiln  book,  which  is  num- 
bered consecutively,  each  coupon  being  entered  opposite  that  certain  number. 

When  a  truck  load  of  lumber  is  delivered  from  the  kiln  to  the  mill  the  tag 
is  pulled  oflF  the  truck.  The  department  that  received  it  is  marked  on  the  back 
and  it  is  turned  in  to  the  clerk  who  has  charge  of  the  yard  records. 

Every  morning  the?e  tags  are  entered  in  the  "  Delivery  Book  "  and  checked 
off  of  the  "  Kiln  Book."  By  looking  at  the  "  Kiln  Book  "  we  can  always  tell 
just  what  is  in  each  kiln  and  how  long  it  has  been  in  the  kiln.  By  entering  the 
Truck  No.  and  amount  out  of  the  "  Kiln  Book  "  onto  the  small  card  for  that 
certain  car,  as  shown  on  Car  92,049,  4-4  Ash  Is  and  2s,  as  submitted  herewith, 
and  checking  off  when  delivered,  we  can  always  tell  what  portion  of  that  car  is 
in  the  yard,  in  the  kiln,  or  been  delivered,  by  looking  at  the  card. 

From  the  "  Delivery  Book  "  the  charges  are  made  to  the  cards — the  items 
to  the  small  cards,  or  car  accounts,  and  the  total  amount  of  each  kind  of  lumber 
to  the  department  accounts  on  the  large  cards. 

At  the  end  of  each  month  the  large  cards  are  ruled  up,  and  from  these 
cards  we  take  the  monthly  report  which  shows  the  amount  on  hand  April  1st, 
the  amount  received  during  April,  the  amount  delivered  in  April  and  the 
amount  on  hand  iVlay  1st.  A  copy  of  this  report  is  sent  to  the  purchasing  agent 
and  this  report  guides  him  in  his  purchases. 

(734)     retail  lump>er  business  accounting. 

Retail  Lumber  with  Branches. 

Each  branch  will  make  detailed  daily  reports  to  main  office.  All  books  are 
kept  at  the  main  office,  and  all  financial  business,  excepting  current  receipts, 
is  done  at  the  main  office. 

Forms  will,  therefore,  be  provided  for  daily  report  under  the  heading  of 
Cypress,  Pine,  Gum,  Cedar,  Shingles,  Lath,  etc. 

Form  lA  illustrates  report  of  all  sales  of  cypress  lumber,  cash  or  credit. 
These  reports  are  made  in  duplicate,  carbon  copy  being  retained  by  the  branch. 
The  other  forms  of  report  are  made  up  in  the  same  manner. 

The  stock  report  at  the  bottom  of  the  sheet  affords  the  main  office  a  per- 
petual inventory  of  each  item  of  lumber  carried  in  the  several  branches.  One 
or  two  items  of  stock  in  each  yard  should  be  verified  by  actual  count  often 
enough  to  prove  that  the  reports  are  as  near  accurate  as  possible. 

Each  branch  would  keep  a  petty  cash  account,  and  expenditures  of  this 
nature  should  be  reported  weekly  to  the  main  office.    See  form  IH. 

Form  1,  cash  received  on  account,  is  a  report  of  receipts  to  be  forwarded 
each  day  to  main  office  accompanied  by  cash  to  balance,  as  indicated. 

Form  2,  main  office  recapitulation  of  sales,  is  ruled  to  accommodate  a 
record  of  fifteen  branches,  using  one  line  a  day.  This  recapitulation  affords 
record  of  number  of  feet  or  count  of  each  item  sold  each  day,  amounts  of 
same,  number  or  count  sold  of  each  branch  with  amounts,  together  with  total 

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of  all  sales  in  feet,  amount  of  cash  sales,  amount  of  sales  on  credit,  and  total 
sales.     Only  one  recapitulation  sheet  is  rec|uired  for  month. 

Forms  3  and  4,  pay  roll  and  workmen's  check  and  time  slip,  are  made 
weekly :  the  time  check  is  detached  at  docket  line,  the  numbered  end  going  to 
workmen  ;  the  other  portion  is  kept  by  foremen  of  yard  who  fills  in  time  each 
morning  and  afternoon.  The  week  is  understood  to  end  on  Thursday  and  men 
paid  on  Saturday.    The  workmen  receipt  time  checks  on  the  back  of  being  paid. 

When  reports:  from  branches  are  received  by  main  office,  cash  will  be 
charged  with  amount  of  cash  sales,  and  sales  account  credited;  customers 
charged  with  purchases  on  account,  and  sales  account  credited ;  as  it  will  not  l^e 
necessary  to  post  each  branch's  sales  daily,  the  recapitulation  affording  this 
information.  If  at  the  end  of  the  month  it  is  desired  to  wipe  out  the  general 
sales  account  entry  would  be  made  in  the  journal,  charging  general  sales 
account  and  crediting  each  branch  with  its  sales  for  the  month. — J.  T.  Riiark. 

(735)     MAIL  ORDER  BUSINESS  METHODS. 

Good  management  requires  a  few  rules,  but  their  enforcement  is  variable. 
1.     Fill  all  orders  promptly — the  same  day  as  received,  if  possible. 

Fill  all  orders  accurately.    Ask  customers  to  make  a  second  and  third 


Give  mail  order  customers  full  benefit  of  to-day's  prices. 

Return  all  money  sent  in  excess  of  purchase.     It  saves  book-keeping 


0-J8 


9 

/v. 

choice. 

3. 

4. 
expense. 

5.  Have  each  assistant  through  whose  hands  an  order  passes,  put  his  or 
her  stamp  on  it.    You  can  then  place  the  blame  in  case  of  error. 

6.  Keep  an  indexed  list  of  all  orders,  shipments  and  customers. 

7.  Notify  customers  of  the  manner  in  which,  and  the  date  on  which 
shipments  are  made. 

8.  Make  good  any  unsatis factor}-  purchase  that  you  would  make  to  an 
over-the-counter  customer. 

9.  In  all  advertising  matter  sent  out  quote  prices  and  give  the  amount  of 
postage,  expressage  or  freight  charges. 

10.  Give  a  set  of  these  rules  to  each  employe  in  your  mail  order  depart- 
ment, and  see  that  he  lives  up  to  them. 

One  way  to  cultivate  a  successful  mail  order  business  is  to  take  a  small 
area  of  territory  and  work  it  thoroughly.  To  take  a  large  territory  and  tr\-  to 
reach  everyone  at  once  is  a  waste  of  money.  The  best  plan  is  to  concentrate 
effort  and  repeat  it. 

It  is  necessary  to  keep  a  record  of  prospective  customers,  as  well  as  a 
record  of  transactions,  and  the  best  method  yet  devised  is  the  card  index. 

If  several  states  are  to  be  circularized  classify  the  card  index  bv  states 
and  counties. 

Circularize  prospects  regularly  and  persistently.  Spasmodic  circularizing  is 
usually  a  waste  of  money. 

For  convenient  and  efficient  follow-up  records  see  card  svstems. 

929 


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,  I 


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In  some  cases  it  will  be  considered  sufficient  to  classify  a  state  instead  of 
the  cities  of  a  state.    For  state  and  city  cards  different  colors  should  be  used. 
The  cards  for  recording  results  should  contain  information  as  follows: — 
Source  from  which  list  of  prospective  customers  has  been  obtained. 
Price  paid  for  same. 
Territor}^  covered. 
Number  of  letter.     Each  letter  should  bear  a  number  to  facilitate  future 

reference. 

Dates  of  letters  sent  to  prospective  customers. 
Record  of  replies  received. 

Cost  of  each  series  of  letters  to  prospective  customers. 
Total  cost  of  complete  series. 


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735-737        American  Business  and  Accounting  Encyclopedia  Ma. 

Record  of  orders  received  in  response  to  letters. 

Record  of  indirect  orders  which  cannot  be  traced  to  letters. 

General  remarks. 

(736)     MANIFEST. 

An  invoice,  this  term  being  commonly  used  in  connection  with  imported 
goods,  in  regard  to  which  there  are  certain  legal  requirements  to  be  complied 
with,  as  follows: 

1.  That  all  invoices  of  imported  merchandise  shall  be  made  out  in  the 
currency  of  the  place  or  country  from  whence  the  importations  shall  be  made, 
or  if  purchased  in  the  currency  actually  paid  therefor,  shall  contain  a  correct 
description  of  such  merchandise,  etc. 

2.  That  all  such  invoices,  shall  at  or  before  the  shipment  of  the  merchan- 
dise be  produced  to  the  consul,  vice-consul,  or  commercial  agent  of  the  I'nited 
States  of  the  consular  district  in  which  the  merchandise  was  manufactured  or 
purchased  as  the  case  may  be,  for  export  to  the  United  States,  and  shall  have 
indorsed  thereon,  when  so  produced,  a  declaration  signed  by  the  purchaser, 
manufacturer,  owner,  or  agent,  setting  forth  that  the  invoice  is  in  all  respects 
correct  and  true,  and  was  made  at  the  place  from  which  the  merchandise  is  to 
be  exported  to  the  United  States;  that  it  contains,  if  the  merchandise  is  to  be 
obtained  by  purchase,  a  true  and  full  statement  of  the  time  when,  the  place 
where,  the  person  from  whom  the  same  was  purchased,  and  the  actual  cost 
thereof,  and  of  all  charges  thereon,  as  provided  by  this  act ;  and  that  no  dis- 
counts, bounties,  or  drawbacks  are  contained  in  the  invoice,  but  such  as  have 
been  actually  allowed  thereon,  etc. 

3.  That  no  different  invoice  of  the  merchandise  mentioned  in  the  invoice 
so  produced  has  been  or  will  be  furnished  to  any  one. 

A  way  bill,  giving  itemized  description  of  goods  shipped  over  railroads, 
one  copy  of  which  accompanies  the  shipment,  the  other  being  forwarded  to 
the  general  office. 

(737)     MANUFACTURING  ACCOUNTS  AND  COST  RECORDS. 

There  is  no  recognized  universal  system  of  shop  accounting  and  those 
interested  should  therefore  study  the  best  points  in  all  systems  which  may  be 
brought  to  their  notice. 

The  following  program  is  intended  to  apply  in  an  ordinary  way  to  any  of 
following  sliops : 

Machine 

Boiler 

Blacksmith 

Pipe 

Carpenter 

Pattern 

Car  Repairs 

931 


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737 


Dot? 

Deliver  Materifll  To. 

CKor^e 

Descpiphb 


5H0P  ORDER 

J^O SS. Order  No.. 


pnon_ 


Operrffen   ijfor- 

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_  SKop.^ 

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Shop 

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DEPAFTTMENTS 


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Requisitions  for  work  to  be  done  by  the  shops  may  originate  from  any  part 
of  the  plant,  but  should  be  sent  direct  to  the  office  of  the  superintendent  of 
shops.  This  office  is  the  central  office  through  which  all  shop  orders  will  pass. 
There  should  be  a  clerk  in  each  shop  to  be  held  accountable  for  correct  records 
for  all  accounting  matters  pertaining  to  his  shop.    When  the  central  clerk  in  the 


93? 


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American  Business  and  Accounting  Encyclopedia 


Ma. 


office  of  the  superintendent  of  shops  receives  a  requisition  he  should  be  so 
familiar  with  shop  operations  as  to  be  able  to  issue  a  shop  order  (Form  1), 
otherwise  the  superintendent  of  shops  would  lose  valuable  time  giving  instruc- 
tions. 

If  the  requisition  requires  work  to  be  done  by  several  shops  before  it  is 
finished,  the  central  clerk  makes  one  original,  and  a  carbon  copy  for  each  of  the 
shops  affected.  It  will  be  noted  that  as  the  original  order  shows  each  shop,  and 
(describes  the  nature  of  work  to  be  done,  so  the  carbon  copy  will  show  the 
sartsie.  This  will  enable  each  shop  clerk  to  hold  his  order  to  await  the  arrival  of 
mat^ial  from  another  shop,  and,  besides  giving  instructions  for  work  to  be  done 
in  his  "tiepartment,  will  inform  him  what  he  is  to  do  when  his  shop  has  completed 
its  part  of  the  work.  The  order  being  made  out,  the  original  is  retained  by  the 
central  clerk,  and  the  carbons  distributed  to  the  respective  shop  clerks.  The 
shop  clerk  keeps  the  orders  properly  filed  for  quick  reference  for  the  shop 
foreman.  Every  workman  will  be  provided  with  a  job  ticket,  which  is  given 
him  each  morning  by  the  shop  clerk  and  returned  to  the  shop  clerk  before 
leaving  at  night.  These  tickets  should  be  printed  on  the  front  side  showing 
order  number,  kind  of  work  engaged  upon,  when  commenced,  when  left  off. 

On  the  reverse  side  will  be  shown  the  various  materials  used,  to  be  inserted 
at  the  time  deliveries  are  made  to  the  workmen,  for  account  of  the  job.  When- 
ever any  part  of  such  material  is  not  used  it  should  be  returned  to  the  store- 
keeper, or  any  other  disposal  reported  to  shop  clerk.  The  shop  may  carry 
certain  supplies  on  hand;  get  some  material  from  the  store-keeper  to  apply 
directly  on  jobs  and  may  work  up  certain  scrap  or  unused  material.  The 
shop  order  provides  for  this  information  on  its  reverse  side.  A  workman 
needing  material  for  a  job,  gets  a  store  requisition  from  the  shop  clerk,  which 
will  show  the  number  of  order  it  applies  against.  The  workman  takes  two 
copies  of  a  requisition  to  the  store-keeper,  gets  his  material  and  receipts  for  it. 
the  store-keeper  pricing  one  copy  which  is  returned  to  the  shop  clerk  for 
record.  At  the  end  of  the  month  the  store-keeper's  summary  of  issues  against 
this  department  is  sent  to  the  auditor  and  the  shop  clerk  makes  his  report  of 
supplies  received  which  should  correspond  with  the  store-keeper's  report. 
Realizing  this  check  the  shop  clerk  and  store-keeper  generally  compare  notes 
before  reports  are  sent  in. 

We  are  assuming  that  the  storehouse  is  centrally  located  so  that  materials 
can  be  had  quickly  by  any  of  the  shops,  and  thus  save  each  shop  from  carrying 
a  large  stock  of  supplies.  No  matter  how  convenient  the  storehouse  may  be  it 
will  be  found  to  advantage  for  each  shop  to  carry  a  certain  amount  of  supplies 
that  are  constantly  in  use,  and  in  such  cases  an  inventory  account  will  be  carried 
on  the  shop  ledger  as  supplies  on  hand.  The  shop  clerk  should  be  particular  to 
see  that  all  receipts  from  the  store-keeper,  where  such  materials  go  into  the 
stock  are  charged  to  stock  on  hand  and  not  against  job  orders  because  he  must 
report  all  materials  used  from  this  stock.  Unused  or  scrap  materials  will  be 
taken  care  of. 

In  charging  supplies  to  a  shop  order  number  where  they  have  been  received 
from  store-keeper,  the  entire  bill  will  be  charged  to  shop  orders.    If  the  unused 


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portion  is  of  any  consequence,  it  should  be  returned  to  store  and  credit  received. 
If  the  shortage  is  small  the  shop  orders  must  stand  it. 

Now  we  have  arranged  it  so  the  foreman  of  the  shop  can  make  a  showing 
for  himself.  All  labor  and  material  that  is  accounted  for  on  shop  orders  will  be 
charged  to  shop  orders  account  on  the  manufacturing  ledger.  All  labor  and 
material  that  cannot  be  applied  on  shop  orders  will  be  charged  to  shop  expense 
account.  This  account  is  classified  into  as  many  divisions  as  will  be  found  to 
advantage,  and  will  be  represented  by  account  numbers.  The  foreman  knows 
his  idle  time,  or  time  he  cannot  sell,  is  an  important  point  to  look  after,  he 
therefore  endeavors  to  work  on  to  each  job  as  much  of  this  as  possible,  but  he 
must  not  take  too  much  risk,  because  the  inspection  should  prevent  this ;  since 
every  completed  order  should  be  O.  K'd.  by  the  superintendent  of  shops,  and  as 
every  move  made  during  the  process  of  the  order  is  clearly  noted  on  the  orders, 
showing  the  workman's  name,  his  time  put  on  the  work,  amount  of  material 
used,  etc.  If  this  idle  time  is  overlooked,  comparison  with  the  records  on  a 
repeat  order  would  cause  trouble,  if  there  is  much  difference.  So  as  shop 
expense  is  the  figure  to  be  reduced  we  allow  the  foreman  to  show  what  scrap  he 
uses  which  will  apply  against  his  shop  expense.  He  must  show  this  correctly, 
because  there  is  a  check  against  materials  from  store  applying  on  shop  orders, 
and  his  materials  on  hand  would  develop  a  shortage  upon  verifying  inventory. 
As  soon  as  the  shop  clerk  completes  an  order,  he  records  a  full  history  of  it  in 
a  book  provided  for  that  purpose,  which  will  be  explained  later  on. 

The  time  of  shop  workmen  is  kept  by  the  shop  clerk  from  his  job  tickets, 
but  generally  a  regular  shop  time-keeper,  who  goes  around  to  all  the  shops, 
takes  the  time  also,  and  comparison  is  made  before  the  pay  roll  is  made  up. 
When  the  shop  clerk  gets  all  information  required  on  a  completed  order,  he 
sends  it  to  the  central  clerk,  who  in  turn  attaches  it  to  his  original  order,  and 
holds  it  until  all  departments  have  been  heard  from  and  the  article  delivered, 
then  the  original  order  is  ready  for  invoicing. 

Up  to  this  point  we  must  consider  what  the  shops  do  with  their  products, 
whether  used  for  supplying  other  departments  of  the  company,  or  for  outsiders. 
This  will  be  necessarj-  to  know  at  this  point,  because  the  invoicing  would 
change  to  meet  these  conditions,  for  instance,  we  have  the  exact  labor  and 
material  and  other  charges  on  a  Certain  order  direct,  but  there  is  the  shop 
expense  to  be  considered. 

We  are  possibly  just  starting  the  system  and  have  no  true  basis  of  arriving 
at  this  expense,  we  therefore  fix  a  certain  per  cent  that  we  would  consider 
fair,  which  we  set  up  on  the  manufacturing  ledger  as  provision  for  shops.  As 
mentioned  above  the  shop  order  is  ready  except  the  expense,  which  we  now  add 
per  percentage  agreed  upon.  The  total  charges  now  represent  the  exact  cost  of 
operation  as  near  as  we  can  get  at  it,  as  shop  expense  covers  all  items  of  repairs, 
maintenance,  and  depreciation.  If  the  article  delivered  goes  into  another  part 
of  the  plant,  we  want  the  exact  cost  to  follow,  as  we  do  not  desire  to  make  a 
profit  on  ourselves.  If  the  article  goes  outside  there  will  be  a  fixed  price  for 
the  work  or  recognized  per  cent  added  for  profit. 


»34 


The  form  of  invoicing  changes  here  to  meet  these  conditions.  For 
deliveries  on  the  plant  a  memorandum  invoice  may  be  used,  on  which  it  would 
be  well  that  the  cost  of  the  article  be  shown,  an  invoice  delivered  to  foreman 
of  the  department  for  approval,  as  to  price  charged,  and  receipt  of  article,  and 
this  bill  sent  to  the  auditor  for  record.  For  deliveries  outside  a  different  invoice 
can  be  used,  which  would  not  contain  as  much  information  as  deliveries  within 
the  plant.  The  central  clerk  reporting  to  the  auditor  at  the  end  of  the  month 
for  completed  orders  on  deliveries  made,  shows  shop  department's  actual 
time  which  agrees  with  pay  roll,  actual  supplies  used,  whether  credit  be  given 
store,  stock  on  hand,  or  unused  material  and  percentage  for  shop  expense,  and 
profit  on  outside  work.  Shop  orders  account  will  be  charged  with  labor  appear- 
ing on  job  ticket  which  apply  on  shop  orders  only,  also  supplies  used  on  shop 
orders  as  reported  by  shop  clerk. 

Credit  to  this  account  will  be  made  from  report  of  central  clerk  for  com- 
pleted orders  invoiced.  Balance  of  this  account  represents  orders  in  process 
and  is  carried  as  an  asset.  Having  an  acount  with  each  shop  it  can  be  verified 
by  checking  over  shop  orders  in  hands  of  shop  clerk  which  should  show 
every  day's  time  and  material  charged  on  each  order.  Shop  expense  will  be 
closed  into  provision  for  shops  account.  The  latter  should  about  balance,  and 
if  there  is  too  much  discrepancy,  adjustment  in  percentage  can  be  made  until 
an  approximate  balance  is  reached. 

In  many  manufacturing  plants  where  the  shops  are  used  for  the  benefit 
of  the  plant,  it  is  sometimes  the  rule  to  ascertain  the  entire  labor  of  the  shops 
according  to  the  pay  roll,  and  after  adding  supplies  delivered,  regardless  of 
inventory  of  what  materials  may  be  on  hand,  to  take  the  total  expense  and 
distribute  it  over  the  several  producing  departments  of  the  plant  on  a  percentage 
basis,  thus  entirely  wiping  out  shop  expense. 

After  a  department  receives  its  percentage  distribution,  the  amount  must 
be  further  distributed  over  the  several  cost  sheets  for  articles  that  department 
produces.  This  action  causes  trouble  when  comparisons  are  made  monthly, 
and  to  a  greater  extent,  when  comparing  between  a  competitor's  cost  and  your 
own,  when  you  are  endeavoring  to  locate  the  weak  points.  The  department 
costs  should  be  chargeable  each  month  with  only  what  materials  have  been 
received,  and  the  plan  outlined  here  will  do  it.  The  former  method  always 
permitted  a  loophole  for  a  foreman  to  crawl  out  of  when  brought  to 
task  for  his  high  costs,  while  the  latter  shows  his  true  operations ;  gives  him  an 
opportunity  to  complain  of  excessive  charges  for  work  performed  by  the  shops, 
by  appealing  to  the  superintendent,  the  latter  being  in  position  immediately  to 
trace  every  movement  through  the  shop  process  and  correct  his  charge  if  neces- 
sary. 

about  defective  work. 

Defective  castings  or  other  parts  can  be  rejected  by  superintendents  and  the 
amount  charged  back  to  the  shop.  There  should  be  an  account  number  given 
defective  work  under  shop  expense,  the  amount  increasing  the  expense,  and  at 

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the  same  time  bringing  these  complaints  promptly  to  the  superintendent.  A 
shop  foreman  does  not  want  to  increase  his  expense  and  will  try  to  prevent 
many  charges  against  this  account,  especially  when  he  knows  they  will  be  seen. 
While  this  system  is  beneficial  to  a  department  superintendent,  it  is  equally  so 
to  the  shop  foreman,  who  has  an  opportunity  to  make  a  good  showing  for  him- 
self. His  shop  expense  must  be  decreased  if  possible,  and  he  therefore  will 
strive  hard  to  get  the  best  results  out  of  his  men,  so  his  idle  time  will  decrease, 
by  working  his  men  on  as  many  shop  orders  as  possible,  also  by  working  up  his 
unused  material  and  reduce  his  purchases  from  the  store.  A  foreman  can  call 
upon  a  workman  at  any  time,  and  ask  to  see  his  job  tickets  to  ascertain  whether 
he  is  employed  upon  a  job  order  and  if  so  whether  he  is  really  working  on 
that  particular  order. 

Foundry  ig  not  classified  among  the  shop  group,  but  at  the  same  time  it  is 
considered  to  the  extent  that  castings  would  start  from  the  foundry,  therefore 
the  shop  order  would  go  to  the  foundry  as  well  as  to  other  shops  affected  by  the 
order.  On  account  of  the  foundry  being  in  the  class  of  producing  departments, 
it  will  have  its  own  clerk  and  accounting  records,  which  will  not  fit  in  with  the 
shop  plan.  Foundry  costs  being  generally  ascertained  each  month,  it  will  readily 
be  seen  that  it  would  be  almost  impossible  to  get  daily  costs  for  shop  work 
turned  out :  therefore,  as  soon  as  deliveries  are  made  the  shop  order  is  sent  to 
the  central  clerk,  who  has  been  given  an  arbitrary  price  to  use  for  the  month, 
generally  based  on  previous  month's  costs.  It  stands  in  the  same  relation  to 
shops  as  the  storehouse,  which  sells  its  goods  for  a  price,  and  so  does  the 

foundry. 

In  order  to  keep  the  accounting  process  in  one  channel  which  always  pre- 
vents more  or  less  complication,  there  are  many  instances  where  materials  pro- 
duced on  the  plant  are  used  by  the  shops,  who  could  order  them  from  the 
department  direct ;  but  in  such  cases  it  has  been  found  better  to  order  all  sup- 
plies through  the  store-keeper.  The  store-keeper  is  receiving  goods  from  all 
sources,  and  his  records  are  provided  to  take  care  of  it,  while  with  a  shop  it  is 
much  better  to  check  supplies  received  through  one  channel. 

A  shop  order  may  call  for  quite  a  number  of  pieces,  and  in  the  process  it 
may  be  an  advantage  to  pass  a  portion  of  them  along  to  the  next  shop  as  soon 
as  finished,  and  not  wait  for  completion  of  the  order,  which  would  help  the 
next  shop  to  keep  busy.  For  such  cases  there  should  be  provided  a  transient 
order  with  practically  the  same  information  as  the  shop  order,  except  at  the 
bottom  a  space  should  be  provided  for :    .        . 

PARTIAL    DELIVERIES. 

Name  of  article  

Received  by 

Final  receipt 

This  is  held  and  attached  to  shop  order,  held  by  shop  clerk  until  the  last 
delivery  is  made,  when  this  blank  is  receipted  opposite  final  receipt,  attached  to 
shop  order  and  sent  to  central  clerk. 

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Each  shop  clerk  keeps  a  general  account,  the  balance  of  which  represents 
his  jobs  in  process.  He  must  have  a  balance  to  start  with,  which  is  obtained 
by  ascertaining  the  amount  of  jobs  in  process  the  first  of  the  month  and  starting 
job  orders  for  same.  If  all  labor  and  material  charged  against  these  jobs  were 
charged  off  the  previous  month,  then  no  further  record  need  be  taken,  only  for 
such  labor  and  material  charged  after  the  system  was  placed  in  operation.  To 
this  balance  the  shop  clerk  adds,  per  his  monthly  report  to  the  auditor,  supplies 
received  from  store-keeper  and  charged  on  his  job  orders ;  supplies  used  from 
stock  on  hand  in  shop ;  material  used  out  of  scrap ;  labor  per  his  pay  roll  distri- 
bution, and  any  miscellaneous  charges  that  may  appear.  He  credits  this 
account  with  amount  of  completed  orders  sent  to  the  central  clerk,  being  a 
summary  of  his  daily  reports.  An  account  will  be  kept  with  the  central  clerk, 
who  is  charged  with  the  completed  orders  from  each  shop  and  credited  with 
the  invoicing  to  departments  and  outsiders.  The  balance  represents  the  amount 
of  process  work  in  his  hands. 

The  shop  clerk  also  keeps  an  account  with  the  inventory  of  supplies  on 
hand,  and  any  other  special  account  pertaining  to  work  done  in  his  particular 
shop.  He  also  keeps  an  expense  account  of  his  shop,  and  for  such  entries  as  do 
not  originate  in  his  shop,  debit  or  credit  memos,  may  be  sent  to  him  by  the 
auditor.  This  will  help  to  get  a  quick  check  on  all  accounts  promptly  at  end 
of  the  month.  We  have  endeavored  to  show  here  that  every  report  is  counter 
checked  by  another,  and  it  has  been  proven  that  where  this  check  exists, 
employes  usually  verify  their  work  several  times  during  the  month,  as  other- 
wise many  errors  being  made  would  have  tendency  to  injure  their  reputation. 
The  shop  clerk  also  keeps  a  record  of  his  job  orders  received  as  follows  : 

JOB  ORDER  RECORD. 

The  orders  are  written  in  this  record  as  soon  as  received  from  the  central 
clerk  numerically,  but  as  these  numbers  do  not  run  consecutively,  the  shop  may 
use  its  own  number  also,  although  this  has  not  been  found  to  be  of  any  great 
advantage.  As  soon  as  an  order  is  completed  and  delivered  the  order  is  sent  to 
the  central  clerk  and,  as  explained  before,  all  detailed  information  being  in  same, 
the  shop  clerk  enters  the  results  in  his  job  record.  All  entries  open  show  jobs  in 
process,  for  which  job  orders  should  be  in  his  hands.  This  can  be  verified  by 
the  auditor's  representative  at  any  time. 

As  previously  explained,  there  will  be  an  account  kept  with  shop  expense 
and  provision  for  each  shop.  The  percentage  agreed  upon  to  cover  shop 
expense,  will  be  used  in  creating  the  provision  for  shop  account  bv  com- 
puting it  upon  the  basis  of  labor  charged  to  job  orders  for  the  month.  This 
amount  will  be  charged  to  provision  for  shop  and  credited  to  shop  expense. 

It  will  now  be  seen  each  month  whether  the  percentage  used  is  sufficient 
to  cover  the  shop  expense,  and  if  not,  the  rate  should  be  changed  until  it  does. 
This  change  should  not  be  made  except  at  the  first  of  the  month. 

Provision  for  shop  account  is  now  an  asset,  showing  that  this  provision  is 
tied  up  in  process  work,  and  will  receive  credit  as  soon  as  work  is  completed 

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and  invoiced.  After  credit  has  been  given  for  completed  work  each  month, 
the  balance  can  be  verified  with  the  amount  of  labor  noted  on  process  order 
in  hands  of  shop  clerks,  and  each  shop's  completed  orders  in  hands  of  central 
clerk  not  invoiced.  If  the  rate  is  changed  this  balance  must  be  adjusted 
between  shop  expense  and  provision  for  shops,  and  all  invoicing  must  take  the 
new  rate  from  the  first  of  the  month. 

We  have  now  covered  the  process  of  accounting  matters  through  the  shops 
in  a  general  way,  omitting  many  minor  details,  essential  in  order  to  have  such 
a  system  work  smoothly,  which  all  depends  upon  the  conditions  surrounding 
the  plant.  The  system  for  time-keeping,  office  records,  filing  of  orders  in  central 
clerk's  office  for  quick  reference  in  comparing  costs,  etc.,  can  all  be  adjusted  to 
meet  the  conditions  and  peculiarity  of  those  in  charge. 

In  the  construction  of  an  accounting  system,  especially  with  large  plants, 
one  should  endeavor  to  avoid  complication,  and  have  perfect  freedom  in  action. 
Every  avenue  should  work  as  independently  as  possible,  but  all  tend  to  one 
central  point.  The  plan  should  not  admit  of  the  possibility  of  one  employe 
stopping  the  entire  machinery,  or  several  employes  being  obliged  to  wait  upon 
one.  If  every  move  is  independent,  the  work  progresses  rapidly,  and  in  the 
event  of  weakness  the  remedy  can  be  applied  without  injury  to  the  whole 
system. 

The  system' outlined  here  may  not  be  adjusted  to  every  condition,  but  it  is 
now  in  successful  operation,  and  some  of  its  features  may  appeal  to  those 
having  unsatisfactor>^  results  at  the  present  time,  and  be  of  benefit  to  those 
who  at  some  future  time  may  have  occasion  to  deal  with  the  subject. 


(738)     POINTERS  FOR  THE  COST  ACCOUNTANT. 

The  cost  ledger  should  be  sectionalized,  one  section  designed  to  show  any 
detailed  charges  to  the  power,  light,  rent,  tool,  sundry  and  fixed  charges  accounts 
The  second  section  shows  the  labor,  material  and  expense  charged  on  jobs. 

The  stores  room  ledger  is,  of  course,  a  separate  record  provided  for  a 
perpetual  inventory  of  raw  material,  supplies  and  tools  and  finished  goods. 

Forms  of  production  orders,  requisitions  for  supplies,  perpetual  inventories, 
time  tickets,  tool  cards,  etc.,  are  generally  arranged  on  the  same  order  with 
variations  according  to  the  particular  conditions  of  the  business. 

Comparative  statements  of  the  charges  to  the  various  expense  accounts 
can  be  made  quarterly  which  will  show  just  where  the  increase  or  decrease  in 
expenses  lies.  By  this  method  facts  are  ascertained  which  make  it  possible  to 
scientifically  reduce  costs  of  manufacture.  Only  as  a  cost  system  aids  in 
lowering  costs  of  production  so  that  selling  prices  can  be  intelligently  fixed  to 
meet  competition  is  it  justified  in  deserving  adoption.  That  the  system  herein 
outlined  contains  the  essential  principles  of  a  cost  system  adapted  to  a  manu- 
facturing works  has  been  proven  by  a  thorough  test. 


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In 


Table  1. 

Table  2. 

Table  1. 

Table  2. 

Nominal 
Life. 

Working 
Life.. 

Rate  on 
Original 
Cost  or 
Values. 

Rate  on 

Diminishing 

Values. 

Nominal 
Life. 

Working 
Life. 

Rate  on 
Original 
Cost  or 
Values. 

Rate  on 

Diminishing 

Values. 

Years. 

Years. 

Per  cent 

Per  cent. 

Years. 

Years. 

Per  cent 

Per  cent 

100 

90 

1 

2-526 

12-5 

11-25 

8 

18-508 

80 

72 

li 

3-147 

11-764 

10-588 

H 

19-455 

66-6 

60 

n 

3-765 

11-1 

10 

9 

20-560 

57142 

51-427 

If 

4-379 

10 

9 

10 

22-574 

50 

45 

2 

4-988 

9-09 

8 -is 

11 

24-530 

44-4 

40 

H 

5-590 

8-3 

7-5 

12 

26-436 

40 

36 

H 

6-196 

8 

7-2 

124 

27-371 

36-36 

32-724 

n 

6-794 

7-692 

6-923 

13 

28-294 

33-3 

30 

3 

7-388 

7-143 

6-428 

14 

30-107 

30-769 

27-692 

3i 

7-979 

6-6 

6 

15 

31-871 

28-571 

25-714 

H 

8-565 

6-25 

5-625 

16 

33-592 

26-6 

24 

3f 

9-148 

5-882 

5-294 

17 

35.270 

25 

22-5 

4 

9-728 

5-714 

5143 

174 

36  091 

23-529 

21-176 

H 

10-303 

5-5 

5 

18 

36-900 

^2-25 

20 

4 

10-873 

5-263 

4-736 

19 

38-503 

20 

18 

5 

12-008 

5 

4-5 

20 

40  052 

18 -is 

16-363 

^ 

13-126 

4-762 

4-286 

21 

41-564 

16-6 

15 

6 

14-230 

4-54 

4-091 

22 

43  041 

15-384 

13-846 

6J 

15-321 

4-348 

3-913 

23 

44-481 

14-286 

12-857 

7 

16-397 

4-16 

3-750 

24 

45-883 

13-3 

12 

n 

17-460 

4 

3-600 

25 

47-250 

The  residual  value  under  both  tables  is  exactly  10  ] 

per  cent. 

reciation  tables. 


(739)    classification  of  plant  charges. 

The  proper  classification  of  the  charges  to  the  plant  accounts  is  recognized 
as  of  considerable  importance  in.  a  system  of  factory  cost  accounting.    Values 


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of  a  tangible  nature,  grounds,  buildings,  permanent  fixtures,  machinery,  small 
tools,  patterns  and  shop  fixtures  come  under  this  head.  The  distinction 
between  the  plant  accounts  is  oftentimes  a  very  fine  one,  and  great  care  must 
be  exercised  when  classifying  the  entries  to  these  accounts.  Depreciation  and 
the  disposition  of  any  expense  which  may  be  incurred  in  connection  with  an 
article  are  the  factors  which  largely  determine  its  classification.  Since  these 
factors  vary  it  is  impossible  to  give  any  concise  definition  without  a  long  list 
of  exceptions. 

(740)       FACTORY  DEPRECIATION. 

The  depreciation  accounts  are  best  treated  as  reserves  and  are  originated 
by  journal  entries.  The  consensus  of  opinion  of  factory  accountants  is  that  it 
is  the  best  practice  to  write  off  depreciation  on  diminishing  values  after  taking 
into  account  the  longevity  and  obsolescence  of  various  parts  of  the  plant. 
This  method  always  leaves  a  residual  value  and  provides  for  writing  off  more 
depreciation  at  the  beginning  of  the  life  of  the  plant  than  at  the  end. 

(T41)       FACTORY    CAPACITY. 

Danger  of  wasted  labor  and  material  are  known  and  the  importance  of 
safeguards  against  such  waste  is  pretty  generally  appreciated.  All  this  is 
to  be  remembered  when  we  come  to  the  accounting  for  factory  capacity. 
Conditions  existing  in  relation  to  the  economical  utilization  of  labor  are  inten- 
sified in  relation  to  the  economical  utilization  of  factory  capacity.  In  regard 
to  the  last  standards  of  economy  are  less  simple,  are  less  generally  appreciated, 
and  less  strictly  enforced.  Between  the  means  ordinarily  used  in  business  man- 
agement and  in  cost  accounts  to  watch  the  utilization  of  factory  capacity  and  to 
deal  with  it  in  the  cost  accounts,  and  a  strict  accounting  for  factory  capacity 
there  is  the  same  distinction  that  exists  between  estimates  and  strict  accounts 
for  material  and  labor,  that  is,  the  strict  accounting  furnishes  means  of  con- 
trol which  the  other  does  not. 

It  is  to  show  exactly  what  factor}-  capacity  is  utilized  and  what  the  result- 
ing loss  is,  that  the  accounting  for  factory  capacity  is  set  up. 

(743)       FACTORY  EXPENSE. 

In  one  large  manufacturing  establishment  there  are  48  manufacturing 
departments  and  37  distinctive  classes  of  machines  used  in  the  varied  operations 
which  result  in  a  monthly  output  of  '2,000  finished  appliances.  In  this  establish- 
ment the  factory  expense  is  divided  into  four  main  classes  as  follows : 

1.  Machine  expense  is  expense  incurred  in  the  regular  manufacture  of 

goods. 

2.  Special  department  expense  is  expense  incurred  in  connection  with 
special  manufacture  of  such  a  nature  as  to  require  or  warrant  special  investi- 
o-ation  of  a  routine  nature,  different  methods  of  disposing  of  burden  in  costs, 
etc. 

940 


Drawinp  No.                                            Pattern  No.                                                Material 

Article                                                                                                                IMO.     ISA  A 

Oneration  No.                                      Name                                  ...^^ _ . 

E^lmated  lime                                                                                                                                            

reauired                                                                                                                                

n,A^^  M«     i    Material 
order  No.    ,  ^^^  ^^ 

^^.s      "no'"              >«•--  °f "»"                  Hours''"":Min.,.es     V^r%     '-^^^  ^-»       ^"k^-cu  I.l  v  | 

i 

i                                        ; 

1          ' 

' 

!                                    1 

1 

[                    1 

!                                      I 

! 

;                      '                   i       ■                        ' 

1 

1         i       ! 

1 i                   ■ 

r                  :                 i       : 

i 

I           :        i        1 

:         '              ! 

r  \ 

!                   1 

1 

\    )       ,      '     >        1        I 

11                           11 

MACHINE   RECORD. 

3.  ^laterial  expense  is  expense  incurred  in  connection  with  purchasing, 
handling  and  storing  material  both  raw  and  in  the  process  of  manufacture. 

4.  Store  expense  is  expense  incurred  by  the  shop  organization  on  account 
of  the  store  as  merchandise  drafting,  etc.,  which  is  transferred  periodically  to 
store  expense. 

The  hand  book  of  shop  expense  classifications  gives  a  complete  list  of 
classifications  and  the  grouping  of  them. 

(743)       MANIFOLD    SHOP    ORDERS. 

The  sets  of  blanks  here  shown  constitute  an  invoice  or  bill,  an  office  record 
and  charge  sheet,  a  stock-keeper's  order,  a  packer's  order,  an  acknowledgment 
of  order,  a  packer's  report,  a  cost  record  sheet  and  a  provision  for  a  copy  of 
the  packer's  report  on  the  back  of  one  of  the  sheets. 

All  seven  sheets  are  written  at  one  insertion  in  the  cylinder  typewriter 
(with  an  extra  long  carriage)  with  a  sheet  of  carbon  paper  between  each 
two  successive  sheets. 

(745)   FACTORY  STOCK  RECORDS. 

For  all  ordinary  stocks  of  goods  and  for  factories  especially,  the  card 
shown  in  Form  1  will  answer  the  requirements.  It  will  be  noticed  that  one 
card  is  used  for  each  article  in  stock,  and  these  cards  are  filed  between  guide 
cards  on  which  are  written  the  indexes  separating  the  different  classes  of 
material.  The  cards  of  a  given  class  are  arranged  according  to  the  name  of 
the  article,  the  size  or  the  stock  number,  as  may  best  meet  the  requirements 
of  the  business. 

941 


mil 


I 


S 


Ma. 


American  Business  and  Accounting  Encyclopedia 


745 


^cr«e.Q  Order 


>5crce9  Ord«r5«t 
lij»tpi)ctioO* 


■  ■■ -t.il..  n 


Order  No F.leNa. 

OrxlerBattd 


.5toci<^t(cftp<r»  OrJer       ; 


Order  No 

Order  Datad 


Office  "Record 
File  No ■  Fol.o VborKepfJo.. 


K05TER  MAlNDFACT2}T^tN6  CO. 


5cr,«,0rJ.rSet  |   ^^^^  ^^ ^^^^  ^^_ 


>  voice/ 


la9ifri}d'roi]3 


Shif)wi'H^'Hjis 


Orderliated 


Yovl^e^Ho.. 


I 


KOSTER  nANi)FACT2)I^i  NQ  Cq 

INDIANAP0II5,1ND       Te...y-.»biy 

Sold  tb  2'^oioiiay5,3orf/soer 

^.  .  fo.B.  M'mnepd'ihi. 


•  jQi»a.|r.1y  STocI^ 


I 


i 


Rnijl 


A. 


FrorM  or  Filled 


Color  of  Filling 


Prict 


Ai»Y)Ortt 


manifold  shop  order. 


042 


745 


American  Business  and  Accounting  Encyclopedia 


Ma. 


R^RCMASL     REC5z;i3lTlON 
Drift No.  _ 


o  Ike  F^r(,\jM\rjb  Depit 

PIpflie  orde<-  IKe 
(lelloMrioe    poocU    '^     be    sKipp^J  _ 


Dot?  Ordered. 

FVic* 

Ternv* 


S.WJ 
Mpproved  . 


Forrvl 


STOCK   REQUISITION 

Oflte Re<).  No 

ToStorekeepe''  Oy OeptNo. 


M«t«i 


(rial 


Ql7on. 


Pew'^S 


f>i( 


Aivi^nl 


LF. 


Drife 


ntcEivto 


Qtt'9 


f?ice|A'^t 


PR. 


M<f1>riol 

Min.5tepd«. 


.Qrnie 

.Mo,.  Stock. 


-Site. 


.R,rt  No.  _ 
.  Dnowinft  No.. 


D1SI5VR5EMENTS 


Drit* 


Qikp. 


rriw 


Ar\t 


R«por1r  o^ 
FTniahed  Rirts   delivered  +o  Stock 


Dale. 


'  T5  Coat  Dcfjt: 

W«  have   received  1ki>   dov 
1lj»  follow  inp  ^inisKfd  Jvirt» 

StSrtkffprr 


\)A 


Qtffl?. 


ftrt 
NS:. 


De»cr"iptloi) 


Oritr 


:a± 


iSlA-vt 


L.F 


Enplo^Pes  Weelcl 

Dnte 

Nn«\f 


Crd 


tryp.  Nie.. 
Opt  Nc. 


Monday 


"Ttfcadoy 


Wpdi)f»d«Y 


"Tl)tf».acloy 


Pridoy 


Sfltpi^i 


L 


F»rnv 


Ir^     Oi/f   Ir^     Otft 


K««p  1fc»   cord   wits    WOrK 

WORK  TICKET 

CK«r6»  •tTiyti   OnJrr-No. 

Pl«i»»    orciA  Hfr  f»llo«riy» 
ind  '•tirrB  •+  one*  1i  Intprcll'p  Df  p'T 


q«*9. 1  "^'s.' 


MoJNo. 


Opfi*ritToij 


ititTon 


No.^«  rrc'J. 


N«  piv  rpifcWel  J 

N*  |K«  rrl'J  (sr  .■rfi«<'*« 


Cori^^ 


l^t^«'c'T»r- 


PR 


Dntf 


Q»>r 


Foi-F  1. 


Anyt, 


PR 


Dote 


Q»y 


B« 


AKt 


PR 


ISALANtt 


DbTr 


^2  ^  Ai^ 


Dole  of  Order- 

Model n«.e  No. . 

Mnter'm  1 


Order  No. 


.Dm% 


'")(- 


.  Ro2?fin6 
Def.4L 


M4tfrt«t 


\i«.v 


Ai^ 


^ 


Labor   D'rtseCtToi) 


DA 


Uhr 


Ovf*  t)»1»   Libci- 


Ei^ployres  Job 
"TTr^e    Cffrd 

>Jte_ 


ObfiirtlSo. 
No  Pts.l 


.Er\p  No. 

OKfcrNo._ 


13  ••Of 


^^ 


Qi/i'^ 


B>^yry 


Qi/i-t- 


otol   Hci/rs  Forry  7 


ivy 


0<wi 


^ 


C^ 


Utw 


Qrrr 


HARV 


MdJR'iflrrssi 
Cr. 

^Wfr^hl  Refd.. 

Troij». 
ToOnder»l_ 
Tcftel  Molh-i'al. 


Labor 

Oyifrljeod., 

Mi»c.  t»»d''H 

KWtCo»1- 
K »**— 

r"oM»\g~ 


3;«t  No. Opt  Na. 


.D.1?_ 


Er^fnd 


No. 


loclR^  [«7dPid>t  Dt»» 


H«. 


A^t 


H-s 


Ar^ 


Hr.A^t'^,9 


Df  Ji;«^9> 


Fio-^  <& 


Hf»y 


AfttiMi 


Nf-t- 


Model_ 
M«1$f<«l . 


Dfft  ojiOrdrr. 
_Rece  No. 


'")? 


No 


Odrr  No- 

-Rotftir 


:■?. 


.PROGRESS      IN       TACTORV 


Dp|i-|-No 


Opef. 


OU 


Oi^T^  Oftr. 


IVptNo 


IXft 


Otft 


dk= 


Debt  No 


oi» 


Oirf 


^ 


Dfpt-.  No 


Oib' 


Oi^ 


PCS.OiSCAR«D 


DrptNo. 


For 


«^lo 


Fkv 


Dr. 


DEPARTMENTAL.        ACCOUNT      MO. 


Cr. 


(♦wdwclVvf  Labor 


Dot? 


fllrfrt»l«r» 


LF, 


2^p>vd 
Labor 


Oept 

StfppIlM 


Srrvicfs 


Kr 


Cr<)  Work! 
•7» 


Svi^ri 


T.r.i 


l5«iAI>C< 


Oifr 


BAtsWs  PR  A.^■^: 


SAMPLE    manufacturing    FORMS. 


943 


i 


i  ■ 


t 


i* 


Ma. 


American  Business  and  Accounting  Encyclopedia 


(r44)     COST  CARDS. 


744 


Sm.« 

Sri. us  AT  1 

DKSCmPTION   OF   l.PI»F.I«S                                                 | 

DESCRIPTION   OF   IPPF:RS 

I.MIOK 

Upper  Leather 

i                              Bru't  forward 

1            {'          .         .                               1               1 

VamDs 

Ouartefs 

tj  Buckles 

1          "  LiniiiES  S:  Trinr             '                1 

1    I^ces  or  RiblMins 

,  Mock  hiuiiig 

1 

1  atM 

1 

Filling  Room               1             [ 

1 

ii  BottominK  Room       |            | 

1 

I               Sliippiiig  Room          1            1               1 

Lace  Slav                       • 

; 

1 

l.inin? 

1 

1                              1      ;        1 

Interliainie 

Butt.  Lining                  i 

BOTTOM  STOCK                    1 

Total  Cost 

1 

■^^^^ 

Tonzue  Lining 

1 

Oatsoles 

r  Ippers 

._ 

-  Button  Stav 

GorinK 

Inioles 

Bottom  Slock 

1 

CriniDiii?                         t             '. 

Counters 

I            ii  Thread  &  FindinKs    '            | 

c».i*  1  ;«;na 

1            1           ■  HttU 

1            '    Cartons         Cases 

■^■_>^ 

!           1  Top  Pieces                                   ! 

1    Com,             Disc. 

i 

■"■■■■■■" 

Pv»l»tft 

Sole  Lea.  Boxes 

Loss  and  Depreciafn 

1 

^^^■^ 

1            1            i  Turn  Shanks 

1            "  Expense        Office      |             i                | 

^^^^ 

Silk  &  TtarcMl 

u... 

,j    Expense  Factory 

' 

* 

Web 

— 

i        y^^         CorkPilline     ! 

leasts  and  Piitterns 

{              )                        Total          _ 

j            1                             Total 

1 

■^"^" 

\                                '       '                             1        1 

\ 

1 

^^ 1 

ToUl       1 

1,   M                                                 i_l 

MANUFACTURE   OF    SHOES. 


^TUO^  /^/?OM  No. 


TO  //O 


/iOi/£ri£n  7s 


Brass 


Bra^ss  7~c/g£: 


Rj,AT£. 


f^ffi»£. 


Ff^or^y^ ' 


B^/9^S 


3/9C/K-S  R£/90y  TV  /eOi.1. 1  %f^^^ 
^T-O/VJ^ 


Roj-J^ttiCi  t/>1 


P£K  c;/^oss  SCT  or  3 


/f/^oa/vT  /^o/^yy/f^o 


^£:TT-/tiG  ^TOM£. 


^£TT/^Ci<5 


Bu^rff'SH/iyG 


f^OJ~/'Sf^f/>fCr 


Co^Qf^/r>fQ 


Tqtal, 


944 


(44 


American  Business  and  Accounting  Encyclopedia 


Ma. 


Co  I.  JL  /9/^  Burro  rvs  r/^on  rvo                 ro  No                       /=>£^  g/^oss 

Posrs  f^£/ioy 

AMoarrT  ^o/^yr/f/^o 

^O/i   TOf=» 

F^Af^j. 

Tof^ 

3/9  ASS 

L  Pd./9T£: 

^TOf>l£. 

Cur  i9rvo   />/?Ayy  TOf 

^l/y£:OCr/^Gi     //>/    /=*£A^J_ 

^^^.riGS  {%^l^ 

Roj^i.  o/v  -ro/=> 

F^oj^/^m 

>SM/iO£ 

Smo£ 

P                                          ro  TA  L. 

V 


MANUFACTURE  OF  COLLAR  BUTTONS  AND  STUDS   Kji  \ . 


/ 


X 


COST          date""^***                   for                                No.    \A(%%\ 

OIMKNSIOMS  or    ARTICLES 

.RON                                              LBS.     (":                      f        —                         -    =        STOCKS 

Inumbcr. 

COST 

LABOt«  I      FACTOR y 

-r            \             COST 

SUMMARY 

FORGING                                                    ! 

1 

FACTORY  COST 

FORCING                         1 

i 

EXPENSE  « 

ANNEALING                                             j 

COST 

PRKSSWORK              j                         j 

PROFIT^ 

CMERYWORK            |                         { 

SELLING  PRICE 

HARO'GTCMP-G 

1 

HARD'GTEMP'G 

STRAIGHTENING 

STRAIGHTENING 

RACE 

PACE                               j 

•CVEL                              1 

POLISH                            1                         ! 

1 

DRILL 

■ 

LATHE 

PLANER 

f     \ 

FIGURED 

VISE 

1 

{        1            ' 

TEMPLET 

I       / 

_\    (1_ 

1 

. 

:   ■ 

iz: 

STOCK   1 

COST 

TOOL   MANUFACTURING   COSTS. 


945 


Ma. 


American  Business  and  Accounting  Encyclopedia        744-745 


745-746        American  Business  and  Accounting  Encyclopedia 


Ma. 


,.,  No.  187 /^ 


Des/GN  MaD£  tSEf^r-   /?£T£>     JE^r/rf^Tsa 


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A//v/;5"/y 


Tf?/n 


Uf=>M. 


i 


FfftrtE:  COS7- 


FURNITURE  MANUFACTURING  COSTS. 


Referring  to  the  form  on  the  card,  across  the  top  we  find  the  name  of 
the  article,  the  size  or  kind,  the  location  (meaning  its  location  in  the  store- 
room), and  at  the  extreme  right,  three  spaces  for  high,  normal  and  low 
limits.  For  every  item  in  stock,  it  is  advisable  to  establish  a  limit  above 
which  the  stock  should  not  be  allowed  to  go  without  being  given  special 
attention;  also  a  low  limit  which  may  also  be  termed  "the  danger  limit." 
Between  these  two  will  be  the  normal  quantity  of  stock. 

By  merely  watching  these  limits,  when  goods  are  taken  from  the  store- 
room, the  stock-keeper  can  keep  ih  pretty  close  touch  with  the  general  condition 
of  the  stock,  but  the  use  of  movable  metal  markers  or  tabs  in  connection  with 
the  card  will  automatically  indicate  when  an  item  reaches  the  danger  limit, 
be  it  either  high  or  low.  When  the  stock  reaches  the  high  limit,  a  black  tab 
will  be  placed  over  the  word  "high."  If  this  stock  moves  rapidly,  bringing 
the  amount  below  the  high  limit,  the  tab  will  be  moved  along  to  the  word 
"normal."  If,  by  chance,  the  stock  reaches  the  low  limit  before  a  new  supply 
is  received,  the  black  tab  will  be  replaced  with  a  red  tab  or  signal  placed  over 
the  word  "low."  The  manager  or  purchasing  agent  by  merely  glancing  over 
the  files  once  a  day  will  at  once  have  his  attention  called  to  the  items  which 
need  looking  after  by  the  position  of  these  tabs. 


O/^D^A? r)fo.    -| /||| H 

Fo/^                                                                                        CoMA'^£:f>fC£:o             F/  niS^£o 

M/^TEIR  f/Jj. 

L-^BOR                                \ 

iT£rlS 

'S'JZ.C   Qu/9/*7'l^ /?/fr£ 

/PfTOa/rr 

0^£f?/i  r-fO/YS 

/•/t%3; 

Rffr£: 

/7/^OU/VT  1 

F07-/1C 

TaT-fiiL. 

///?7-<^/?//?^ 

/^/-TOUrVT  0^  0^O£fZ 

/?^A?/9/^A'^ 

F/T-O^/T       % 

C  OST  n/rr£/^/fi2. 

To  7-/?^ 

Cost  jl^oo^ 

l./fSO^ 

TOrfii. 

FffC7-0/?YBU/fO£/*  % 

Ofi^^/C£  Suf?D£ifi   % 

C^s^T^/iG  yV£iiGM-r 

TOTA^ 

F/eo/=^JT 

Another  stock  card  which  is  especially  adapted  to  the  needs  of  a  manu- 
facturing plant,  and  in  which  castings  or  other  parts  are  received  in  the  rough 
and  afterwards  finished,  is  shown  in  Form  2.  It  will  be  noted  that  on  one  side 
of  this  card  is  combined  a  record  of  rough  stores,  a  record  of  finished  stores 
and  a  record  of  the  parts  used  and  for  what  purpose  or  on  >vhat  order  number 
they  have  been  used.  This  form  possesses  some  features,  the  value  of  which 
will  be  recognized  by  any  manufacturer  having  need  for  such  records. 

(746)       FACTORY    PAY-ROLL. 

This  article  introduces  a  pay-roll  form  of  loose-leaf  system  to  record 
labor  of  a  factory  having  several  departments,  where  part  are  paid  weekly 
and  part  monthly,  by  check  payment,  on  one  bank  account. 

The  method  in  vogue  of  registering  time,  whether  by  brass  check,  clock 
dial  or  factory  ticket  is  immaterial,  as  it  is  at  once  transcribed  on  this  final 
sheet  in  exact  hours  and  totaled  according  to  agreement  of  payment. 

The  date  line  is  to  be  filled  in  form  of  calendar  month  or  printed  in 
standard  dates  one  to  31  to  suit  the  requirements  of  the  business  as  to  the 
cost  system ;  should  the  calendar  style  be  used  and  the  end  of  the  month  be 
divided,  a  check  can  be  issued  for  full  payment,  and  recorded  in  two  amounts. 

Weekly  totals  are  added  and  carried  to  the  total  paid  weekly  column  and 
subdivided  into  the  departments  represented. 


946 


947 


1 

I 

I 

i 


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p 


^ 


Ma. 


Amkricax  IU'siness  and  AccorNTiNT.  ExcvcLOPKDiA        745-746 


5» 


Fuel 


lies 


\t% 


Plflijt 


y   MciTerio 
Article 

ine  orKti)6               LocciTioi) 

Hi^l) 

NorPVfll 

LOW 

PtCtivLb                          1                  Dbtl 

ON  HANb 

^T< 

Invoice 
No 

Qo^f}TiTy 

Net 

Price 

Arvoont 

bhop 
No 

QD'n9Tity 

Price 

AiAount 

OOfl^TiTy 

Ai^OUf)^ 

1 

1 

1 

1 

FORU   1. 


yrx 


Form  2. 


FACTORY  STOCK  RFXORDS. 

Seven  units  are  drafted  for  each  week  so  as  to  provide  for  extra  time. 
No  other  record  of  the  amount  of  the  check  issued  is  necessary,  but  simply 
place  a  check  mark  after  the  item  drawn  and  total  each  column,  after  which 
add   the  checks   drawn   together,   and   if   they  balance   it   is   an   evidence   of 

correctness. 

When  it  is  necessary  to  draw  checks  at  irregular  times,  place  the  amount 
in  red  ink  and  adjust  this  on  your  bank  record. 

This   form  only   requires  the   writing  of   names  once  a  month,   and  as 

04S 


746-746A    Americax  HrsTXFss  and  Accot'xtixc  ExcvcLoiM-.Dr a 


^Fa 


By  Rollfor  Moi)1^  o^                     Mfly                        It^oJ 

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FACTORY  PAY  ROLL. 


both  names  and  numbers  change  so  often  in  the  ordinary  factorv,  it  is  a 
very  satisfactory  period.  The  forms  are  held  in  post  binder,  locked  securely, 
and  when  old  are  transferred. — R.  J'.  Sczccll. 


(746A)    MANUFACTURING  SYSTEM  FOR  FURNITURE 


PURCHASE   ORDER. 

This  order  should  be  filled  out  in  accordance  with  particulars  called  for 
on  Form  1,  which  is  made  in  triplicate.  The  original  of  blue  bond  pai)er 
should  be  sent  to  the  individual  or  ctMupany  from  whom  the  goods  are 
ordered ;  the  duplicate  of  pink  bond  paper  should  be  sent  to  the  accountin*^- 
department  and  held  on  file  until  the  invoice  is  received  and  attached  to 
material  received  sheet  duplicate  in  accordance  with  Form  ? ;  the  triplicate 
should  remain  in  the  purchasing  department  files  for  reference  and  record. 

949 


I 


I 


Ma. 


American  Business  and  Accounting  Encyclopedia 


746A 


MATERIAL    RECEIVED    SHEET. 


When  the  goods  are  received  this  form  should  be  filled  out  by  receiving 
clerk,  using  indelible  pencil  for  original  and  carbon  paper  for  duplicate.    The 


.«r,  F.OIS 

m4 

.* 

.fifMie* 

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J(      I 


original  and  duplicate  should  be  sent  to  the  accounting  department.  The 
duplicate  should  be  attached  to  the  Purchase  Order,  Form  1,  and  the  original 
should  be  filed  numerically  after  being  priced.  The  receiving  clerk  should 
sign  sheet,  stating  the  date  goods  were  received.  The  date  of  invoice  should 
also  appear  on  this  sheet  as  well  as  the  Purchase  Order  number,  and  the  party 
entering  same  in  Raw  Material  Stock  Ledger  should  sign  initials  and  folio 
number  in  place  provided  for  same.  To  distinguish  original  and  duplicate 
apart,  the  original  should  be  printed  on  yellow  bond  paper  and  the  duplicate 
on  white  bond,  which  should  be  padded  and  punched  for  binding  on  post  binder. 


MATERIAL  REQUISITION. 

When  material  is  required,  for  orders  going  through  the  shop,  the  fore- 
man should  authorize  the  stock  clerk  to  deliver  the  articles  required  to  the 
operating  department  on  this  requisition,  and  to  save  time  each  department 


^=0 


MATERIA],  F^EQUISmON 


Lot  No  . 


Artitlt 


QiKi^ty 


rO 


/Vi'wuyf 


T^cceiveJ  by 


AitHjOri  i.9d  \>jf 


"T?or«^«j" 


FosH  3. 


950 


'746A  American  Business  and  Accounting  Encyclopedia  Ma. 

should  draw  their  supplies  for  each  day's  work  between  the  hours  of  7  to  9 
a.  m.  The  requisition  should  be  signed  by  foreman,  as  well  as  bv  the 
party  receivmg  the  goods,   which   would   in   most   cases  be   a   sub-foreman 


'fivr  «f. 


rt^TtRiAL  Received  Sheet 


No. 


PV<V»*  Oitr  No 


A.^.cl«a 


Q»«1^^      R^»      A^^>)T 


Hcc.iv.yt,y  _ 


Form  2. 


of  some  certain  department.  At  the  end  of  the  day  the  stock  clerk  should  hand 
mto  the  office  all  requisitions,  and  no  material  should  be  delivered  to  operators 
unless  authorized  by  the  superintendent  or  foreman.  This  requisition  should 
be  filed  numerically  in  a  binder  provided  for  that  purpose. 

stock  sheet  (raw  material). 
This   should  be  kept  on  the   lose-leaf  ledger  plan.     A   separate   sheet 
should  be  used  for  each  article  of  raw  material,  such  as  the  different  sizes. 


STOCK 

RAW  MATERIAL 


C\*SA'tficaT,on  No 


Article 


fl 


.1 


il 


Wl 


Ma. 


American  Business  and  Accounting  Encyclopedia 


746A 


/~L          !/• 

■..1 

Time  Carp 

TN  .,- 

Helt>erACKNo ■^•' 

H02JR6 

Bir. 

^.'.*' 

Rr^Isl) 

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lol- 
No. 

Fro^N 

To 

Totiil 

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Rflt» 

AKr. 

» 

_ 

Form  5. 

kinds  and  grades  of  lumber,  screws,  glue,  and,  in  fact,  all  material  used  in 
the  course  oi  Furniture  :\Ianufacturing,  including  all  supplies  used  in  taking 
care  of  machinery,  etc.  In  the  upper  left  hand  corner  are  the  words  ''  Classi- 
fication Number,"  "  Sheet  Number,"  "  Maximum  "  and  "  ^Minimum."  "  Classi- 
fication Number  "  refers  to  the  classification  of  the  material  in  numerical  order 
in  stockroom.  "  Sheet  Number,"  the  number  of  sheet  of  classified  stock  kept  in 
stock  ledger.  "  Maximum  "  and  "  Minimum  "  refers  to  the  quantity  of  each 
article  to  be  carried  in  stock,  and  is  intended  to  regulate  purchases.  For 
instance,  after  one  or  two  months'  operation  of  the  system  you  can  judge  from 
the  quantities  used  ^'generally,"  how  much  you  should  carry  in  stock  to 
meet  the  demands  of  your  factor}'. 

The  information  called  for  under  caption  "  Ordered  "  can  be  obtained 
from  the  Purchase  Order,  Form  1,  handed  into  accounting  department  daily, 
and  the  information  called  for  under  this  caption  should  be  posted  daily. 

The  information  called  for  under  caption  "Received"  can  be  obtained 
from  Material  Received  Sheets,  Form  2,  which  should  be  entered  daily. 

The  infonnation  called  for  under  caption  "  Delivered  "  can  be  obtained 
from  the  Material  Requisition,  Form  3,  which  should  be  posted  daily. 

The  information  called  for  under  caption  "  Balance  "  represents  the  diflfer- 
ence  between  the  column  headed  "  Received  "  and  the  column  headed  "  Deliv- 
ered," both  in  quantity  and  value.  The  difference  between  the  column  headed 
"Ordered"  and  the  column  headed  "Received"  will  represent  the  goods 
ordered  and  not  received.  Adding  the  total  balances  together,  the  Raw 
]^Iaterial  Ledger  should  agree  with  balance  to  debit  of  Raw  Material  in  Gen- 

052 


?40A 


American  IU'sixes.'^  and  Accoixtinc;  ExcvcLorEDiA 


Ma. 


eral  Ledger  account.     This  sheet  sliould  l)e  put  in  a  lock-post  binder,  which 
can  be  easily  locked  and  unlocked  without  having  to  take  out  any  sheets. 

PRODUCTION    ORDER. 

This  order  should  be  made  out  for  all  goods  ordered  from  the  factory 
and  no  work  should  be  done  without  liaving  first  issued  an  order  which 
should  be  duly  signed  by  the  manager.  This  order  represents  the  authority  to 
manufacture  goods  and  will  enable  the  manager  to  require  a  fixed  amount 
of  work  from  the  factory  daily.  All  material,  used  on  this  order  should  be 
charged  against  this  order  and  a  separate  order  should  be  issued  for  each  lot 
of  furniture  to  be  manufactured.  For  instance,  this  Production  Order  is  onlv 
intended  to  carry  the  serial  number  of  the  order  with  the  (juantities  and  dates 
required  by  the  manager.  Each  order  should  carry  with  it  the  cutting  order 
for  the  cut-off  saw,  as  well  as  the  drawings  for  the  mill  department,  cabinet 
department,  and  the  list  of  material  to  be  drawn  from  stockroom,  and  if  not 


GliToi^trs  O^derNo. 


PRpDi/CTlON  ORDEH 


D<-r«^vi^i) 


ArTidti, 


Q^A'y'  R»' 


A.N««mt 


''.«  »f.  atn^9r'-yt4  V^*»«b..»  ^n'^rs  t^m^f.t 


!12iti 


Form  0. 

in  stock,  should  be  purchased.  The  details  as  to  finish  slioukl  as  well  accom- 
pany order,  so  that  the  finishing  or  painting  and  varnishing  department  can 
know  how  to  arrange  their  work  to  get  this  order  done  on  time. 

^\'hen  the  order  is  completed  and  delivered  to  the  store-room,  this  fonn 
should  be  returned  to  the  office  together  with  Production  Report,  showing 
the  production  for  the  day.  The  numliers  of  Production  Rejwrt  or  Reports,  as 
the  case  may  be,  should  be  entered  on  the  order;  the  duplicate  remaining  in 
the  book  is  for  the  purpose  of  stating  the  cost  of  each  order  issued. 

TIME  CARD. 

The  Time  Card  should  be  made  out  by  mechanic  when  he  has  a  helper 
on  a  job  for  the  day,  for  both  helper  and  himself,  filling  out  the  information 
called  for  on  card.  When  helper  is  working  alone,  he  shonld  fill  out  card  giv- 
ing information  called  for,  as  each  workman's  time  is  calculated  from  his  time 
card,  which  is  enetred  in  Pay  Roll  Rook  for  payment  at  end  of  pay  roll  ]>erio(l. 
An  International  Time  Recorder  may  be  used  to  record  time  of  arrival 
and  departure  of  each  employe,  thereby  securing  a  complete  check  on  the  time 


If 


95? 


Ma. 


American  Business  and  Accounting  Encyclopedia 


746A 


I  f 


i 


O/iK 

rs^t,  ivsd.^                  1 

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Form  7. 

turned  in  by  employes  in  factory,  as  well  as  ascertaining  the  number  of  hours 
other  employes  spend  in  factory  offices. 

PAY    ROLL    BOOK. 

This  should  be  a  bound  book  in  accordance  with  form  and  should  be  used 
as  follows:  All  time  cards  should  be  collected  and  the  hours  entered  in  the 
proper  day  space  alongside  of  the  workman's  name  and  check  number  and 
after  being  extended  and  entered  in  cost  ledger,  should  be  put  in  the  cabinet 
imder  the  proper  check  number  and  name  until  end  of  week,  when  they  should 
be  collected  together  and  the  value  of  each  workman's  time  entered  in  the 
amount  column  alongside  of  check  number,  as  well  as  enter  the  value  of 
the  labor  in  the  proper  department  under  the  proper  column.  Direct  Labor 
is  charged  to  a  cost  sheet.  Indirect  is  an  expense  as  well  as  Supervision. 
Commencing  at  left-hand  side  of  sheet  and  adding  horizontally  to  Friday,  the 
total  should  agree  with  the  total  of  the  amount  column  alongside  of  the 
check  number. 

cost  sheet  (finished  product). 
This  should  be  kept  on  the  loose-leaf  ledger  plan. 

machine  labor. 
A  separate  Cost  Sheet  should  be  made  out  for  each  Production  Order 
number,  showing  articles  ordered  from  factory.     As  soon  as  Time  Cards  are 
extended,  enter  the  value  of  hours  spent  on  each  operation  from  1  to  24  in 
machine  department. 


954 


746A 


American  Business  and  Accounting  Encyclopedia 


Ma. 


finishing  labor. 

A  separate  Cost  Sheet  should  be  made  out  for  each  Production  Order 
number. 


cabinet  department  column. 
All  cabinet  labor  being  on  piece  work,  the  value  of  each  piece  can  be 
entered  in  cabinet  department  column  from  time  cards. 

staining,  varnishing,  rubbing  and  polishing  department. 

All  labor  should  be  entered  in  proper  column  for  staining,  varnishing 
prime  coat,  sanding,  varnishing  finishing  coat  and  rubbing  and  polishing, 
all  of  which  are  provided  on  Labor  Cost  Sheet. 

After  lot  has  been  finished  the  columns  of  each  operation  can  be  totaled 
and  entered  under  caption  "  Labor  "  of  Cost  Finished  Product  Sheet,  Form 


OVNN  nrc.  CA 
AtftCR  oivisioi* 

Mam 

r 

OMTt  OAOCMCO  ( 

l^.^^L. 

»V_«TOAtm»M« 

iS^'tia.^MA 

INWARDS 

,      02;T  WARDS 

1       StocJt            1 

bot* 

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Ordor 

CJyflrjtity 

boT<. 

Order 

Qi/ontity  I      Hor\J 

Form  8. 

9,    giving   cost    of    each   operation.      Information    called    for    under   caption 
"  Material  Costs  Finished  Product,"  can  be  obtained  from  Material  Requisi- 
tions, Form  3.     Information  called  for  under  caption  "  Indirect  Expenses  " 
represents  the  percentage  of  Indirect  Expense. added  to  the  cost  of  each  order, 
which  should  be  figured  on  the  basis  of  Direct  Labor.    The  Indirect  Ex-penses 
consist  of  Indirect  Labor  and  all  other  accounts  shown  on  the  classification  of 
accounts  submitted  under  the  general  caption  "  Indirect  Expenses."    The  addi- 
tion of  these  accounts  divided  by  Direct  Labor  should  give  the  percentage  of 
Indirect  Expenses  by  distributing  over  the  production  for  the  month  on  the 
basis  of  Direct  Labor.    The  average  of  the  Indirect  Expenses  should  be  taken 
as  a  basis  after  the  cost  has  been  obtained  for  the  first  month.     The  total 
cost  represents  the  addition  of  the  three  columns,  "  Labor,"  "  Material  '*  and 
"  Indirect  Expenses."    All  posting  to  the  Cost  of  :SIachine  and  Finishing  Labor 
Sheets  shoud  be  done  daily.     All  posting  to  Costs  Finished   Product  under 
caption   "Material"   should   be   done   daily.     Information   called    for   under 
"Transferred  to  Stock"  can  be  obtained  from  reports  received  from  Pro- 
duction Report  Finished  Product,  Form  10. 

955 


II 

il 


Ma. 


Amkrican  Business  and  AccorxTixr.  Encyclopedia 


746A 


— 

■^■^ 

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C    n«LT*i                                                                  CflTtls*'"'* 

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Form  i). 


PRODUCTION     REPORT     FINISHED     PRODUCT. 

This  report  should  be  filled  out  daily  by  the  superintendent  or  foreman, 
and  should  be  sent  to  the  stockroom,  together  with  the  production  of  the 
factory  for  the  day.  The  stock  clerk  should  sign  this  report,  when  the  goods 
are  received,  in  good  condition,  he  should  then  hand  this  report  into  the 
office  in  order  that  the  cost  may  be  entered  and  rate  figured,  which  can  be 
obtained  from  the  Cost  Sheet  for  the  orders  completed  on  this  Production 
Report.  The  number  of  the  Production  Report  should  be  entered  as  pre- 
viously stated  on  the  Cost  Sheet,  which  should  be  ruled  off  and  filed  as  com- 
pleted  orders. 

SHIPPING    ORDER. 

This  order  should  be  filled  out  in  duplicate,  using  short  carbon  for  ship- 
ping clerk's  order,  so  as  to  not  take  in  the  name  of  the  party  to  whom  the 
shipment  is  charged,  nor  the  price  and  value.  Original  is  to  be  held  on  Unfilled 
Order  file  until  duplicate  is  returned  from  shipping  department  dated  and 
signed  by  shipper,  when  original  can  be  billed  on  Form  12  and  filed  on  Filled 
Order  file. 

INVOICE. 

This  form  is  made  out  from  Form  11  on  billing  machine  which  carbons 
to  Form  13. 


956 


74CA 


American  Business  and  Accounting  Encyclopedia 


Ma. 


II 


o. 


FTiysKfd  in  Ook. 


.  Dflfe  Receive J_ 


-I 


FINISHING  LAI50R  cosTj  r;:^j ';^ri5:,^;^b!!rl  Rr,',r/j: 


LotNo^. 


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Form  10. 


SALES  SHEET. 


This  form  is  a  carbon  copy  made  from  Fonn  1'?,  except  details  as  to  cost 
entered  on  right-hand  side,  which  can  be  obtained  from  Form  U.  Stock  Fin- 
ished Product.  The  prices  and  extensions  are  first  proven,  then  entered  in 
Stock  Ledger,  Form  U,  then  in  Sales  Register,  Form  15,  and  then  filed  in 
Billed  Sales  file. 

STOCK  SHEET    (FINISHED  PRODUCT). 

A  separate  sheet  should  be  used  for  each  article  and  kept  on  the  loose- 
leaf  ledger  plan.  In  the  upper  right-hand  corner  the  words  "  ^Maximum  " 
and  "  Minimum "  appear,  which  represent  the  maximum  and  minimum 
amoimt  of  each  article  to  be  carried  in  stock,  which  should  be  considered 
in  connection  with  the  unfilled  orderr,  as  well  as  the  balance  of  the  stock  on 
hand  in  issuing  Production  Orders,  authorizing  the  factory  to  produce  tiie 
articles  called  for  by  this  sheet. 

The  information  called  for  under  the  caption  "Production"  can  be 
obtained  from  the  "  Production  Reports,"  which  should  be  posted  daily. 
The  information  called  for  under  caption  "  Orders  Received  "  can  be  obtained 
from  the  orders  previously  mentioned,  and  should  be  posted  daily.  The  infor- 
mation called  for  under  the  caption  "  Orders  Canceled  "  can  be  taken  from 
advice  received  by  telephone  or  mail,  as  the  case  may  be.  The  infonnation 
called  for  under  caption  "  Sales  "  and  "  Cost  of  Sales  "  can  be  obtained  f r.^m 
the  Sales  Sheets,  and  should  be  posted  daily.     The  column  headed  "Gross 


I 


037 


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American  Business  and  Accounting  Encyciopedi\ 


748A 


If 


f 


0ur6«ile  Ne 


n»fr%ip^,Ut  for  Goodi  aftf  Innjipc-tltnojCa  Ijm  nvei^Ud^'imyitnfmJ-Ji, 


Your  Or^er  l>la 


Terr\A 


F.O.B. 


>Kipp«d  Vi°< 


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I 


xi 


6old  to 


Moi^ufcictu r«r  of  FDf^NlTDf^e, 
Off.c 


Description 


[QlXll)]^; 


Form  11. 


Pri 


ce 


AfnoJrCf" 


v^hecitil^asi^oe' 
FK/ijitVrt/ 

Cljiffo»)i«rA 
IbOTH  PH0NE4 


&«l«i">Of) 


Tor<ni 


A 

Shipping  Order 

cj 

CwwRu^ 

A««rfrf 

HovOnlv^ 

O      5rf,.pt. 

AMr.>a 

S/x 

0»,»,r.t, 

■St^it 

\l*iai 

Arr.cla^ 

Pr.« 

AnMqT 

o 

Ib.liaJ 

Form  12. 


Profit"  will  represent  the  difference  between  the  selling  and  cost  price  of 
the  goods  sold,  which  will  place  all  profit  on  a  unit  basis.  The  orders  received 
and  the  orders  canceled  and  sales  will  show  the  quantity  of  each  article  ordered, 
but  not  shipped,  and  the  unfilled  order  should  regulate  production.  The  col- 
umn headed  "  Balance "  will  represent  the  difference  between  the  column 
headed  "  Production  "  and  the  column  headed  "  Sales  "  at  the  cost  price  and 
will  show  the  quantity  and  the  cost  of  each  article  on  hand. 

958 


746A 


American  Business  and  Accounting  Encyclopedia 


Ma. 


Our6fll«f^. 


CU4ton«i'SO«*rNo 


Tiri^S 


Fori. 


6))'pf  *^  V'" 


ST^Ie  l\l( 


Fioi 


T) 


P^iiodclphitl,. 


Pnat  Grre«r_ 


Ex^hifimjiComdi. 


6eld  lb . 


Deicriptior 


Odoi 


ir)tty 


■& Eg i-iNG  price: 


Form  13. 


Rt'tt:.,!       Ai'rotf-xJ-    i       ToTtil  8  Ra-nt  |i  A-^cniy?- !:    Tom  I 


COST   PRiCE. 


PLANT  ledger. 

This  ledger  should  be  kept  on  the  loose-leaf  plan.    The  information  called 
for  under  the  caption  "  Costs  "  can  be  obtained  from  the  iNlaterial  Received 


Art 


Stock 
Finished  pf^oddct 


•Sheet  No. . 
riiiji>\ur»\. 


ICLE. 


if:  I 


Ma. 


American'  Business  and  Accounting  Encyclopedia 


746A 


Form   1.". 


Sheets  and  Time  Cars  or  Machinists,  etc.  Xevv  machines  or  tools  shr.uld  be 
charged  to  regular  order  number  regarding  all  charges  on  the  Cost  Sheet, 
in  the  same  way  that  the  product  would  be  handled,  providing  the  machines  or 
tools  are  made  in  the  factory. 

The  information  called  for  imder  caption  "  Repairs  "  can  be  obtained  from 
the  Time  Cards  and  should  be  posted  daily  for  the  purpose  of  determining 
the  maintenance  and  the  cost  of  each  machine  or  tool.  This  repaired  work, 
however,  refers  to  actual  repairs  but  does  not  refer  directly  or  indirectly  to 


M 


hi 


ru«. 

I^LANT 

M£ir\e                                                             No.              Size                J 

I5j)i  Wi  9g 

LocflTro*) 

DATE 

COST 

REPAIRS 

[depreciation 

^rofT\           I     lie.i>crIf)T7oi^ 

Co.TM'^5tI:lTot..Cost 

N^mt/ 

[AinounJ' 

Ccqr  A(»\ouivr 

. 

,♦ 

1 

1 

1 

^ 

1 

1 

I 

Form  1(5. 


960 


746A 


American  Business  and  Accountixc.  Encvclopkdia 


Ma. 


For  MoijlS  of                                                                                                                   Register  AccoDnT^  R«i»W*/ 

DE(blT6 

■  —     ■ f 

CREDITS 

Mi'»cellfl(jeousA<c«i>ijt5|                                   0|3tratTf)g  Accouote      | 

'^"^ 

FVivor  ©"f 

TirrxA 

.   .       Accoiifit!&m.<-)ijii  WKfAOiWh^S^ 

N^nAe^ 

^?:  ^-^^  5t- 

I't^Si^^imi^^^ 

Dc\ 

«=■•*•■-»  0|>«,/Wl|v^  IV.tt|<V^U* 

*- 

1 

■ 

1 

— 

5    , 

1 

I-- 

\- 

1 — 



L- 

Form  17. 


adjustments  of  any  description.  The  information  called  for  under  the  caption 
"  Depreciation  "  should  be  based  on  the  life  of  the  machine  or  tool.  The 
depreciation  should  be  figured  each  month  and  charged  to  Depreciation  of 


CASH    RFCFIVF^ 

I^-nte. 

AccootvT* 

- — = 

SelHe- 

Ledger 
l^lfo 

PRIVATE  LEDGER, 

fi>of)\i>tf,iib 

P»iry&J4lj 

Atc+s  R««l«>bi« 

l^iscounT 

1  Fre;phrINetA^^ou')+■ 

1 

~~' 



i=^ 



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1 

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1 

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1 

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y 

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t 

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- 

^^" 

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1 

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= 

i 

= 

=  =^= 



h^ 

h 

I 

Form  18  (left-hand  page). 


961 


Ill 


Ma. 


American  Business  and  Accounting  Encyclopedia 


746A 


CA6H 

rn5Np^)iR.SFr> 

LoTe, 

AccoOnt* 

Fbi.o 

1SSS 

PRIVATE.  1£DGE.R^ 

^1iicrt«7««hf^^ 

AalAP<9y<3ble  Dbcrtrjb 

o()3  Power 

J 

3 

=== 

1 

== 

-I- 

__ 

■- 

Form  18  (right-hand  page). 

Plant  and  credited  to  Depreciation  and  Extinguishment  Fund.  This  ledger, 
if  properly  kept,  will  represent  the  running  inventory  of  your  plant,  which 
would  be  most  valuable  in  the  event  of  fire,  and  great  care  should  be  taken  to 
make  this  record  complete.  The  repairs  on  each  machine  should  be  carefully 
followed  in  order  to  determine  the  efficiency  or  inefficiency  of  the  operating 
machine  or  general  machinery. 


REGISTER  OF  SALES  AND  COSTS. 

This  register  should  be  a  bound  book.  The  information  called  for  under 
the  caption  "  Sales  "  can  be  obtained  from  the  Sales  Sheets,  which  should  be 
posted  daily.  The  information  called  for  under  caption  "  Cost  of  Sales  "  can 
be  obtained  from  the  Sales  Sheets  also.     The  column  headed  "  Gross  Profit " 


MANUFAC  TUl^Ef^  OF  FURN ITURE 

Aad.tiijf  D<^rTr\ti)r  Moon  St 


Ort4*  Me"^o«-«^^*«»  ^4o  . 
T« 


PV'«'^'p')«>-'^ 


.i»o — 


For 


boHcr* 


Dat»d. 


•J»- 


Fo/  rlat«ri«l  Co'^A'^^c^  to. 

C#'»N, 

Yoj'  0*»  Nn 

l>«W.t 


C'.^.t 


b«b.«- 


Form  20. 


A««M*i)fh^t 


962 


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American  Business  and  Accounting  Encyclopedia 


Ma. 


JODRNAL  Entries 

1                       DE.(ilT& 

Oo&si 

F0I.0                Jjescri|ot.orj 

Polio 

CklMi 

1                  CPERirS                  1 

-^— i 

1  AccoonlA 
iReceivoble 

Acco'Of|t& 

p<.y/iiii«. 

Sni)(Jnes 

f^,, 

^S«,^-esiSrA1^ 

5 



T 

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~~~ 

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1 

^^^ 

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1 

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■^■" 

■~~ 

1 — \ 1 

4= 

k 

' — ^ — 

1 

= 

Form  19. 


will  represent  the  difference  between  the  selling  price  and  the  cost  price  and 
will  show  the  profit  daily. 

This  book  should  be  ruled  off  each  month  and  all  totals  entered  in  ink. 
The  total  sales  for  the  month  shown  in  the  column  headed  "  Accounts  Receiv- 
able "  should  be  posted  to  the  debit  of  Accounts  Receivable  account  each 
month  in  the  private  ledger  and  the  Bed  Room  Furniture  Department  credited. 
The  Bed  Room  Furniture  Department  should  be  debited  with  '*  Cost  of 
Sale  "  and  Finished  Product  credited  at  cost. 


MANUFACTOREf^OF  FuRNITyRE. 
ADdih()gCep<irf)ner)r  noorcSt 


Detit  M<mra)dui^  No- . 
To. 


Tl)tv>ii»v«f_ 

'For 


Apply.yj  to  your  bill  ^  . 
Afr«tnci)t  FOQ._i_ 


For  r^afkrial  &«)>*ofM4  to. 

C»r»  Mo 

Our  Oder  Mo 

Our  VbixJitr  No 

C--»J.t , 

A  p|»ro»».l 


f^la4<l^l;ia,PVl  . 


-Ho. 


\f^  l^e  (J)or9«(l  yoar  «c.co»f)t-  tk.'ft  d^tlb  vi/i' 


bollar 


Ddul- 


!«•- 


Form  21. 


963 


II 


Ma. 


American  Business  and  Accounting  Encyclopedia 


HQA 


IVA&i, 

£ 

6Keet  No. 

C  red  it  L 1  p\i  t 

— 

Add 

r/>  <.«. 

Dtfb\Tii 

CREDITS 

D^l^    ^eSCirlfitioi) 

5«K 

S«#te 

pvent 
No! 

Ar»voi)rti"  1     fbalo9C«' 

(iia\atjcz^ 

Ai»\ei)i>^ 

ScttW 

Pa-e, 

Bo«k  Deso'ifjft'tfO 

haf& 

lifceqifFoMS 

1 

1 

Bro»ql)tFcnJ. 

1 

1 

1 

1 

Z2 

Form  22. 
REGISTER   OF   ACCOUNTS   PAYABLE. 

This  register  should  be  a  bound  book.  The  information  called  for  can 
be  obtained  from  the  invoice,  which  should  be  entered  daily.  The  Purchase 
Orders  and  the  Material  Received  Sheets  should  be  attached  to  all  invoices 
before  being  entered,  which  should  then  be  filed  away  in  the  "  Unpaid  Bill 
File."  When  these  bills  are  paid  they  should  be  filed  numerically,  using 
voucher  number.  This  book  should  be  ruled  off  and  all  totals  entered  in  ink 
each  month.  The  total  purchases  for  the  month  should  be  posted  to  the 
credit  of  Accounts  Payable.  The  columns  on  the  right  of  the  fancy  line,  in 
the  middle  of  the  book,  should  be  posted  to  the  debit  of  the  proper  account, 
excepting  the  miscellaneous  columns,  which  should  be  posted  separately.  All 
items  appearing  in  this  column  should  be  posted  daily.  When  these  bills  are 
paid  the  date  of  payment,  as  well  as  the  check  number,  should  be  entered  under 
the  caption  "  When  and  How  Paid." 

CASH   r.OOK. 

This  book  should  be  ruled  off  and  all  totals  entered  in  ink  at  the  end  of 
each  month. 

DEP.IT   SIDE. 

The  colunm  headed  "  Accounts  Receivable "  should  be  posted  to  the 
credit  of  Accounts  Receivable  account  in  private  ledger  at  end  of  month.  The 
column  headed  "  Discount  "  should  be  posted  to  the  debit  of  the  discount 
account.  The  column  headed  "  Freight  "  should  be  posted  to  the  debit  of 
•Sales  Freight  account.    The  column  headed  "  Net  Amount "  should  be  added 


746A 


American  Business  and  Accounting  Encyclopedia 


Ma. 


AcC02}Nr6  PAYAfiLE. 


Address. 


5ljeer  N< 


DE(blT>S> 


Cfltc,  beicnptt 


firooqlftf^w'j 


(iooK 


!>ettle 
m.nf 
No. 


/\(r\our&  I   l3ol<i>)cex  I    rbaleitjct. 


CREDITS 


t 


/\iy\oiir& 


No. 


Vafit 


ft».K  Votfc^tr  to 


(br»vih^  FottJ 


Dflfe/ 


Form  2;{. 

to  column  headed  "  Miscellaneous  "  at  end  of  month  (which  is  posted  sepa- 
rately, item  by  item  each  day),  and  this  will  be  total  cash  received  for  month, 
and  IS  to  be  posted  to  the  debit  of  cash  account  in  private  ledger.     The 
column  headed  ''  Bank  Deposits  "  should  be  treated  as  a  running  bank  account : 
each  deposit   should  be  entered   in  this  column   daily.     The  column   headed 
"  Petty  Cash  "   should   be  treated  the   same  as  a  petty  cash   book,   entering 
daily  all  receipts  of  cash  drawn   from  bank   for  this   fund,   entering  check 
number  on  debit  side  of  cash  book  when  withdrawals  are  made  from  bank. 
All    receipts    should    be    deposited,    including    currency    in    ever}-    particular, 
thereby  giving  an  accurate  check  on  receipts.     The  column  headed  **  Settle- 
ment Number  "  is  to  be  used  as  a  check  against  the  Accounts  Receivable  or 
Payable,  thereby  showing  at  a  glance  in  the  ledgers  the  condition  of  a  cus- 
tomer's account.     For  instance,  a  customer  sends  in  settlement  of  a  certain 
number  of  invoices.     The  book-keeper  looks  up  the  account   in   his   ledger 
and  finds  that  the  check  is  in  settlement  of  certain  accounts:  he  enters  on 
customer's  statement  the  settlement  number  of  serial  1,  as  well  as  in  ledger 
alongside   the   bill    in    the    settlement    column:    the   check    and    statement    is 
handed  to  cashier  and  he  enters  the  date,  customer's  name,  settlement  number 
and  gross  amount  of  bills  in  "  Accounts  Receivable  "  column :  should  it  be  an 
Account  Receivable,  discount  in  "  Discount  "  colunm,   freight  in  "  Freight  " 
column,  and  the  amount  of  check  in  "  Net  Amount  "  column,  receipt  state- 
ment and  return  to  customer.     In  posting  from  cash  book,  the  book-keeper 
posts  the  settlement  number  as  well  as  the  gross  amount  of  the  bill  to  credit 
side  of  customer's  account. 


964 


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American  Business  and  Accounting  Encyclopedia 


746A 


Account  No 

DEfblTS 

1                                  CREDIT6 

D<atell  I>e5Crit>tiorj 

l3ooK 

l^fi« 

AmounTi  Tbfet 

[btildQce 

fboldQcejTotcil  J 

AmoutjtjRi^t 

&OCK 

Dtitr'ifit.or) 

Dflte.1 

1 

( — 

i 

1 

1 

1 

|] 

1 

1 

1 

1 

1 

1 

1 

1 

1 

1 

1 

1 

1 

j 

1 

1 

1 

1 

1 

1      1 

1 

1 

1 

1 

^^^A 

Form  24. 
CREDIT  SIDE. 

The  credit  side  of  cash  book  should  be  treated  as  follows:  In  making 
a  payment,  first  comes  the  date,  then  name  to  whom  paid  or  charged,  next 
the  voucher  number,  which  can  be  secured  from  Accounts  Payable  voucher, 
gross  amount  of  voucher,  discount,  and  then  the  net  amount  disbursed  in 
"  Miscellaneous  "  column,  then  check  mmiber  and  amount  of  check  in  "  Bank 
Withdrawal?  "  column. 

"  Factory  Supplies,  Light,  Heat  and  Power  "  column  is  to  be  used  for 
small  petty  purchases  for  the  use  of  mill,  for  which  it  is  useless  to  carry  a 
large  quantity  in  stock.  Any  small  items  paid  for  in  cash  are  entered  in 
these  columns  and  in  turn  entered  in  "  Petty  Cash  "  column.  These  two  col- 
umns should  be  added  to  "  ^Miscellaneous  "  column  and  totaled  and  posted 
to  credit  of  cash  account  in  private  ledger  at  the  end  of  month,  then  enter 
in  red  ink  the  balance  of  cash  on  hand  in  bank  and  safe.  The  Bank  With- 
drawals should  be  totaled  and  entered  in  cash  book,  which  should  agree  with 
disbursements  in  check  and  bank  book.  The  balance  in  bank  should  be 
entered  in  red  ink  as  well  as  the  balance  in  petty  cash  which  must  agree  with 
total  cash  balance.  The  "  Accounts  Payable  "  column  total  is  to  be  posted  to 
the  debit  of  Accounts  Payable  account  in  private  ledger  monthly.  The  Discount 
total  is  to  be  posted  to  the  credit  of  discount  account  in  private  ledger  monthly. 
Items  not  entered  in  "  Accounts  Payable,"  "  Factory  Supplies,"  "  Light,  Heat 
and  Power  "  columns  and  in  "  Miscellaneous  "  column  should  be  posted  daily. 

JOURNAI-. 

This  can  be  kept  on  the  loose-leaf  plan,  using  a  lock  with  one  key. 
This  journal  entry  voucher  is  self  explanatory,  therefore  I  will  not  take  up 
time  in  details. 

966 


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Rny  Roll   WeeK  End?r|^ 


Form  25. 


CREDIT   MEMORANDUM. 

This  form  is  in  duplicate,  the  original  is  sent  to  customer  and  the  dupli- 
cate is  kept  on  a  loose-leaf  binder  under  lock  and  key. 

DEBIT    MEMORANDUM. 

This  form  is  made  in  duplicate.     The  original  is  sent  to  chargee  and 
duplicate  is  put  on  loose-leaf  binder  under  lock  and  key  of  chargor. 
Forms  21  and  22  are  self  explanatory. 

ACCOUNTS  RECEIVABLE  LEDGER. 

This  ledger  should  be  kept  on  the  loose-leaf  plan,  and  all  accounts 
arranged  alphabetically.  All  entries  should  be  taken  from  either  the  Register 
of  Sales  and  Costs,  cash  book  or  Journal  Entry  Voucher,'  excepting  returns 
and  allowances,  which  should  be  entered  in  the  Register  of  Returns  and 
Allowances.  A  trial  balance  should  be  prepared  each  month  which  w^ould  bal- 
ance with  the  completed  account  kept  in  the  private  ledger. 

ACCOUNTS    PAYABLE    LEDGER. 

This  ledger  should  be  kept  on  the  loose-leaf  plan  and  all  accounts  arranged 
alphabetically.  All  entries  should  be  taken  from  tJie  Register  of  Account^ 
Payable,  cash  book.  Journal  Entry  \^ouchers  and  Register  of  Returns  and 
Allowances.  A  trial  balance  should  be  prepared  each  month  which  should 
balance  with  the  completed  account  kept  in  the  private  ledger. 

967 


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American  Business  and  Accounting  Encyclopedia 


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PRIVATE    LEDGER. 


This  should  be  a  bound  book  with  pages  numbered  consecutively.  The 
classification  of  accounts  submitted  should  be  arranged  in  sections  as  shown. 
This  ledger  will  furnish  a  complete  historical  record  of  the  business,  and  great 
care  should  be  taken  to  make  this  record  complete. 

REGISTER  OF  RETURNS  AND  ALLOWANCES. 

This  should  be  a  bound  book  of  300  pages  numbered  consecutively.  All 
entries  should  be  taken  from  credit  and  debit  memoranda  and  should  be 
entered  the  same  as  sales  are  entered  in  Register  of  Sales  and  Costs  except 
that  postings  are  reversed. 

COMPARATIVE    I5ALANCE    SHEET. 

This  form  should  be  kept  on  a  post  lock  binder.  All  information  can  be 
obtained  from  private  ledger. 

STATEMENT    OF    PROFIT    AND    LOSS. 

This  form  should  be  kept  on  a  post  lock  binder.  All  information  can  be 
obtained  from  private  ledger.    The  percentages  called  for  are  based  on  sales. 

STATEMENT  OF  ORDERS,  SALES,  PRODUCTION  AND  COSTS. 

This  form  should  be  kept  on  a  loose-leaf  post  binder.  The  information 
can  be  obtained  from  the  Finished  Stock  Records.  This  statement  will 
show  how  the  inventory  is  made  up  and  will  also  show  the  unfilled  orders  on 
hand. 

STATEMENT  OF  FACTORY  EXPENDITURES. 

This  form  should  be  kept  on  a  loose-leaf  lock  binder.  The  information 
can  be  obtained  from  the  private  ledger.  The  purpose  of  this  statement  is  to 
show  the  expenditures  for  the  month,  and  for  the  year  to  date.  This  state- 
ment will  show  the  nature  of  the  expenditures,  while  the  statement  referred  to 
will  show  what  the  inventory  shown  by  this  statement  consists  of,  and  will 
show  the  cost  of  production. 


f^P^Ktpr  of  S/ilp«;  nr)/i  Ca<^<,.    Mnr^tt^  of 


Sales 


bote 


Nop\e 


Teri^s 


\ccoUf)1i 
R«fiv«bl» 


Li^jn 


ftrTs 


Costof  Sole^ 


(^f|)air$n  Lott}n 


ftrTi 


■■ 


l^p^in 


Groti 


Form  26. 
968 


(I 


74r)A 


American  Business  and  Accounting  Encyclopedia 


M 


A. 


^t/itprnpnt  nf  ?rnAvA.»r).  Or/f^rc  ntsAC^tXa^ 


rrodvcTiorf 


Ord 


prs 


li^pi^Tory  b«^.iy)ii^^c^ri,i^Tli 


q);ni)TiTy    pnce  \rr\out)t 


Totnl 


qi^noTir, 


Cr\Ot>r)t 


I 


l9vri)Tory  9f)d  of  H><)l^ 


'^^■^'?''N. 


FoKM    27. 

classification  of  accounts. 

ASSETS. 

Plant  Accounts 

Real  Estate 

^lachinery 

Machine  Tools 

Special  and  Small  Tools 

Factory  Furniture  and  Fixtures 

Office  Furniture  and  Fixtures 

Horses  and  Wagons 
Deferred  Charges: 

Insurance 
Interest 

Postage,  Printing  and   Stationery 
Repairs  and  Improvements 
Current  Assets: 
Cash 

Notes  Receivable 
Accounts  Receivable 
Raw  Material 
Finished  Material 
Material  in  Process 

LIABILITIES. 

Capital  Stock: 

Current  Liabilities — 

Notes  Payable 

Accounts  Payable 

Wages  Payable 

Interest  Payable 

Taxes  Payable 
Dividends  Payable: 
Reserve  Funds — 

Doubtful  Accounts 

Depreciation  and  Extinguishment 
Surplus: 

OPERATING  ACCOUNTS. 

Material : 

Raw  Material 

Finished  Material 

Material  in  Process 
Labor : 

969 


"^OVf 


V'}\i\\rdOrt)fn 
ol  f  7^  of  Mof)!^ 


qwoTity 


I 


Ma. 


I! 


American  Business  and  Accounting  Encyclopedia 

DIRECT. 

Machine  Department 
Cabinet  Department 
Veneer  Department 
Finisliing  Department 

INDIRECT. 

Machine  Department 
Cabinet  Department 
Veneer  Department 
Finishing  Department 

SUPERVISION. 

Machine  Department 

Cabinet  Department 

Veneer  Department 

Finishing  Department 
Indirect   Expenses: 

Factory  Supplies 

Purchase  Freight 

Light,  Heat  and  Power 

Insurance  Expired 

Taxes  Expired 

Repairs  to  Machinery 

Repairs  to  Machine  Tools 

Repairs  to  Factory  Furniture  and  Fixtures 

Repairs  to  Real  Estate 

Defective  Work 

Experimental 
Shipping  Department  Expenses 

Incidental  Manufacturing 

Depreciation  of  Plant 
Sales  and  Cost  of  Sales: 

Bed  Room  Furniture 
Selling  Expenses: 

Discount  on  Sales 

Sales  Freight 

Commissions 

Incidentals 

Traveling 

Advertising 
Administration  Expenses: 

Salaries  of  Officers 

Salaries  of  Clerks 

Dining  Room  Expense 

Legal  Expense 

Interest 

Discount 

Postage,  Printing  and  Stationery 

Telegraphing  and  Telephoning 

Watchman's  Expense 

Real   Estate  Rentals 

Incidentals 

Doubtful  Accounts  .  * 

Profit  and  Loss: 


970 


746A-S 


746B 


American  Business  and  Accounting  Encyclopedia 


Ma. 


AF^TICLE 

UNIT 

C05T 

MAX 

MIN. 

51 ZE  OF^  J^IND 

RECEIVED 

DELIVERED 

On 

- 

Dnte 
— 1 

Qiicrj 

Cost 

Frt  end 

Cost 

JDote 

Order 
No 

Qtion, 

jDote 

Order 
No. 

Qiicr) 

1 

.< 

Form  1. 

(746B)    MANUFACTURING  SYSTEM  AS  APPLIED  TO  A 

SMALL  SHOP. 

This  is  a  copy  of  the  report  and  recommendations  made  to  a  manufacturer 
of  filters.  This  is  a  small  establishment  employing  about  a  dozen  men,  all  of 
the  work  being  handled  in  one  room.  All  castings  are  purchased  in  the  rough 
from  a  jobbing  foundry  but  are  finished  in  the  shop  and  a  great  many  of  the 
small  parts  and  fittings  are  purchased  ready  to  be  assembled  in  the  complete 
filter.  A  voucher  system  is  used,  the  voucher  record  being  similar  to  those 
illustrated  in  the  first  study.  Two  material  accoimts  are  carried,  viz.:  raw 
material  or  rough  stores,  and  finished  material. 

COPY  OF  REPORT. 

In  regard  to  your  factory  system,  we  submit  the  following  recommenda- 
tions. The  first  matter  for  consideration  is  that  of  purchases.  Since  your 
factory  superintendent  will  personally  attend  to  the  purchasing  and  will  also 
act  as  his  own  receiving  clerk,  your  present  method  of  making  orders  in  dupli- 
cate will  be  satisfactory.  The  duplicate  copy  will  be  retained  by  the  superin- 
tendent and  placed  in  a  tickler  so  that  it  may  be  filed  ahead  from  day  to  day 
to  follow  up  the  order  until  the  goods  have  been  received.  To  insure  these 
orders  being  properly  checked,  we  recommend  the  use  of  a  rubber  stamp 
printed  as  shown  below. 

This  stamp  is  to  be  placed  on  the  copy  of  the  purchase  order  and  also 
on  the  invoice  when  it  is  received.  Before  the  order  can  be  considered  com- 
plete, or  the  invoice  entered  for  payment,  each  line  shown  on  this  stamo 
should  be  initialed  by  the  proper  party  and  this,  of  course,  cannot  be  done 
until  the  items  have  been  entered  on  the  stores  card.  This  will  insure  all 
records  being  properly  made. 

971 


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746B 


ai^ticle; 

FINISHED                                VSZH 

D^te 

Qi)c\n. 

Fif)i*)l)6d 

D<nte 

Order 
No 

Qi)afJ.      incite 

Order 
No. 

Qvc\(). 

Bate 

Order 
Na 

Qi^Cll)- 

1 

1 

Form  -. 
STORES   RECORDS. 

So  far  as  the  cost  system  is  concerned,  the  first  essential  is  to  have  the 
stores  properly  cared  for  and  accurately  recorded  so  that  it  will  be  possible 
at  all  times  to  ascertain  the  exact  quantities  on  hand.  In  your  shop  we  find 
evidence  of  a  considerable  waste  of  material  which  is  due  to  the  fact  that 
the  workmen  are  allowed  to  help  themselves  and  that  they  leave  the  surplus 
material  on  the  benches  or  lying  about  the  shop  instead  of  returning  it  to  one 
central  storage  place.  While  a  single  piece  of  material  represents  but  a  small 
outlay,  the  aggregate  of  these  losses  will  amount  to  a  considerable  sum  in  the 
course  of  a  year. 

We  recommend,  therefore,  that  you  concentrate  all  materials  carried  in 
stock  in  one  storage  place.  In  one  corner  of  the  shop  where  you  now  have 
racks  for  certain  stores,  there  seems  to  be  sufficient  room  and  by  re-arranging 
these  racks,  you  have  a  definite  storage-room  with  very  little  expense.  This 
storage-room  should  be  enclosed  and  we  suggest  running  a  wire  partition 
across  the  front  with  a  door  at  one  end.  The  partition  should  be,  say  6  feet 
high  and  by  using  the  wire  screen,  the  light  would  not  be  shut  off. 

Instead  of  allowing  the  workmen  to  go  in  and  help  themselves,  this  stor- 
age-room should  be  in  charge  of  the  superintendent,  or  some  one  delegated 
by  him,  and  no  one  else  should  have  access  to  the  room.  If  this  is  placed  in 
his  direct  charge,  the  superintendent  can  issue  the  materials  required  by  the 
workmen  and  at  the  same  time  keep  a  record  of  what  is  going  out. 

When  you  have  your  stock-room  in  shape,  the  first  necessity  will  be 
to  take  an  inventory  of  all  stores  on  hand.  These  stores  should  be  divided 
into  two  classes,  viz. :  rough  and  finished  stores.  Rough  stores  will  consist 
of  castings,  sheet  steel,  sheet  brass  and  similar  materials  which  you  purchase 
in  the  rough  state  and  work  over  to  make  the  various  parts  used  in  your  filters. 

972 


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American  Business  and  Accounting  Encyclopedia 


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SHOP  ORDER. 


No. 


DoTe 


To  5i>perif)Tei)df»)T 


^^^^'^'oZ'^^c 


tt)e  follovKiQ^  to  be  COnp'eted  hy. 


.igo 


Sl^r)ed. 


.Gerfi  M^r. 


QUANTITY 


NUMBE-F^   OK>   PESCt^lPTIQN 


Coi^l«tc4 


1^0 


.5i>i>1; 


f^EMARKS 


Form  o. 

Finished  stores  will  include  those  parts  which  you  purchase  complete  ready 
for  use  and  also  the  completed  parts  which  you  make  from  the  rough 
stores.  To  illustrate,  a  casting  or  a  base  goes  into  the  rough  stores ;  when  it 
has  been  machined,  drilled  and  tapped,  it  is  properly  classified  as  finished  stores. 

When  an  inventory  is  taken,  the  quantities  on  hand  should  be  recorded 
on  cards  printed  as  shown  in  Exhibit  1.  A  card  is  to  be  used  for  each  article 
carried  in  stock  and  where  the  same  article  is  carried  in  diflferent  sizes,  a  card 
is  to  be  used  for  each  size.  At  the  top  of  the  card  is  entered  the  name  of 
the  article,  size  or  kind,  the  unit  representing  pounds,  feet,  dozen,  etc.,  and 
the  cost.  At  the  extreme  right  are  spaces  for  noting  the  maximum  and  mini- 
mum stock  limit.  For  each  article  a  maximum  and  minimum  limit  should 
be  established  and  as  soon  as  the  stock  reaches  the  minimum  limit,  the  man  in 
charge  of  the  records  must  see  that  a  new  supply  is  ordered. 

This  card  shows  the  quantities  received  from  time  to  time  with  the  cost, 
including  cost  of  freight  and  cartage.  At  the  right  is  a  record  of  material 
delivered,  showing  date,  order  number,  and  quantity,  with  a  balance  colunni 
for  extending  the  balance  on  hand.  This  card  will  answer  either  for  rough 
stores  or  those  finished  stores  which  are  received  ready  for  use. 

The  back  of  this  card  should  be  printed  as  shown  by  Exhibit  2,  this  being 
a  record  of  the  stores  which  have  been  finished  in  your  shop.  To  illustrate, 
we  will  take  a  casting.  We  will  suppose  that  twenty  rough  castings  are 
received,  these  being  entered  on  the  face  of  the  card.  On  a  cerain  date  ten  of 
these  castings  are  finished ;  these  are  entered  on  the  reverse  and,  as  the  fin- 
ished castings  are  withdrawn  from  the  stores- room,  they  are  also  entered  on 
the  reverse.  The  face  of  the  card  will  show,  at  all  times,  the  number  of  rough 
castings  on  hand,  while  the  reverse  will  show  the  number  of  finished  castings. 

973 


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746B 


■ 

■~ 

■^~ 

■ 

1 

T— 

T— 

-  — 

-J 

< 

or 

Z 

is 

o 
O 

5 

0 

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Form  4. 

These  cards  will  be  filed  alphabetically  according  to  the  name  of  the 
article  or,  if  it  seems  to  be  more  convenient,  the  cards  for  finished  stores  may 
be  filed  by  part  numbers.  Instead  of  using  alphabetical  index  cards,  we 
suggest  using  what  are  known  as  blank  guides  and  writing  the  names  of 
the  articles  on  the  projections,  thus  making  your  own  index,  which  will  be 
more  complete  than  would  be  possible  with  the  ordinary  alphabetical  guides. 

SHOP  ORDERS. 

Since  you  have  on  hand  a  considerable  supply  of  duplicate  invoice  blanks, 
we  recommend  for  the  present  making  a  separate  shop  order  for  each  lot  of 
filters  or  each  lot  of  parts  to  be  finished.  This  order  may  be  for  goods  required 
to  fill  a  given  order  or  for  goods  carried  in  stock  but  nothing  should  be  com- 
pleted without  an  order.  The  face  of  the  shop  order  is  shown  in  Exhibit  3, 
this  being  simply  an  order  to  the  superintendent  to  make  certain  articles.  This 
shop  order  is  5  x  8  inches  in  size  and  should  be  printed  on  some  good  tough 
stock  of  a  color  which  will  not  quickly  show  soil. 

The  back  of  the  shop  order  should  be  printed  as  shown  in  Exhibit  4 ;  this 
is  a  record  of  the  material  and  labor  required  to  complete  the  job.  In  other 
words,  it  is  the  cost  sheet  for  that  particular  job. 

MATERIAL    RECORDS. 

Since  your  superintendent  is  to  issue  all  material,  it  will  not  be  necessary 
to  make  a  formal  requisition  as  is  usually  done,  but  the  material  records  can 
be  obtained  by  means  of  a  material  slip  shown  in  Exhibit  5.  When  the  super- 
intendent issues  material  for  a  certain  job,  he  should  make  out  one  of  these 
slips  showing  the  number  of  the  man  to  whom  issued  and  also  the  order  num- 
ber which  should  correspond  to  the  number  of  the  shop  order. 

974 


746B 


American  Business  and  Accounting  Encyclopedia 


Ma. 


incite 


.190 


McnTericnf  issued  To  n^HQ.  No.. 


For  Order  No. 


, 


Form  5. 


From  these  material  slips  he  will  make  the  record  on  the  stores  card,  show- 
ing materials  delivered  and  then  retain  the  slip  until  the  job  is  completed.  If 
any  material  is  left  over,  it  should  be  returned  to  the  stores-room,  credited 
on  the  card  and  also  on  the  material  slip.  When  the  job  is  completed,  the 
cost  of  materials  used  should  be  extended  on  the  material  slips  and  the  totals 
entered  on  the  cost  sheet,  Exhibit  4. 


^    ■■ 


I 


LABOR   RECORDS. 

To  arrive  at  the  exact  cost  of  manufacture,  it  is  absolutely  essential  that 
you  obtain  accurate  information  as  to  the  time  required  by  each  man  on 
the  several  parts  of  the  work.  We  have  provided  for  this  by  means  of  a  work 
ticket,  as  shown  in  Exhibit  6.  Whenever  a  job  of  any  character  is  started  one 
of  these  work  tickets  should  be  filled  out  by  the  superintendent  and  given  to 
the  man  who  is  to  b^n  the  work ;  this  is  the  workman's  authority  for  doine 
the  work.  ^ 

At  the  top  of  the  card  is  shown  the  shop  order  number,  the  name  of  the 
part  to  be  made,  the  date  started  and  the  quantity  to  be  completed.  In  the 
next  blank  space  below  will  be  entered  the  number  of  the  man  starting  the 
work,  the  rate  of  pay,  name  of  operation,  date  and  number  finished,  the  latter 
Item  bemg  entered  when  the  job  is  completed  or  at  the  close  of  the  day  in 
case  more  than  one  day  is  required  for  his  operation.  Below  this  is  the 
pnnted  time  record,  the  day  being  divided  into  fifteen-minute  periods. 

When  the  workman  begins  on  the  job,  he  is  to  indicate  the  time  on  the 
card,  t.  e.,  if  he  begins  at  fifteen  minutes  past  8,  he  will  place  a  cross  over  the 
^  immediately  following  the  number  8.  When  his  operation  is  completed,  he 
IS  to  check  the  time  in  the  same  way,  and,  if  not  completed  at  the  close  of  the 

975 


I 


I 


Ma. 


Amkrican  BusrxEss  and  Accouxtixg  Encyclopedia 


746B 


746B 


American  Business  and  Accounting  Encyclopedia 


Ma. 


SHOP  ORDEf^  NO- 
PART 

WORK  TICKET 

DATE 

0))ANTITY 

nAN-5  NO. 

RATE 

OPERATION 

DATE 

NO.  FINISHED 

8    Ya 

/2 

3A 

<5 

>^ 

Vz 

%. 

10 

/4 

Vi 

%. 

II       74 

/2 

^Va 

12 

A 

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1        /4 

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3/4, 

Z 

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J 

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4      /4 

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A 

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^                                                                                                                                 1                                                         1 

8       '/A 

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3/4 

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3A 

II      A 

/2 

^Va 

12 

A 

Vz 

Ya 

X      Va 

/2 

^A 

2 

)4 

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/A 

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3/4 

4     Va 

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s5 

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r^ 

1                                                                                           1 

8     Va 

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^4 

q 

Va 

Vz 

Va 

10 

/4 

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3/4 

11     A 

Vz 

3/4 

12 

/4 

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VAt 

1      Va 

/2 

3/4 

z 

Va 

Vz 

^4 

^ 

Va 

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3/4 

4     A 

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^4 

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1                  1 

8        /4. 

Vz 

4i* 

9 

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II     Va 

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2 

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% 

3 

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^A 

A     Va 

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3/4 

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1                                      1                                                 1 

8      /4 

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1        >4. 

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3/4 

2 

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3/4. 

1 

1 

8     Va 

/2 

"^4 

9 

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3/4 

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3/4 

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1       /4 

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^4 

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1 

Form  6. 

working  period,  he  is  to  check  the  time  he  quits  work.  When  the  work  runs 
over  from  one  day  to  another,  the  entries  will  be  repeated  and  the  time  checked 
in  the  next  space  below.  On  ordinary  jobs  where  the  work  passes  from  one 
man  to  another,  one  card  will  be  sufficient  as  the  card  will  follow  the  job  and 
each  man  will  enter  his  time  in  the  next  space  below  the  one  used  by  his 
predecessor.  On  large  jobs  where  several  men  are  working  at  the  same  time, 
it  is  advisable  to  issue  a  card  for  each  workman.  \\'hen  more  than  one  card 
is  issued,  each  should  of  course  bear  the  same  number,  i :  e.,  the  number  of 
the  shop  order. 

In  your  shop  we  find  what  appears  to  be  an  unnecessary  waste  of  time 
in  changing  machines  from  one  job  to  another.  This  seems  to  be  due  to  the 
fact  that  the  work  has  not  been  properly  planned,  with  the  result  that  a 
machinist  is  frequently  required  to  change  his  machine  to  turn  out  some  special 
job  before  the  work  in  hand  is  completed.  To  assist  your  superintendent  in 
arriving  at  a  correct  basis,  it  is  important  that  you  should  know  just  how 
much  time  is  being  consumed  in  changing  from  one  line  of  work  to  another, 
Therefore  we  recommend  keeping  an  exact  record  of  the  time  required  in 
changing  machines.  To  arrive  at  this,  issue  the  machinist  a  time  card.  Exhibit 
G,  and  instruct  him  to  use  that  card  for  recording  the  time  required  in  changing 
machines  from  one  job  to  another.  The  cost  of  this  time  is  properly  chargeable 
to  the  machine  operations  on  the  various  jobs  in  proportion  to  the  time  taken 
to  complete  the  job. 

When  this  record  has  been  kept  a  short  time,  you  will  find  that  economy 
will  result  from  planning  the  work  in  advance.  Ordinarily,  the  time  required 
for  machine  operations  on  a  certain  job  should  be  figured  from  the  time  the 
machinist  starts  to  set  his  machine  until  the  job  is  completed  but  owing  to  the 

970 


PAf^T  NO                                  U5E.D  ON                                                                                                                 | 

Date 

OpCrtitior) 

Quflf) 

Mcins 
No 

Hrs 

i^r 

tCost 

QtiOr 

No 

Hr5 

i$ir« 

CostlEcic 

!  Tonii 

^ 

_ 

. 

0  . 

1 

- 

. 

_ 

p.. 

., 

-     — -  - 

». 

_ 

- 

0  - 

— 

- 

— 

_ 

— 

-jh 

_ 

_ 

~^^ 

r 

1 

.  . 

Form  7. 

' 

extravagant  waste  of  time  as  your  shop  is  now  conducted,  we  consider  it  advis- 
able to  keep  a  separate  record  of  this  time  for  the  next  sixty  or  ninety  days. 
By  that  time  your  superintendent  will  undoubtedly  have  the  work  running 
nicely  so  that  this  special  time  record  can  be  dispensed  with. 

collecting  the  information. 

Every  night  the  time  cards  and  material  slips  should  be  collected  and 
placed  in  your  safe,  keeping  those  of  uncompleted  jobs  by  themselves.  In  the 
morning  the  uncompleted  work  tickets  will  be  taken  out  and  distributed  to 
the  workmen,  but  it  is  important  that  they  be  kept  where  thev  cannot  possibly 
be  destroyed  by  fire  over  night  as  these  records  would  in  such  a  ca^e  be  of 
considerable  value.  When  the  job  is  completed,  the  time  and  material  record^ 
will  be  entered  on  the  cost  sheet  on  the  back  of  the  shop  order. 

To  insure  an  accurate  record  being  kept  of  all  time,  the  workmen  should 
be  given  to  understand  that  they  will  be  paid  only  for  the  time  shown  by  the 
work  tickets.  If  a  workman  finishes  a  certain  job  and  the  superintendent  ha^ 
no  work  ready  for  him,  he  should  be  instructed  to  enter  on  his  time  card 
"  idle  "  and  keep  a  record  of  the  time  until  work  is  given  him.  W' hen  the 
system  is  in  good  running  order,  you  will  find  few  if  anv  idle  cards  for  two 
reasons:  first,  the  workman,  knowing  that  an  exact  record  is  being  kept  of 
his  time  on  various  jobs,  will  not  pad  the  time  to  cover  the  period^ when  he 
is  without  work:  second,  the  superintendent  will  be  careful  to  supply  everv 
man  with  work  in  advance,  knowing  that  idle  cards  reflect  on  his  management. 

FACTORY    EXPENSE. 

In  addition  to  the  items  of  material  and  direct  labor,  the  cost  of  indirect 
labor  and  general  expense  enters  into  the  cost  of  the  job.    By  indirect  labor 

977 


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American  Business  and  Accounting  Encyclopedia 


746B 


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American  Business  and  Accounting  Encyclopedia 


Ma. 


o 
o 

TYPE  NO                               STYLE. 

- 

RnrTs 

Nap\btr 

Cost 

Order 

Qoor). 

Cost 

E^c\) 

OnJer 

Q^at). 

Cost- 

En  cl^ 

Order 

Qaa<^ 

Cost 

Eaci) 

, 

1 

1 

1 

1 

Assei^bli^p 

Iriitollinfi 

ExtDCtjse 

ToTfll 

1 --.. 

— 

FOKM   8. 

is  meant  that  labor  which,  while  necessary  in  the  conduct  of  the  factory, 
does  not  enter  directly  into  the  manufacture  of  the  goods,  or  in  other  words, 
cannot  be  applied  directly  to  a  given  job.  This  includes  the  salary  of  the 
superintendent,  salary  of  the  factory  clerk  or  cost-keeper  and  general  laborers. 
One  of  the  accepted  methods  of  apportioning  this  item  is  on  the  basis  of 
indirect  labor  to  direct  labor  in  a  given  pay-roll  period.  Suppose  that  during 
the  pay-roll  period  the  cost  of  direct  labor  as  shown  by  the  time  cards  is 
$500.00 ;  the  pay-roll  is,  say  $550.00,  leaving  $50.00  to  be  charged  to  indirect 
labor.  Dividing  $50.00  by  $500.00  gives  10  per  cent.,  therefore  to  each  job 
there  should  be  added  for  indirect  labor,  10  per  cent,  of  the  cost  of  direct  labor. 
General  expense  includes  rent,  insurance,  taxes,  power,  light,  heat,  factory 
supplies,  and  all  of  the  expenses  of  the  factory  not  otherwise  accounted  for. 
This  may  be  apportioned  on  the  same  basis  as  indirect  labor,  i.  e.,  add  the 
percentage  which  the  general  expenses  for  the  month  bear  to  the  total  charge 
for  direct  labor  during  the  same  period. 

controlling  accounts. 

In  the  general  ledger  you  are  now  carr>^ing  a  labor  account,  material 
accounts,  and  the  various  expense  accounts.  In  order  to  carry  out  the  balance 
plan  of  improved  systems,  it  will  be  necessary  to  open  either  in  your  gen- 
eral or  private  ledger,  certain  other  accounts  which,  for  convenience,  we 
term  "  controlling  accounts."  First,  you  should  open  an  account  known 
as  "manufacturing  account,"  which  will  be  an  exhibit  of  the  total  cost 
of  manufacturing  your  goods.  When  materials  are  received  they  will,  of 
course,  be  charged  direct  to  the  various  material  accounts.  Each  day  the 
materials  issued,  as  shown  by  the  material  slips  already  referred  to,  should 
be  figured  at  cost  and  these  amounts  credited  to  the  various  material  accounts 

978 


and  charged  to  manufacturing  account.  At  the  end  of  a  pay-roll  period,  the 
total  amount  of  the  pay-roll  is  charged  to  labor  account.  Each  day  the  cost 
of  direct  labor  as  shown  by  the  time  cards  should  be  credited  to  labor  account 
and  the  amount  charged  to  manufacturing  account. 

The  next  account  to  be  opened  is  the  expense  adjustment  account.  Refer- 
ring to  the  various  expense  accounts,  it  will  be  seen  that  many  of  these  accounts 
are  made  up  of  items  which  are  paid  but  once  or  twice  a  year.  As  an  illustra- 
tion, take  the  items  of  taxes  and  insurance.  The  total  amount  for  the  year  is 
paid  at  one  time  but  each  month  one-twelfth  of  this  amount  should  be  appor- 
tioned to  the  jobs  of  that  month,  therefore  such  accounts  will,  at  the  end  of 
the  month,  be  credited  with  one-twelfth  of  the  yearly  amount  and  this  item 
will  be  charged  to  expense  adjustment  account.  In  the  case  of  ether  expense 
accounts,  where  the  items  paid  out  apply  to  the  current  month  only,  the  total 
amounts  will  be  credited  and  charged  to  the  expense  adjustment  account. 
The  labor  account  has  been  charged  with  the  total  pay-roll  and  credited  with 
the  direct  labor,  leaving  a  balance  which  represents  indirect  labor.  This  item 
should  be  credited  to  labor  accoimt,  thus  balancing  that  account  at  the  end  of 
the  month,  and  charged  to  expense  adjustment  account. 

We  now  have  total  cost  of  expenses  and  indirect  labor  charged  to  the 
expense  adjustment  account  and,   for  convenience  in   figuring  the   cost   on 
individual  jobs,  we  can  use  one  percentage  which  will  be  the  ratio  that  the 
total  expenses  bear  to  the  direct  labor  for  the  month.     If  this  happens  to  be 
25  per  cent,  of  the  cost  of  direct  labor,  we  will  use  that  percentage  to  cover 
the  item  of  factory  expense  on  the  next  months'  jobs.    As  the  costs  are  figured 
on  individual  jobs,  the  total  factory  expense  charged  will  be  credited  to  expense 
adjustment  account  and  charged  to  manufacturing  account.     At  the  end  of 
current  month,  we  may  find  that  there  is  a   small  balance  in   the  expense 
adjustment  account  for  the  reason  that  the  percentage  has  varied  from  that 
of  the  previous  month.     Perhaps  the  exact  percentage  will  be  26  per  cent., 
which  will  leave  a  debit  balance,  or  it  may  be  but  241/0  per  cent,  which  would 
leave  a  small  credit  balance.    To  adjust  this,  it  will  be  necessary  to  make  an 
increase  or  decrease  as  the  case  may  be,  in  the  percentage  during  the  next 
succeeding  month. 

As  the  jobs  are  completed,  the  total  costs  of  material,  labor,  and  factory 
expense  will  be  credited  to  manufacturing  account  and  charged  to  finished 
goods  account  which  represents  the  finished  goods  on  hand.  To  this  latter 
acount,  i.  c,  finished  goods,  will  be  credited  all  sales  at  cost. 

In  the  matter  of  parts  finished  for  stock,  the  cost  of  the  completed  jobs 
will  be  credited  to  the  manufacturing  account  but  instead  of  being  charged  to 
finished  goods  account,  it  will  be  charged  to  the  material  account  representing 
finished  stores.  In  the  case  of  material  returned  to  stock  which  has  previously 
been  charged  to  a  given  job,  the  amount  will  be  credited  to  manufacturing 
account  and  charged  to  the  proper  material  account. 

Our  general  and  controlling  accounts  will  now  exhibit  the  following  infor- 
mation:  The  balances  of  the  various  material  accounts  will  represent  the 
value  of  the  rough  and  finished  stores  in  the  stores-room.     The  balance  of 

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the  manufacturing  account  will  represent  the  cost  in  material,  labor  and 
expense  of  all  unfinished  goods  in  process.  The  balance  of  the  finished  goods 
account  will  represent  the  cost  of  all  finished  goods  in  stock.  This  brings  the 
perpetual  inventory  into  the  general  ledger  and  the  only  possible  discrepancy 
will  be  the  slight  balance  which  may  be  on  either  side  of  the  ledger  in  the 
expense  adjustment  account  and  this  will  be  cared  for  during  the  following 
month.  When  the  system  has  been  in  operation  a  few  months,  there  should 
be  practically  no  balances  in  this  account. 

manufacture  of  parts. 

Aside  from  the  statistics  shown  by  the  general  books,  it  will  be  advisable 
to  maintain  certain  other  comparative  records.  By  giving  the  matter  some 
attention,  the  superintendent  will  soon  learn  in  what  quantities  the  various 
parts  are  required  and  will  find  it  advisable  to  have  these  parts  finished  in 
advance  of  his  need.  When  he  wishes  to  finish  a  certain  number  of  parts, 
he  will  issue  the  work  ticket,  Exhibit  (5,  this  ticket  following  the  job  to  com- 
pletion. In  a  case  of  castings,  no  other  record  of  material  will  be  required 
and  when  the  job  is  completed,  the  proper  entries  can  be  made  on  the  stores 
records.  If  parts  are  to  be  manufactured  from  one  or  more  materials,  it  will 
be  necessary  to  issue  material  slips.  Exhibit  5,  the  same  as  is  done  for  com- 
plete filters. 

Each  one  of  these  completed  jobs  should  be  entered  on  the  cost  sheets, 
shown  in  Exhibit  7,  this  being  a  comparative  cost  of  parts.  One  sheet  is  used 
for  each  part  and  in  the  column  headed  "  operation,"  each  separate  opera- 
tion is  recorded.  It  will  be  seen  that  a  record  of  the  labor  cost  is  first 
obtained,  after  which  the  cost  of  material  is  added,  giving  the  total  cost  of  each 
piece. 

This  cost  sheet  shows  the  record  of  two  jobs  side  by  side,  and,  since 
the  number  of  operations  is  not  more  than  four  or  five,  one  side  of  the  sheet 
will  hold  the  record  of  about  six  jobs.  One  advantage  of  the  comparative 
record  will  be  a  record  of  the  cost  of  parts  when  finished  in  various  quantities. 

COMPARATIVE  COST  OF  COMPLETE  FILTERS. 

The  sheet  shown  in  Exhibit  8  is  both  a  specification  sheet  and  a  com- 
parative cost  record  of  completed  filters.  In  the  first  column  will  be  entered 
the  various  parts  required  in  assembling  the  filter,  showing  the  number  used 
and  the  cost  each,  then  for  each  job  completed,  the  cost  will  be  recorded, 
including  the  cost  of  assembling,  installing  and  expense,  these  records  being 
obtained  from  the  cost  sheet.  Exhibit  4.  Provision  is  made  for  a  record  of 
three  jobs  on  each  sheet  and  this  furnishes  a  comparative  record  the  same 
as  referred  to  in  the  record  of  parts. 

(T46C)    MANUFACTURING   SYSTEM   FOR   MACHINE   SHOP. 

PLTRCHASE   ORDER. 

This  form  should  be  printed  and  ruled  according  to  sample,  and 
bound  in  book  of  100  sheets,  original,  duplicate  and  triplicate.     The  original 

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should  be  sent  to  the  individual  or  company  from  whom  the  goods  are  ordered, 
the  duplicate  should  be  sent  to  the  accounting  department  and  held  on  file 
until  the  invoice  is  received,  the  triplicate  should  remain  in  the  book  for  refer- 
ence and  record. 

This  form  should  be  made  in  duplicate,  prepared  in  pads  of  100  sets 
each  and  punched  for  binding.  When  the  goods  are  received  this  form  should 
be  filled  out  by  the  receiving  clerk,  and  the  original  and  duplicate  sent  to  the 
accounting  department.  The  duplicate  should  be  attached  to  the  purchase 
order,  and  the  original  should  be  filed  numerically  after  being  priced.  The 
receiving  clerk  should  sign  sheet,  stating  the  date  goods  were  received.  The 
date  of  invoice  should  also  appear  on  this  sheet  as  well  as  the  purchase  order 
number,  and'  the  party  entering  should  sign  this  sheet. 


O 

rgivor  of. 


M(3Tfif-wl  Received  Sh^et 

No. 


Art.cl 


es 


Purt^seOrt^r  Na ^. 


Qa<a»)titv 


Rate 


a 


hotf  f\eceive<i. 


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bote  of  Ipvotcp. 
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Form  1. 
MATERIAL  REQUISITION. 

« 

This  form  should  be  ruled  and  printed  according  to  sample,  and  prepared 
in  pads  of  100  sheets  each.  When  the  material  is  required  for  certain  orders 
the  superintendent  should  authorize  the  stock  clerk  to  deliver  the  articles 
required  to  the  operating  department  on  this  requisition  which  should  be  signed 
by  the  superintendent.    The  requisition  should  then  be  handed  to  the  stock 


Jol^f)  Doe  Con\|jn9y 

No 

Nf'nf '. Terns_ 

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r»&ton    h*I 

.h.ll^»'#-^y      P'O    C> 

Dote  I\e^ui  red 

Articles 

Qu<i9r'ry 

Price 

AqoUljt 

■~" 

^ 

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=*~ 

^ 

~ 

"^" 

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you  ore  i}orpby  ovl^rapj  to  fill  V  •'»•*'  orrf^r  os  sToW  .f  yout 

Jolji)  boe  Co 

FoKU  2. 


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clerk  by  the  individual  receiving  the  goods,  who  should  also  sign  this  requisi- 
tion. At  the  end  of  the  day  the  stock  clerk  should  hand  in  to  the  office  all 
requisitions,  and  no  material  should  be  delivered  to  operators  unless  authorized 
by  the  superintendent  or  foreman.  This  requisition  should  be  filed  numerically 
in  a  binder  for  that  purpose. 


O 


M^terKnl   Reql}isitioQ         ^° 

bote .    On^erNo- 


Articles  |Q2?ci9tiT"y 


Pric( 


Ap\ouf)t 


^— RfcpiveJ  fiy 


Avit}fomejQiy 


Nar\e 


Forer\a9 


Form  3. 


STOCK    SHEET     (rAW    MATERIAL). 

This  form  should  be  ruled  and  printed  on  both  sides  according  to  sample 
and  punched  for  binding.  A  separate  sheet  should  be  used  for  each  article. 
In  the  upper  left  hand  corner  are  the  words  "  Maximum  "  and  "  Minimum," 
which  refer  to  the  maximum  and  minimum  amount  of  each  article  to  be  carried 
in  stock,  and  is  intended  to  regulate  purchases.  The  information  called  for 
under  the  caption  "  Ordered  "  can  be  obtained  from  the  Purchase  Order  Book, 
which  should  be  posted  daily.  The  information  called  for  under  caption 
'■  Received  "  can  be  obtained  from  the  Material  Received  Sheets,  which  should 
be  entered  daily.  The  information  called  for  under  the  caption  "  Delivered  " 
can  be  obtained  from  the  Material  Requisitions,  which  should  be  posted  daily. 


^^" 

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ttlficatMM)  No . 

1 

O                                      STocK                    Z 

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OnJprpJ 

f\ecpived       1        Delivere<^ 

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746C 


American  Business  and  Accounting  Encyclopedia 


Ma. 


No 


r\p_ 


No.   B  Article 


ORU    6. 


The  information  called  for  under  the  caption  "  Balances  "  represents  the  differ- 
ence between  the  column  headed  "  Received  "  and  the  column  headed  "  Deliv- 
ered," and  should  show  the  quantity  of  each  article  on  hand,  as  well  as  the 
cost.  The  difference  between  the  column  headed''  Ordered  "  and  the  column 
headed  "  Received  "  will  represent  the  goods  ordered  but  not  received. 

PRODUCTION    order. 

This  foi-m  should  be  ruled  and  printed  according  to  sample,  and  made  in 
duplicate  and  bound  in  a  book  of  100  sets  each.  The  order  should  be  made  out 
for  all  goods  ordered  from  the  factory,  and  no  work  done  unless  authorized  bv 
the  manager.  This  order  represents  the  authority  to  manufacture  good.,  and 
will  enable  the  manager  to  require  a  fixed  amount  of  work  from  the  factors- 
daily.    All  count  of  material  used  should  be  charged  against  the  order  issued  by 


Order  No 


ProdwcTioQ  Order 


No. 


bflTe 


bflte  f^eqyired 


Articles 


Ql7g19Tiry[  I^oTp 


^nffnrp|fftrfi9i%tjKrf|iroJiwiT.  i.l.i^.,^.r.,^y  y^^i^nrrf  \u\rVi 


Anoy^t 


Mo9o{)fr 

Form  5. 


Form  4. 


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the  office.  A  separate  order  should  be  issued  for  each  article.  When  the 
order  is  completed  and  delivered  to  the  storeroom,  this  form  should  be  returned 
to  the  office  together  with  the  Production  Report,  showing  the  production  for 
the  day.  The  number  of  the  Production  Report  should  be  entered  on  this 
order.  The  duplicate  remaining  in  the  book  is  for  the  purpose  of  stating  the 
cost  of  each  order  issued.  When  the  order  is  closed  the  original  should  be 
ruled  off,  the  Production  Report  number,  entered,  showing  where  and  when 
the  articles  were  completed. 


TIME    CARD. 

This  form  should  be  made  of  manilla  tag  board,  and  printed  according  to 
sample.  The  Time  Card  should  be  made  out  by  the  employes  showing  the 
nature  of  the  work  and  the  actual  time  consumed  on  each  order,  as  well  as  on 
each  operation.  The  production  of  each  machine  should  be  inspected  and 
counted  after  each  operation  and  the  count  entered  on  the  time  card,  which 
should  then  be  handed  into  the  office  for  reference  and  record. 


COST  SHEET. 

This  form  should  be  ruled  and  printed  according  to  sample,  and  punched 
for  binding.  A  separate  sheet  should  be  used  for  each  order.  This  sheet 
should  be  started  from  the  entry  records  of  the  Production  Order  Book 
showing  the  articles  ordered  from  the  factory.  The  information  called  for 
under  the  caption  "  Labor  "  can  be  obtained  from  the  Time  Card.  The  infor- 
mation called  for  under  the  caption  "  Materials  "  can  be  obtained  from  the 
"  Material  Requisitions."  The  material  called  for  under  the  caption  "  Indirect 
Expenses  "  represents  the  percentage  of  indirect  expenses  added  to  the  cost 
of  each  order,  which  should  be  figured  on  the  basis  of  direct  labor.  The 
indirect  expenses  consist  of  indirect  labor  and  all  other  accounts  shown  on 
the  classification  of  accounts  submitted  under  the  general  caption  "  Indirect 
Expenses."  The  addition  of  these  accounts  divided  by  direct  labor  should 
give  the  percentage  of  indirect  expenses  by  distributing  over  the  production 
for  the  month  on  the  basis  of  direct  labor.  The  average  of  the  indirect  expenses 
should  be  taken  as  a  basis  after  the  costs  have  been  obtained  for  the  first  month. 
The  total  cost  represents  the  addition  of  the  three  columns  mentioned.  All 
posting  to  this  sheet  should  be  done  daily. 

I'RODUCTION    REPORTS    (FINISHED    PRODUCTS). 

This  form  should  be  prepared  in  pads  of  100  sheets,  punched  for  binding, 
and  should  be  ruled  and  printed  according  to  sample.  The  report  should  be  filled 
out  daily  by  the  superintendent  or  foreman,  and  should  be  sent  to  stockroom, 
together  with  the  production  of  the  factory  for  the  day.  The  store  clerk  should 
sign  this  report  when  the  goods  are  received  in  good  condition,  and  should  then 
hand  this  report  into  the  office  in  order  that  the  costs  may  be  entered,  and 
rate  figured,  which  can  be  obtained  from  the  cost  sheet  for  the  orders  com- 
pleted on  this  Production  Report.     The  number  of  the  Production  Report 

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should  be  entered  as  previously  stated  on  the  cost  sheet,  which  should  be  ruled 
off  and  filed  as  completed  orders. 

production    report    (finished    I'ARTS.) 

This  form  should  be  ruled  and  printed  according  to  sample,  and  pre- 
pared in  pads  of  100  sheets,  and  punched  for  binding.  This  report  should  be 
handled  in  substantially  the  same  way  as  the  preceding  report,  excepting  that 
the  production  of  each  operation  should  be  inspected  and  counted  in  order  that 
any  defective  work  or  waste  of  material  may  be  prevented. 

invoice  and  sales  sheets. 

This  form  should  be  ruled  and  printed  according  to  sample,  prepared  in 
pads  of  100  sheets,  original,  duplicate  and  triplicate.  When  an  order  is 
received  either  by  telephone,  mail  or  otherwise,  this  form  should  be  filled  out ; 
the  original  filed  away  alphabetically  as  future  orders  and  a  duplicate  should 
be  handed  to  the  shipping  clerk,  which  represents  his  authority  to  ship  the 
goods  when  completed.  The  triplicate  should  be  sent  to  the  main  office.  When 
the  goods  are  shipped  the  shipping  clerk  should  return  the  duplicate,  showing  the 
date  shipped  and  the  article  shipped,  and  all  particulars  called  for  by  this  form. 
The  original  filed  away  as  an  order  should  then  be  dated  and  sent  to  customer, 
which  will  then  represent  a  bill  instead  of  an  order.  The  duplicate  should 
be  priced  and  the  cost  entered  and  figured,  and  will  then  represent  the  sales 
sheet,  which  will  be  filed  numerically  in  the  binder  provided  for  that  purpose. 
All  posting  of  the  stock  sheet  should  be  made  on  this  form,  which  should 
also  be  entered  on  the  Register  of  Sales  and  Costs,  the  amounts  being  charged 
to  the  individual  or  company  to  whom  the  goods  were  shipped  and  credited 
to  the  several  different  departments. 


o 


ArTiVie 


Costs 

Fn)isljP<^  Ports 


Order  Ho 

botf  W<>i}M 

.(VoducTiM)1V)wn«*. 


Lobor 


ro 


Nol    ttty 


(VtelArn't 


MciTencil 


l>5cr.t>r.oj^ 


No      tlty 


l^tp 


An\t 


Anyt 


Total 
Cost 


Ar{t 


\ 


Form  7. 


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Prodi/cTion  f^et^ort 


Order  No 


Article 


[QuoQtity 


JVp 


Sanpfo«"'^for  fifjiil^f^Jjrodyct,  •.tfiRit)^  out  Hjp  word  |sarTs 


Av\OVX)\ 


1 


Dpii  IS  to  cprTify  r^^it  Ttjc  obovP 
Orliclps  l^v«»  bffi>  iOi|)PcTed  aijrf 


T"(jn  lifocprtify  r^ul  n^Pobove 
OrTitlej  l>pvp  bfr(]''ecPivi></«i) 
6oo<J  cof}dtTioi^ 


Ir^s^pcti 


or 


STocKClerK 


Form  8. 


STOCK   sheet    (finished   PRODUCT). 

This  form  should  be  ruled  and  printed  according  to  sample,  and  punched 
for  binding.  A  separate  sheet  should  be  used  for  each  article.  In  the  upper 
left  hand  corner  appear  the  words  "  iVIaximum"  and  "  Minimum,"  which 
represents  the  maximum  and  minimum  amount  of  each  article  to  be  carried  in 
stock,  which  should  be  considered  in  connection  with  the  unfilled  orders  as  well 
as  the  balance  of  the  stock  on  hand  in  issuing  the  Production  Orders,  authoriz- 
ing the  factory  to  produce  the  articles  called  for  by  this  sheet.  The  information 
called  for  under  the  caption  "  Production  "  can  be  obtained  from  the  Production 
Reports,  which  should  be  posted  daily.  The  information  called  for  under  the 
caption  "  Orders  Received  "  can  be  obtained  from  the  orders  previously  men- 
tioned and  should  be  posted  daily.  The  information  called  for  under  the 
caption  "  Orders  Canceled  "  can  be  taken  from  advice  received  by  telephone  or 
mail,  as  the  case  may  be.  The  information  called  for  under  the  caption 
"  Sales  "  can  be  obtained  from  the  sales  sheets  and  should  be  posted  daily.  The 
column  headed  "  Gross  Profit  "  will  represent  the  difference  between  the  selling 
and  cost  price  of  the  goods  sold,  which  will  place  all  profit  on  a  unit  basis.  The 
orders  received  and  the  orders  canceled  and  the  sales  w^ill  show  the  quantity 
of  each  article  ordered  but  not  shipped.  The  form  to  be  used  should  regulate 
production.  The  column  headed  "  Balance "  will  represent  the  difference 
between  the  column  headed  "  Production  "  and  the  column  headed  "  Sales  " 
at  the  cost  price  and  will  show  the  quantity  and  the  cost  of  each  article  on 
hand. 

STOCK   sheet   finished   PARTS, 

This  form  should  be  ruled  and  printed  according  to  sample,  and  punched 
for  binding.  The  same  instructions  applying  to  the  preceding  form  may  also 
be  applied  to  this,  excepting  that  the  quantity  delivered  to  the  operation  depart- 


986 


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American  Business  and  Accountinc  Encyclopedia 


Ma. 


OrderNo.. 


v-/ol^9  uoeCon\|D(nr7y 


SolJTo_ 


Wilp\i96toi},t)el 


Tprr\s_ 


jan 


Articli 


lQ2/cit)Tiry   {\aXe    Ar\om)t 


Tot^nl 


Form  9. 


ments  should  be  taken  from  the  Material  Requisitions  instead  of  the  sales 
sheets.  However,  where  parts  have  been  sold  the  information  should  be  taken 
from  the  sales  sheets  in  the  same  manner  as  previously  explained. 

plant  ledger. 

This  form  should  be  ruled  and  printed  according  to  sample,  and  punched 
for  binding.  The  information  called  for  under  the  caption  "  Costs  "  can  be 
obtained  from  the  Material  Received  Sheets  and  Time  Cards  of  machinists. 
New  machines  or  tools  should  be  charged  to  regulate  order  number  regarding 
all  charges  on  the  cost  sheet  in  the  same  way  that  the  product  would  be  handled"*, 
providing  that  machines  or  tools  are  made  in  the  factory.  The  information 
called  for  under  the  caption  "  Repairs  "  can  be  obtained  from  the  machinists' 
time  cards  and  should  be  posted  daily  for  the  purpose  of  determining  the  main- 
tenance and  cost  of  each  machine  or  tool.  This  repaired  work,  however,  refers 
to  actual  repairs  but  does  not  refer  directly  or  indirectly  to  adjustments  of 


Form  10. 


987 


Ma. 


'America::  BtsiNESs  and  Accounting  Encyclopedia 


746C 


~~" 

■■" 

Skppt  Mo                           1 

^Toc  w                  „:,,.,„,           1 

/"^                                                                                      Fi()is|jfd  Product                                               j^, 

n»r\UPv 

V     y      Art.rlf. 

bote  1           Pro<}uctioi) 

it 

PI 
2^ 

Snles                Ic 

11 

"csto  Solpi  Grosj  Pr9fit  ^^ 

(3oloi)Cf 

"  '  ' 

FVoJbcI.oi) 

5  <^ 

a-' 

Sole 

St)»»''.No 

1      -r      -r    ll'  fe 

ch      <:       <     a:°-    a'^ 

|-J 

i^->V 

o 

Form  11. 

any  description.  The  information  called  for  under  the  caption  '*  Deprecia- 
tion "  should  be  based  on  the  life  of  the  machine  or  tool.  The  depreciation 
should  be  figured  each  month  and  charged  to  Depreciation  of  Plant  and 
credited  to  Depreciation  and  Extinguishment  Fund.  The  ledger,  if  prop- 
erly kept,  will  represent  the  running  inventory  of  your  plant,  which  would 
be  most  valuable  in  the  event  of  fire,  and  great  care  should  be  taken  to  make 
this  record  complete.  The  repairs  on  each  machine  should  be  carefully  fol- 
lowed in  order  to  determine  the  efficiency  or  inefficiency  of  the  operating 
machine  or  general  machinery. 


GENERAL  OFFICE   SYSTEM. 


REGISTER   OF   SALES   AND   COSTS. 


This  form  should  be  made  in  a  book  of  '^00  double  pages  and  numbered 
alike,  bound  in  moleskin.  The  infonnation  called  for  under  the  caption 
"  Sales  "  can  be  obtained  from  the  sales  sheets,  which  should  be  posted  daily. 
The  information  called  for  under  the  caption  *'  Cost  of  Sales  "  can  be  obtained 
from  the  sales  sheets  also.  The  column  headed  "  Gross  Profit  "  will  repre- 
sent the  difference  between  the  selling  price  and  the  cost  price  and  will  show 
the  profit  daily. 

This  book  should  be  ruled  off  each  month  and  all  totals  entered  in  ink. 
The  total  sales  for  the  month  shown  in  the  column  headed  "  Accounts  Receiv- 
able "  should  be  posted  to  the  debit  of  accounts  receivable  account  each 
month  in  the  private  ledger  and  the  several  departments  credited  at  the  sell- 
ing price  with  the  proper  amounts  shown  by  these  columns.  The  several 
departments  shown  under  the  general  caption  "  Cost  of  Sales "  should  be 
charged  with  the  proper  amount  and  the  total  credited  to  the  material  account. 


988 


746C 


American  Business  and  Accounting  Encyclopedia 


Ma. 


Form  12. 


REGISTER    OF    ACCOUNTS    PAYABLE. 


This  form  should  be  ruled  and  printed  according  to  sample,  and  made 
in  book  form  of  "^00  double  pages  numbered  alike,  bound  in  moleskin.  The 
information  called  for  can  be  obtained  from  the  invoice,  which  should  be 
entered  daily.  The  Purchase  Orders  and  Material  Received  Sheets  should 
be  attached  to  all  invoices  before  being  entered,  which  should  then  be  filed 
away  in  an  ^'  Unpaid  Bill  File."  When  these  bills  are  paid  they  should  be 
filed  alphabetically,  for  the  present  at  least.  This  book  should  be  ruled  off  and 
all  totals  entered  in  ink  each  month.  The  total  purchases  for  the  month 
should  be  posted  to  the  credit  of  accounts  payable.  The  columns  on  the  right 
of  the  fancy  line,  in  the  middle  of  the  book,  should  be  posted  to  the  debit  of 
the  proper  jtccount.  excepting  the  miscellaneous  column,  which  should  be 
posted  separately.  All  items  appearing  in  this  column  should  be  posted  daily. 
When  these  bills  are  paid  the  date  of  payment,  as  well  as  the  check  number, 
should  be  entered  under  the  caption  "  When  and  How  Paid." 

CASH    P.OOK. 

This  form  should  be  ruled  and  printed  according  to  sample,  made  in  a 
book  of  200  double  pages  numbered  alike,  bound  in  moleskin.  This  book 
should  be  ruled  off  and  all  totals  entered  in  ink  each  month.  The  column 
headed  "  Accounts  Receivable  "  should  be  posted  to  the  credit  of  the  accounts 
payable  account  in  the  private  ledger.  The  column  headed  "  Discount  "  should 
be  posted  to  the  debit  of  the  discount  account.  The  column  headed  "  Mis- 
cellaneous "  should  be  posted  separately  each  day.  The  total  receipts  of  the 
month  shown  in  the  column  headed  ''  Net  Cash  "  should  be  posted  to  the  debit 
of  the  cash  account  in  the  private  ledger  at  the  end  of  each  month.  The 
column  headed  "  Accounts  Payable  "  on  the  credit  side  of  the  cash  book  should 
be  posted  to  the  debit  of  the  accounts  receivable  account  in  the  private  ledger, 
in  total  at  the  end  of  the  month.  The  column  headed  "  Discount  "  should 
be  poster'  to  the  credit  of  discount.     The  column  headed  "Miscellaneous" 


989 


Ma. 


American  Business  and  Accounting  Encyclopedia 


746C 


746C 


American  Business  and  Accounting  Encyclopedia 


Ma. 


PI^qT 


Closs 


NnfT^P 


Nc 


SlZ£^ 


LooifioQ 


"or\ 


bescrif)tio9 


Cost  ||r)$1hllorioJ  Tolqi 
Price  [|Cf?or<)ftl  Cost 


f^e  ()o  I  r  s       |bf|)rec  iaTio9 


Nar^e 


An\o»9t  cpDllAn\o»QT 


Form  13. 

should  be  posted  separately  daily.  The  column  headed  "  Pay  Roll  "  should 
be  posted  to  the  debit  of  the  pay  roll  account  in  the  private  ledger.  The  column 
headed  "  Deposits  "  on  the  debit  side  of  the  cash  book  will  represent  the 
deposits  made  daily,  which  should  represent  the  addition  of  the  "  Net  Cash  " 
column  from  day  to  day.  The  column  headed  "  Checks  "  on  the  credit  side 
of  the  cash  book  will  represent  the  disbursements  daily.  No  entries  should  be 
made  in  this  cash  book  from  payments  other  than  those  made  by  check. 

JOURNAL. 

A  regular  stock  ruled  book  will  answer  the  purpose.  The  closing  entries 
and  transfers  should  be  entered  in  the  journal  and  not  made  in  the  ledger  only. 
At  the  end  of  the  month  an  analysis  of  the  journal  entries  should  be  made 
and  all  amounts  affecting  the  accounts  receivable  account  should  be  posted  to 
the  debit  or  credit  of  that  account  in  the  private  ledger. 

ACCOUNTS    RECEIVABLE    LEDGER. 

This  ledger  should  be  kept  on  the  loose-leaf  plan,  and  all  accounts  arranged 
alphabetically.  All  entries  should  be  taken  from  either  the  Register  of  Sales 
and  Costs,  cash  book  or  journal,  excepting  Returns  and  Allowances,  which 
should  be  entered  in  the  Register  or  Returns  and  Allowances,  which  is  an 
exact  duplicate  of  the  Register  of  Sales  and  Costs,  except  that  the  postings 
are  reversed.  A  trial  balance  should  be  prepared  each  month  which  would 
balance  with  the  completed  account  kept  in  the  private  ledger. 

PRIVATE   LEDGER. 

This  form  should  be  ruled  and  printed  according  to  sample,  made  in  a 
book  of  300  pages  numbered  alike  consecutively  and  bound  in  moleskin.  The 
classification  of  accounts  submitted  should  be  arranged  in  sections  as  shown. 
This  ledger  will  furnish  a  complete  historical  record  of  the  business,  and  great 
care  should  be  taken  to  make  this  record  complete. 

990 


Re{)isTer  AccoWQts  Rnycnble 

Credits 

Date 

Vovcher 
No. 

Fovor  o" 

Ter  r\s 

Ledger 

AccoUotsf^yctblp 

Wb(>i)O0</HowRiMl| 

Folio 

Accoyoh 

bote 

CbecK 

} 

Form  14. 


COMPARAIIVE  BALANCE  SHEET. 


This  form  should  be  ruled  and  printed  according  to  sample.  The  best 
linen  ledger  should  be  used.  The  information  can  be  obtained  from  the  private 
ledger. 

STATEMENT  OF  PROFIT  AND  LOSS  . 

This  form  should  be  ruled  and  printed  according  to  sample,  prepared 
in  loose  sheets.  All  information  called  for  can  be  obtained  from  the  private 
ledger.     The  percentages  called  for  are  based  on  sales. 

The  net  profit  shown  by  this  statement  should  be  transferred  to  the  balance 
sheet. 

STATEMENT  OF  ORDERS,  SALES,  PRODUCTION  AND  COSTS. 

This  form  should  be  ruled  and  printed  according  to  sample.  The  best 
linen  ledger  should  be  used.  The  information  can  be  obtained  from  the  Fin- 
ished Stock  Records. 

This  statement  will  show  how  the  inventory  is  made  up  and  will  also 
show  the  unfilled  orders  on  hand. 


_Ccisf^  RprpiJ^n 

_Cinslj  hisKMr^pr^Pfjts 

/5 

Accour>t 

-  ^^"'-^'■'"-''e-f^  ^    ^- 

•1 

Acco»f)t 

o 

Z 

.^.....v^ud 

"  ^1    *-! 

Q.    <r    a.         - 

z:    z  ^     X)    <^ 

Fosic  IS. 

991 


Ma. 


American  Business  and  Accounting  Encyclopedia 


746C 


o 


Nlor\e 

Address. 


Acco2;9Ts  f\eceivfnble 


S»>f  et  No. 


Cr#>ditLir\i.1. 


be  bits 


bote 


l>y;ri{3rio(j   Kia 


Forwatv 


InvoiCP 


^6e 


= 


Ar^cyf^TlC^olfit^c" 


Credits 


Qc.ln 


!>.<= 


Ar^cU^t 


Nc 


UooK  l!>icri)3ri&ij 


Forwcird 


bote 


O 


I u 


Form  16. 


STATEMENT  OF  FACTORY  EXPENDITURES. 

This  form  should  be  ruled  and  printed  according  to  sample.  The  best 
linen  ledger  should  be  used.  The  information  can  be  obtained  from  the 
private  ledger. 

The  purpose  of  this  statement  is  to  show  the  expenditures  for  the  month, 
and  for  the  year  to  date. 

This  statement  will  show  the  nature  of  the  expenditures,  while  the  state- 
ment referred  to  will  show  what  the  inventory  shown  by  this  statement  con- 
sists of,  and  will  also  show  the  cost  of  production. 


FOKM    17. 


992 


746C 


American  Business  and  Accounting  Encyclopedia 


3AJL 


Cor\^ora^\^t^  ^o\or)ce  S^etT        LcVJ 

Assets 

lie-.".-! 

»   bftrPCH' 

O 
0 

rVichifjer, 

' 

li»1»rK>l».F.i).iyrf,lt,Br.c»»  <>l<(».- 

ToTal 

ToTol  Ai$cTi 

'   ~r 

N«Trsn«abl» 
AecoooK    • 

*I»T  fVtifif         "rrfot  if^d  ^iir»i  y„«-  b  ±.r. 

__ : ; — iBTfil  I  lahiliTin 

Kn^arK* 

o 


o 


St^Tpn\eot  of  Profit  or)d  Loss 


Accounts 


F^orMoqtf}  of 


I  flips 


Grosi  Pit^it 


-'''•'li'Iff  «h*yfs 


—  qpViii 
AdvfiTiii 

Frnotf, , , 


TVtv^linft  E.V))*')^'^ 

Vol 

Ajn igi sTmTiyf  L ika^t^-    .  ^  '^'"'^  "*'" 

Salorcfi  ^  Cri)fral  Ofit"^ 

SolSrifJ  <(fCn)|.rol  Office  ClfrKi 

biicaUijT 

RbsiTaa^  P-it)Ti()«  eni  ST«T.»i)»ry 

DotbtfBl  Accoui>Ti 

ToTal 


Lofljfi 


NflFVofiT   frai^all<:^.r,-..i 


I^Pn^nrK^ 


ftrcpi)  taoj 


Form  18. 


ftirrs 


l^e|>oif» 


ToTol 


CLASSIFICATION    OF    ACCOUNTS. 


ASSETS. 

I.         Plant  Accounts — 

1  Machinery 

2  Machine  Tools 

3  Special  and  Small  Tools 

4  Factory  Furniture  and  Fixtures 

5  Office  Furniture  and  Fixtures 

6  Patents 


993 


Ma.  American  Business  and  Accounting  Encyclopedia 

T.        Deferred  Charges — 

1  Insurance 

2  Interest 

3  Repairs  and  Improvements 
K.        Current  Assets — 

1  Cash 

2  Notes   Receivable 

3  Accounts  Receivable 

4  Material:    Finished,  In  Process  and  Raw 

LIABILITIES. 

L       Capital  Stock. 

M.       Current  Liabilities — 

1  Notes  Payable 

2  Accounts  Payable 

3  Wages  Payable 

,  4     Interest  Payable 

N.        Dividends  Payable. 
O.        Reserve  Funds — 

1  Doubtful  Accounts 

2  Depreciation  and  Extinguishment 
P.        Surplus. 

OPERATING  ACCOUNTS. 

A.  Material. 

B.  Labor — 

1  Direct 

2  Indirect 

3  Supervision 

C.  Indirect  Expenses — 

1  Factory  Supplies 

2  Freight,  Express  and  Cartage  Inward 

3  Light,  Heat  and  Power 

4  Insurance 

5  Repairs  to  Machinery 

6  Repairs  to  Machine  Tools 

7  Repairs  to  Factory  Furniture  and  Fixtures 

8  Defective  Work 

9  Experimental 

10  Incidentals 

11  Depreciation  of  Plant 

D.  Factory — 

Controlling  account  with  Cost  Ledger. 

The  above  accounts  to  be  closed  into  it  at  end  of  month. 
F.        Sales  and  Cost  of  Sales — 

1  Machines 

2  Staples 

3  Repairs  and  Parts 

F.  Selling  Expenses — 

1  Commission 

2  Advertising 

3  Traveling  Expenses 

4  Freight,  Express  and  Cartage  Outward 

5  Incidentals 

G.  Administrative  Expenses — 

1  Salaries  of  General  Officers  ' 

2  Legal  Expense 

994 


746C 


746  CD         AMERICAN  BUSINESS  .NO  ACCOUNTING  EnCVCLOPEDIA  MA. 

3  Salary  of  General  Officers'  Clerks 

4  Interest 

5  Discount 

6  Postage,  Printing  and  Stationery 

7  Telegraphing  and  Telephonmg 

8  Incidentals 

9  Doubtful  Accounts 
H.       Profit  and  Loss 

(r46D)    HARNESS  MANUFACTURING. 

.       .  r.f  a  rpnort  made  to  a  harness  manufacturer. 

The  following  IS  a  copy  of  a  report  "^^^^J^     examination  in  your  fac 

ments,  viz. : 


LEATHEf\  Received 


CUTTING  BtPT. 


Date 


LOT 


WEIGHTS 


LOT 


WEIGHTS 


- 


Form  1. 

995 


Ma. 


American  Business  and  Accounting  Encyclopedia 


746D 


746D 


American  Business  and  Accounting  Encyclopedia 


Ma. 


Harness  Manufacturing, 

Collar  Manufacturing, 

Saddlery  Manufacturing. 

In  this  report  we  confine  ourself  to  the 


c-^^  .  o  \  BelJy  Cutter 

Stock Rec£iv£D-{Die  cuitcns 

Date 


Cdttef?  No. 


Datf. 


WEIGHT 


WEIGHT 


WEIGHT 


LOT 


WE«6HT         WTCaT  WT  CUT  WTCl^T 


Form  2. 
HARNESS     manufacturing     DEPARTMENT. 

The  chief  difficulty  in  this  department  seems  to  have  been  in  determining 
the  price  at  which  leather  should  be  charged  in  figuring  the  cost  of  your 
manufactured  products.  In  the  first  place,  the  cost  of  raw  leather  is  subject 
to  market  fluctuations  but  the  leather  purchased  by  you  should  be  charged 
to  the  factory  at  actual  cost  regardless  of  the  present  condition  of  the  market. 
You  are  not  justified  either  in  crediting  the  business  with  a  profit,  owing  to 
the  increase  in  the  price  of  leather,  nor  in  charging  it  with  a  loss  on  account 

996 


T«raJ.s 


FOKM  Z. 


of  a  falling  market  until  the  goods  are  sold  although  these  market  fluctuations 
may  very  properly  be  considered  in  fixing  selling  prices.  If  you  are  now 
usmg  leather  for  which  you  paid  35  cents,  the  fact  that  the  same  quality  of 
eather  can  now  be  purchased  for  33  cents  does  not  change  the  cost  of  your 
leather. 

the  cutting  room. 

In  the  harness  factory,  the  first  problem  is  to  determine  the  actual  cost 
of  the  leather  available  for  use  in  your  manufactured  products.  This  ncessi- 
tetes  a  record  of  the  cost  of  raw  leather  cut  and  a  record  of  the  stock  pro- 
duced from  a  given  quantity  of  raw  leather. 

To  insure  an  accurate  record  of  all  leather  used,  no  matter  when  pur 

997 


Ma. 


American  Business  and  Accounting  Encyclopedia 


7400 


MONTHLY  REPORT                                                                                                1 

RECe.lVED 

PRODUCTION 

STOCK    iSSifED 

ON  HAND          1 

l!l>%lb 

W«.W 

Total  Cost 

Cut 

5«|ly* 

Dies 

Total 

Orders 

Cut 

BetlY» 

JD-.e 

Total 

AinoDot 

Weit>hf 

Afr\oOot| 

Pord 

__ 

■^" 

, 

1  1 

l" 

■* 

.. 

Ji.  

-^ 

IT 

■■ 

^1 

■4 

^  ^ 

»« 

, 

ai 

1 

_ 

2J 

ik 

i_ 

If 



Si 

i> 

ToTal 

INW  FD 

1  T»Tpt  j.ta  Cuf Lba  Cwr    4 

4 3 C»t  St»cll                                                                                                                                                                                                                                                                                  

J        .      B«IU      ..                                                                                                                                                                                                                                                                        

rX    ;  Sii*   .    -      -    . 

S       .     «t»eK                                  .         .       ;  . 

1      !    "■!£  a.fLe.-.                                  S 

a    */m  Cur  stvcK                                                                                                                                                                                      

— 

ft  a  g.«"i*^ 

=H 

1  a  a  s^ife" -   J 

Fo&M  4. 


chased,  we  recommend  the  following.  When  leather  is  purchased,  give  that 
leather  a  lot  number,  i.  e.,  "  Lot  A,"  or  '*  Lot  No.  1,"  and  when  the  leather 
is  received,  stamp  or  mark  this  lot  number  on  each  roll.  This  lot  number  is 
for  the  purpose  of  identification  and  should  appear  on  everj'  roll  whether  the 
lot  consists  of  one  car-load  or  five  car-loads.  If  it  were  possible  to  store 
each  lot  of  leather  so  that  it  would  positively  be  identified  whenever  used, 
it  would  not  be  necessary  to  place  the  lot  number  on  the  rolls  but,  in  our 
opinion,  the  safest  method  will  be  to  place  an  identifying  mark  on  the  rolls. 

To  the  amount  of  the  invoice  add  freight  and  cartage  and  ascertain  the 
cost  per  pound  delivered  in  your  factory.  Furnish  the  Cost  Department  with 
a  record  of  the  purchase  showing  quantity  and  the  net  delivered  price.  The 
Cost  Department  will  keep  this  record  on  file  to  be  used  in  pricing  that  par- 
ticular lot  of  leather  when  used. 

The  first  step  necessary  in  determining  the  cost  of  your  cut  leather  is 
to  obtain  a  record  of  all  raw  leather  brought  into  the  Cutting  Room.  As 
leather  is  brought  into  the  Cutting  Room,  it  should  be  recorded  either  on  card 
similar  to  Form  Xo.  1  or  in  a  book.  This  record,  showing  date,  lot  number 
and  the  weight  of  each  roll,  the  latter  being  taken  from  the  original  weight 
marks,  will  go  to  the  Cost  Department  daily. 

The  next  step  is  to  obtain  the  exact  cost  of  stock  produced.  After  con- 
sidering several  plans  for  obtaining  this  record,  we  have  reached  the  con- 
clusion that  the  following  will  give  the  desired  information  with  the  least 
labor.  First,  place  at  the  end  of  each  cutter's  table  a  small  dial  scale,  then 
require  him  to  weigh  all  cut  stock  before  it  leaves  his  table.    The  bulk  of  his 


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5tock^  F^eceived- Patent 

DciTe 


LOT 


Roll  nos 


TOTALS 


Side  N05. 


AREA 


COST 


AnOUNT 


F^cceived  ©y 


Form  5. 


Stock  can  be  weighed  once  or  twice  each  day,  or  whenever  he  finds  it  neces- 
sary to  empty  the  racks,  but  when  he  cuts  small  pieces,  which  he  is  at  present 
placing  directly  in  the  storage  bins,  he  must  first  get  the  weight.  The  same 
thing  is  true  when  he  delivers  stock  to  the  workman  to  be  used  on  an  order. 
The  cutter  will  record  the  weights  of  stock  on  Form  Xo.  2.  This  form  should 
be  on  a  manilla  card  and  placed  directly  in  front  of  the  scale  and  it  will 
probably  be  best  to  have  this  fastened  to  the  table  by  means  of  a  tack.  A 
pencil  should  also  be  kept  handy  and  fastened  with  a  string.  These  cutter's 
cards  should  be  delivered  to  him  daily  and  returned  to  the  Cost  Department 
every  night. 

When  the  cutters  are  through  with  the  leather,  the  bellies  should  be 

•    weighed  and  recorded  on  Form  Xo.  3,  showing  total  weights  received  at  the 

belly  cutting  bench  and  on  the  same  form,  which  may  be  a  card,  the  cutter 

will  enter  the  weights  of  stock  produced  and  the  report  will  go  to  the  Cost 

Department  daily. 

The  stock  remaining  should  next  be  weighed  when  it  goes  to  the  die 
cutting  department.  This  stock  including  heads,  shanks  and  all  scrap.  For 
this  Form  Xo.  3  can  also  be  used  for  recording  both  the  weights  of  stock 
received  and  the  weight  of  die-cut  stock  as  it  is  taken  from  the  cutting  blocks. 
This  report  will  also  go  to  the  Cost  Department  daily. 

The  Cost  Department  will  next  record  on  Form  Xo.  4  the  reports  shown 
on  the  Forms  Xo.  1,  Xo.  2  and  Xo.  3.  The  records  on  Form  Xo.  1  should 
be  entered  in  the  "  Received  "  column,  showing  number  of  rolls,  weight,  and 
total  cost.  At  this  point  is  seen  the  necessity  of  identifying  bv  lot  number 
the  leather  received  in  the  Cutting  Room  for,  by  referring  to  the  prices  on 
file,  the  Cost  Department  can  obtain  the  cost  of  the  leather  received. 


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o 

Ci/TTiNG  Ticket- Patent 

Lot  No.                                    Area 
Side  No.                                      Grade 
Cutter  No.                                  DtfiTe 

NO. 

DIE 

NO 

Die. 

1 
2 

4 
5 

7 
8 
9 

10 

Form  6. 

Next,  the  report  of  cut  stock  shown  on  Form  No.  2  and  the  reports  of 
stock  produced  by  the  belly  cutters  and  die  cutters,  shown  on  Form  No.  3, 
will  be  recorded  in  the  proper  columns  under  the  head  "  Production "  on 
Form  No.  4,  total  weights  only  to  be  entered.  The  reports  of  all  cutters  will 
be  combined  for  the  day  and,  if  deemed  advisable,  these  daily  reports  can  be 
kept  and  totals  entered  on  Form  No.  4  at  the  end  of  the  week. 

It  will  be  noted  that  Form  No.  4  is  intended  for  a  monthly  report.  At 
the  end  of  the  month,  the  "  Received  "  column  will  show  the  total  weight 
and  cost  of  the  leather  received  in  the  Cutting  Room.  It  will  then  be  necessary 
to  weigh  all  uncut  stock  in  the  room.  This  inventory  will  be  entered  on  the 
bottom  line  of  the  report  proper  and  the  amount  carried  forward  to  the  next 
month's  report.  Deducting  from  the  total  leather  received,  the  amount  of 
the  inventory  of  uncut  leather,  gives  the  total  weight  and  cost  of  the  leather 

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"Received 


Drttj 


i_or 

Grade 


FsL. 


Tor 


>r^.l^ 


Roll  No 


SiJtNg 


Cost 


ArnoUnl' 


Total  5tocKCi;r 

CwT     Product 
W<i»te 
Add  JJirect labor 
..     Indirst^     • 
•'      txbense 
'.     Ci«<)'(.  Experjse 
Total   Cost 


M0NTHJ,Y    REP0F?T 


PRODUCTION 


Dote 


Cutter 


S«jFeet 


Ft  Co«t  A 
Pt.  .  ^ 
Ft.- 


Pflteryt  i.€a"rtyei- 


iWe 


DEi-IVEtTE.D 


OrterNg 


I 


Net  Cost  cut  5t«cK,p«rS^Fr 
»fo  Cut  StocK^ 
•fo  W<a6t« 


SuFeet  Coat   Amount 


ON   HAND 


S^  Fe€t    Air\ouqt' 


Form  7. 

cut  during  the  month.    Under  the  head  of  "  Production  "  the  footings  of  the 
first  three  columns  will  show  total  weights  of  the  various  classes  of  stock 
produced  and  the  combined  totals  will  give  the  weight  of  all  stock  produced 
from  the  leather  cut  during  that  month.     The  real  cost  of  this  stock  is  the 
cost  of  the  leather  from  which  it  is  cut,  plus  the  labor,  the  departmental 
expense  and  a  proper  charge  for  general  expenses.     The  cost  per  pound  so 
obtained  may  be  used  in  charging  leather  to  jobs  made  during  the  next  month. 
To  obtain  the  cost  of  labor  for  the  department,  we  recommend  arranging 
the  names  on  your  pay-roll  by  departments,  separating  these  so  that  direct  and 
indirect  labor  will  be  shown  separately.     By  "  direct  labor  "  we  mean  that 
labor  which  enters  directly  into  the  manufacture  of  the  goods,  in  this  case 
being  the  cutters,  and  die  cutters.     The  indirect  labor  consists  of  that  labor 
which,  while  necessary  in  the  operation  of  the  room,  does  not  enter  directly 
into  the  actual  work  of  cutting.     This  would  include  the  foremen,  and  any 
porters  or  general  laborers.    The  department  expense  would  include  the  inci- 
dental expenses,  such  as  repairs  to  tools  and  similar  items  which  apply  to  this 
department  alone.     The  general  expense  will  consist  of  that  portion  of  the 
general  factory  expense  chargeable  to  this  department.     This  Form  No    4 
shows  you  not  only  the  total  production  and  cost  per  pound  but  the  amount 
of  waste,  per  cent,  of  various  classes  of  stock  and  per  cent,  of  waste.     This 
is  chiefly  valuable  for  comparative  purposes  as  it  enables  you  to  compare  these 
percentages  from  month  to  month. 

patent   leather. 
The  record  of  patent  and  other  expensive  leathers,  purchased  by  the 

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f 

T^                                                  Ihl 

T 

llOIOfJ             MO. 

uaie          ,      ,         .    i.ir/ieri'M^ » 

(5ridle 

Now 

p  ..Vf  WArKm^rt 

. 

ibyCuTSticK. 

.    Scrtip 

..    CuttiQg 

Pairs  WiilKlcrS 

Doi   Ro»eft«S 

.     tbits 

-     Fr«rf-s 

.     Mom  bqr^i 

.    5wiveh 

1 

tc. 

ToT«I  Material 

MoKii)f-P,««v.«K 

M4<b>vSc<*>>|^Hr^ 

Tot«l  Ubor- 

AJd  "indlrtit  ofo 

Total  Cost 

^^ca 

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1 

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1 
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lio.j«*<0 

ljai4.M»4Q 

746D 


Form  8  (left-hand  page). 


square  foot,  will  differ  slightly  from  the  record  of  harness  leather.  Since 
the  area  is  shown  on  each  hide,  I  suggest  that  when  a  roll  of  leather  is 
brought  into  the  Cutting  Room,  each  hide  should  be  given  a  number  and  the 
leather  received  reported  to  the  Cost  Department  on  Form  No.  5,  the  cost 
to  be  figured  in  the  Cost  Department. 

Then  to  each  hide  attach  a  tag  like  Form  No.  6.  On  this  tag  print  the 
numbers  of  the  dies  used  in  this  department  and  have  the  cutter  place  opposite 
the  ntimbers  the  total  number  of  pieces  cut  from  each  die.  When  a  hide  is 
delivered  to  the  cutter,  he  should  be  instructed  to  cut  it  complete  so  that  the 
tag  showing  total  production  can  be  delivered  to  the  Cost  Department. 

To  ascertain  the  number  of  square  feet  of  cut  stock  produced  from  each 
hide,  it  would  seem  practical  to  measure  each  die  as  accurately  as  possible  and 


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Form  8  (right-hand  page). 

keep  a  record  of  these  measurements  in  the  Cost  Department  to  be  used  as 
a  basis  in  figuring  the  cuttings  from  each  die  number. 

The  total  shown  on  Form  Xo.  5  and  No.  6  will  be  entered  by  the  Cost 
Department  on  Form  No.  7  under  the  proper  headings.  At  the  end  of  the 
month  the  "  Received  "  column  will  show  the  total  quantify  and  cost  of  leather 
received,  while  the  "  Production "  column  will  show  the  total  production. 
The  net  cost  per  square  foot  will  then  be  ascertained  in  the  same  manner  as 
the  cost  per  pound  for  harness  leather  is  obtained  on  Form  No.  4. 

records  of  material  issued. 

An  essential  feature  of  balance  systems  of  Cost  Accounting  is  an  ac- 
curate record  of  all  material  issued  for  use  on  manufacturing  orders.  At 
present  the  material,  both  leather  and  hardware,  is  recorded  on  a  job  card 


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HDw.  StocK^ 

Day 

RECEIVED                         1               ISSUE.D             1 

BALANCE 

Invoice 

Fro  try 

A(»\oO0''"  1 

Dor 

Order  N« 

Ap\oOoti 

AnAoOrjt 

Fo. 

1 

1 

Z 

2 

J 

,5 

4 

4 

5 

5 

& 

& 

7 

7 

8 

8 

q 

q 

10 

10 

1 1 

II 

IZ 

12 

0 

15 

1^ 

14 

k5 

\5 

r6 

16 

17 

17 

18 

18 

•^J 

"J 

20 

20 

21 

21 

22 

22 

25 

23 

24 

24 

25 

25 

Zb 

2fa 

*7 

27 

28 

28 

^*1 

21 

3o 

3o 

5l 

31 

Totals 

r«. 

1      1      .        - 

f 

Form  9. 

but  the  Cost  Department  has  no  record  of  this  material  until  the  job  is  com- 
pleted and  the  card  returned  to  office.  To  give  the  Cost  Department  at  all 
times  a  complete  record  of  material  issued  on  uncompleted  orders,  we  recom- 
mend making  the  order  card  in  duplicate  as  shown  by  Form  No.  8,  using  a 
tough  manilla  stock  sufficiently  thin  to  take  a  carbon  duplicate. 

The  face  of  both  the  original  and  duplicate  orders  will  show  what  hard- 
ware is  used  on  the  job,  this  information  being  obtained  from  specifications 
on  file  in  the  Cost  Department.  When  the  cut  stock  is  issued  from  the  stock 
in  the  Cutting  Room,  the  weights  will  be  entered  in  duplicate  on  the  back 
of  the  order  and  the  short  sheet  detached  for  use  in  the  Cost  Department. 
This  short  sheet  gives  the  Cost  Department  a  copy  of  every  order  and  a 
record  of  the  material  issued. 

We  understand  that  a  record  of  leather  stock  issued  is  now  kept  for  each 
job.    This  record  should  also  be  made  on  Form  No.  4.    To  avoid  duplication 

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HARNESS   MANUFACTDI^ING  LA50T^ 

Direct 

l0dire«rr 

Total 

j             COMPiETEt)            H            i/NCOMPlETED               I 

Ordos 

Dircc"^|li)  direct 

Direct- 

I()direc1" 

On^O 

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1 

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Form  10. 

of  labor,  the  record  may  be  made  when  the  job  is  completed  arid  may  be  taken 
when  the  stock  is  entered  in  your  present  weight  book.  The  record  of  stock 
issued  on  completed 'orders  may  be  entered  on  this  report,  either  daily  or 
weekly.  At  the  end  of  the  month,  however,  it  will  be  necessary  to  compute  the 
amount  and  value  of  stock  issued  on  orders  still  uncompleted.  This  amount 
should  be  entered  as  one  item  r»t  the  bottom  of  Form  No.  4  in  red  ink  to  dis- 
tinguish it  from  completed  orders  and  the  orders  themselves  should  be  stamped 
accordingly,  indicating  that  the  stock  has  been  entered. 

hardware  stock  records. 
There  should  also  be  maintained  a  record  of  the  hardware  stock  and,  in 
view  of  the  difficulties  involved  in  maintaining  a  really  complete  stock  record 
system,  we  suggest  the  use  of  such  a  stock  record  as  is  shown  by  Form  No.  9, 
this  being  a  combined  record  of  the  entire  hardware  stock. 

1UU5 


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Br. 


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Form  11. 

In  the  "  Received  "  column,  will  be  entered  the  purchases  when  received, 
adding  to  the  invoice  the  cost  of  freight  and  cartage ;  and  in  the  "  Issued  " 
column  will  be  entered  the  hardware  stock  issued  on  orders. 

Your  goods  are  mainly  standard,  i.  e.,  a  bridle  of  a  given  number  is  made 
on  certain  specifications  which  do  not  var\\  The  hardware  to  be  used  on 
that  bridle  is  a  known  quantity,  consequently  it  is  a  simple  matter  to  figure 
the  total  cost  of  hardware  on  one  or  one  hundred  bridles.  If  you  have  com- 
pleted a  certain  number  of  bridles  in  a  day  or  a  w^eek,  it  involves  but  a  little 
clerical  labor  to  ascertain  the  total  cost  of  hardware.  The  same  is  true  of 
any  other  article. 

When  you  make  a  bridle  or  other  article,  involving  a  change  in  specifica- 
tions, you  will  naturally  wish  to  figure  the  cost  on  this  individual  order  very 
accurately  so  that  you  may  know  that  the  salesman  has  obtained  the  proper 
price  for  the  special  article.  The  cost  of  hardware  on  these  special  jobs  will, 
of  course,  be  included  with  the  regular  jobs,  the  object  being  to  obtain  an 
accurate  record  of  all  hardware  issued. 

In  entering  the  hardware  issues  on  Form  No.  9,  follow  the  same  plan  as 
with  the  leather,  /.  e.,  enter  hardware  on  completed  orders  until  the  end  of 
the  month  and  then  enter  the  amount  issued  on  uncompleted  orders  in  red 
ink  and  stamp  duplicate  orders  accordingly. 

L.\EOR  records. 

Another  very  important  feature  of  balance  systems  is  a  record  of  the 
labor  performed  from  day  to  day.    At  present  a  large  number  of  your  opera- 

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Dr 


MATE  RIAL  7c 


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To  Hdw  Purchase* 


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LAI50R 


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To  pay  Roll  (Direct) 
(^loJirect) 


I3y  Mfo  %  (D.f^cttibor-P„Rrf) 
f^aloncC   rc|>restnl'>i)»  Onv  or  Differ 


u  |tW  <)«<  -  owf*) 


GENL  EXPENSE 


To   Exp.  for  f\Ot)'*^  iQcluJirjg 


To   Material   is6Uui(Fo'i^2  1<]) 
..     i^bor    ( Direct) 

(li^dirccT    \5it) 
.    Expense     (  7 V*) 


7^70 


By  Mf^  io       ?•/« 

(5ol4nc«  re^res«i)T5  over  or  lityhr 
dtelribtf^i*))  '*'»  be  adjilsW  f)t«r 


MAN2}FACTZ;RlNGyc 


•^ 


poeii  If) 
"•to  dor* 

FINISHED    GOODS 


T3y    FiijtiJjed  ^oods 
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e1iil 
cat- 


To  P1fll)ufoctur;()^</'^ 


I5y  5 flies     (at  co»t) 


Form  11.'. 


tives  are  on  piece-work  basis  and  we  understand  that  you  are  obtaining  com- 
plete records  of  piece-work  weekly  for  the  purpose  of  making  up  the  pay-roll. 

To  permit  of  a  record  of  the  time  required  for  machine-sewing  and  any 
other  day  labor  on  a  job  after  leaving  the  Cutting  Room,  we  have  provided  a 
series  of  coupons  on  the  bottom  of  the  shop  order,  Form  No.  8.  These 
coupons  are  numbered  to  correspond  with  the  operations  required  and  the  time 
of  each  operation  is  to  be  recorded  by  the  foreman,  preferably  with  some 
mechanical  time-recording  device  like  the  Calculagraph.  As  soon  as  an  opera- 
tion is  completed,  the  coupon  representing  that  operation  should  be  detached 
and  placed  in  a  box  by  the  foreman.  These  coupons  should  be  delivered  to 
the  Cost  Department  daily  w^here  they  will  be  sorted  according  to  job  numbers 
When  the  job  is  completed,  the  cost  of  machine  labor  is  obtained  from  the 
coupons.     The  piece-work  costs  can  be  obtained  as  at  present. 

If  you  do  not  deem  it  advisable  to  figure  the  cost  of  labor  on  each  job 
individually,  the  labor  can  be  grouped  for  the  month  on  a  report  similar  to 
those  shown  for  materials.  We  believe,  however,  that  you  will  find  it  to 
your  advantage  to  figure  exact  costs  on  a  certain  per  cent,  of  the  jobs  of 
different  classes  each  month  and  to  record  these  on  cost  sheets  for  compara- 
tive purposes. 

For  the  monthly  labor  report,  use  Form  No.  10.  Enter  first  the  amount 
of  the  pay-roll,  divided  into  direct  and  indirect  labor.  On  completed  orders, 
enter  the  cost  of  direct  and  indirect  labor,  groupmg  the  orders  if  necessar}' 
and  posting  weekly.  At  the  end  of  the  month,  enter  the  labor  on  uncom- 
pleted orders  in  the  proper  columns,  making  the  necessary  notations  on  shop 
orders  and  time  coupons  so  that  the  same  labor  will  not  be  again  entered  in 


1007 


Ma.  American  Business  and  Accounting  Encyclopedia  746D 

the  following  month's  report.  In  figuring  indirect  labor  on  orders  completed 
during  the  month,  a  percentage  basis  is  to  be  used  as  explained  later. 

A  record  of  the  cost  of  orders  completed  during  the  month  is  necessary. 
This  is  obtained  by  combining  the  following  items: 

1st,  Cost  of  leather  stock  issued  on  completed  orders Form  No.    4 

2nd,  Cost  of  patent  leather  stock  issued  on  completed  orders. .  .Form  No.     7 

3rd,  Cost  of  hardware  issued  on  completed  orders Form  No.     9 

4th,  Cost  of  labor  on  completed  orders   Form  No  10 

6th,  Add  the  per  cent,  previously  determined  for  general  expenses. 

This  will  explain  the  reason  for  entering  material  issued  on  uncompleted 
orders  in  red  ink,  as  it  leaves  the  material  issued  on  the  completed  orders  by 
itself  on  the  reports. 

In  the  second  and  succeeding  months  it  will  be  necessary  to  add  to  items 
1,  2,  3  and  4,  the  cost  of  the  same  items  on  orders  issued  in  a  previous  month 
but  completed  during  the  current  month.  The  uncompleted  orders  are  repre- 
sented by  the  red  figures  and,  as  they  are  completed,  the  cost  must  be  taken 
into  consideration  in  figuring  the  total  cost  of  all  orders  completed  during 
the  current  month.  These  items  will  be  obtained  from  the  orders  themselves 
as  fast  as  they  are  completed  and  can  be  tabulated  from  day  to  day,  giving  the 
total  at  the  end  of  the  month. 


1008 


CONTENTS  OF  VOL.   IV 


Depreciation,   501. 

Interest  on  Capital  and  Depreciation,  502. 
Depreciation  and  Secret  Reserves,  503. 
Methods  of  Computing  Depreciation,  504. 
Depreciation   Rates,   505. 
Pixley  on  Depreciation,  506. 
Depreciation  of  Machinery,  507. 
Depreciation    and    Exhaustion    of    Coal 

Mines,  508. 
Detection  of  Errors,  509. 
Diagram,  510. 
Directors,  511. 
Disbursement  Record,  512. 
Discount,   513. 
Cash  Discount,  514. 
Special  Discount  Columns,  515. 
Cost  of  Cash  Discounts,  516. 
Purchase  Discount,  517. 
Sales   Discount,   518. 

Discount  on  Freight,  519. 
Trade  Discount,  520. 

Bank  Discount,   521. 
True   Discount,   522. 

Distribution,   523. 

Expense   Distribution,   524. 

Purchase  Distribution,  525. 

Sales   Distribution,   526. 

Dividends,  527. 

Dormant  Partner,  528. 

Double  Account  Balance  Sheet,  529. 

Double  Average,  530. 

Double  Entry,  531. 

Doubtful  Accounts,  532. 

Drafts,  533. 

Drafting  Office  Records,  534. 

Dressmaking    Business    Cost    Summary, 
535. 

Drugs  (Retail),  536. 

Dry  Goods  Business,  537. 

Due,  538. 

Due  Bill,  539. 

Due  Dates  Record,  540. 

Duplicate,  541. 

Duplicating  Devices,  542. 


Earnings,   543. 

Embezzlement,   544. 

Employe,  545. 

Employes'  Record,  546. 

Employes  Injured,  547. 

Endorsed    Bonds,   548. 

Entry,  549. 

Entry  Clerk,  550. 

Envelope  System  for  Wholesale  Lumber 

Business,  551. 
Equation  of  Payments,  552. 
Erasure,   553. 

Estimated  Profits  (Treatment  of),  554. 
Exchange,  555. 
Excise,  556. 
Expense,   557. 

Organization  Expense,  558. 
Promotion  Expense,  559. 
General  Office  Expense,  560. 
Administrative  Expense,  561. 
Selling   Expense,   562. 
Departmental  Expense,  563. 
Expense  Adjustments,  564. 
Expense  Journal,  565. 
Expense   Ledger,  566. 
Establishment  Expense,  567. 
Shop   or   Factory   Expense,   568. 
Factory   Expense   Idle,   569. 
Productive  Expense,  570. 
Material  Expense,  571. 
Store  Expense,  572. 
Machine  Expense,  573. 
Power  Expense,  574. 
Rent  Expense,  576. 
Unproductive  Expense,  577. 
Diffused   Expense,  578. 
Expert  Accountant,  579. 
Executorship  Accounts,  580. 
Factory  Cost  Accounting,  531. 
Fictitious    Assets,    582. 
Figures,  583. 
Arabic  Figures,  584. 
Roman  Figures,  585. 
Cipher,  586. 


File,  587. 

Filing  Systems,  588. 

Alphabetical   Filing  Systems,  589. 

Decimal  Filing  System,  590. 

Numerical  Filing  Index,  591. 

Subject  Filing  Index.  592. 

Geographical  Filing  Index,  593. 

Vertical  Filing  System.  594. 

Follow-up  System  File,  595. 

Card  Filing  System,  596. 

Correspondence  Filing  System,  597. 

Catalog  Filing  System,  598. 

Electros,  Cuts  or  Patterns  Filing  System, 

590. 
Financial  Satement,  600. 
File  Insurance  Agency  Accounting,  601. 
F"ire  Insurance  Adjustment,  602. 
Fixed   Assets,   603. 
Fixed  Capital,  604. 
Fixed  Charges,  605. 
Fixed  Liabilities,  606. 
Fixtures,  607. 
Floating  Assets,  608. 
Floating  Capital.  609. 
Floating  Debt  or  Indebtedness,  610. 
Flour  Mill  Business  Accounting,  611. 
Fluctuation  of  Assets,  612. 
Folio,  613. 
Footing,  614. 

Foundry  Cost  Accounting.  615. 
Brass   Foundry   Costs,   616. 
Fraternal  Organizations,  617. 
Freight,  618. 

Freight  and  Discount.  619. 

Freight  Bills,  620. 

Transportation  Register,  620. 

Freight  Rates— How  to  Find,  621. 

Funded  Debt.  622. 

Furniture  and  Fixtures.  623. 

Furniture    Business    Accounting — Retail, 
fj.?4. 

Futures,  625. 

Gain.  626. 

Gas,  Electric  Light  and  Power  Business 
— Small  Size,  627. 

General  Ledger,  628. 

Good-Will,  629. 

Grain  Elevator  Business  Accounting,  630. 

Grocery    Business    Accounting    (Whole- 
sale), 630  A. 

Gross  Profit.  630B. 

Guaranteed  Bond.  6.30C.  . 

Guaranteed  Stock.^63T0DV   "-  ^ 

Guests'  Ledger,  63o'E. 

Hardware  Business  Accounting  (Whole- 
sale,) 631. 

Manifolding,  632. 


Hospital  Accounting  Records,  633. 

Horizontal  Addition,  634. 

Horses — Depreciation   of,   635. 

Hotel  Accounting,  636. 

Hotel  Card  Records.  637. 

Hypothecated  Securities,  638. 

Impression  Book,  639. 

Imprest  System  of  Petty  Cash,  640. 

Income,  641. 

Incorporation,  642. 

Index,  643. 

Insolvency,  644. 

Installment,  645. 

Installment  Book,  646. 

Installment    Collections,   647. 

Installment  Business  Accounting,  648. 

Installment  Notes,  649. 

Installment  Payment  Record.  650. 

Installment    Instrument    Stores    Record, 

651. 
Installment  Profits,  652. 
Institution  Records,  653. 
Insurance,  654. 

Property  Insurance  Records,  655. 
Insurance  Expirations.  656. 
Fire  Insurance  Records,  657. 
Insurance  Policy  Loan  Record,  658. 

Indemnity  Record,  659. 

Burglary  Insurance   Record.  659A. 

Co-Insurance  Clauses,  660. 

Interest,  661. 

Interest   Adjustment   or   Apportionment, 
662. 

Interest    Computed    on    Daily    Balances, 
663. 

Interest  on  Capital  Assets,  665. 

Interest  and  Discount,  666. 

Simple  Interest,  667. 

Compound  Interest,  668. 

Inventory.  669. 

Perpetual  Inventory,  670. 

Investment.  671. 

Investment  Fund,  672. 

Invoice,  673. 

Invoice  Book.  674. 

Invoice  Copy  Book,  675. 

Irrigation  Costs,  676. 

Itemizing,  677. 

Joint  Stock  Company,  678. 

Journal.  679. 

Sales  and  Purchase  Journals,  680. 

Departmental  Journal,  681. 

Credit  Journal.  682. 

Columnar  Journal.  683. 

Key  Figures,  684. 

Labor  Account.  685. 

Labor  Adjustment.  686. 


Landlord's  Fixtures,  687. 

Laundry  Business  Accounting,  688. 

Ledger,  689. 

Balance  Ledger,  690. 

Card  Ledger,  691. 

Creditors'    Ledger,    692. 

Customers'  Ledger,  693. 

Expense   Ledger,  694. 

Guest's  Ledger,  695. 

Hands  Ledger,  696. 

Employes    Ledger,    697. 

Index   Ledger,   698. 

Individual  Ledger,  699. 

Invoice    Ledger,    700. 

Loose-Leaf  Ledger,  701. 

Nominal   Ledger,  702. 

Perpetual   Ledger,  703. 

Personal   Ledger,  704. 

Petty    Ledger,   705. 

Private  Ledger,  706. 

General  Ledger,  707. 

Purchase    Ledger,   708. 

Sales  Ledger,  709. 

Sectionalized    Ledger,   710. 

Self-Indexing   Ledger,  711. 

Stock  Ledger,  712. 

Stores  Ledger,  713. 

Suspense  Ledger,  714. 

Ledger  Postings,  714A. 

Legacy,  715. 

Legal  Book-keeping,  716. 

Legal  Costs,  717. 

Legal  Interest,  718. 

Legal  Tender,  719. 

Liabilities,   720. 


Life  Insurance  Actuary  Table,  721. 

Limited  Corporations,  722. 

Limited  Partnership,  723. 

List  Prices.  724. 

Lithographing  Business  Accounting,  725. 

Live  Stock  Commission  Business  Ac- 
counting, 726. 

Loan  Account,  727. 

Location  of  Errors,  728. 

Logismography,  729. 

Loose-Leaf  Records.  730. 

Loss  and  Gain,  731. 

Lumber  Business  Accounting,  732. 

Lumber  Inventory,  733. 

Retail  Lumber  Business  Accounting.  734. 

Mail  Order  Business  Methods,  735. 

Manifest,  736. 

Manufacturing  Accounts  and  Cost 
Records,  737. 

Pointers  for  the  Cost  Accountant.  738. 

Classification  of  Plant  Charges,  739, 

Factory  Depreciation,  740. 

Factory  Capacity,  741. 

Factory  Expense,  742. 

Manifold  Shop  Orders.  743. 

Cost  Cards,  744. 

Factory  Stock  Records.  745. 

Factory      Pay-Roll,   746. 

^lanufacturing  System  for  Furniture 
Factory,  746A. 

Manufacturing  System  as  Applied  to  a 
Small   Shop.   746B. 

Manufacturing  System  for  Machine  Shop, 
746C. 

Harness  Manufacturing,  746D. 


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N0N-01RCUUTIN6 


American 
Business  and  Accounting 

Encyclopedia 


REVISED  EDITION 


A  Standard  Reference  Book  for  Accountants  and  Business  Men. 
profusely  illustrated  with  hundreds  of  special 

forms  and  plates 


-I 


VOL.  V. 


: 


COMPLETE  IN  SIX  VOLUMES 


The  Business  Man's   Publishing  Company,  Limited 

DETROIT.  MICHIGAN 


746D 


American  Business  and  Accounting  Encvclopedia 


Ma. 


For  the  purpose  of  obtaining  the  cost  of  individual  orders  as  they  come 
through  the  factory,  we  add  the  unknown  items  on  a  percentage  basis.  If 
proper  time  records  are  kept,  it  is  possible  to  obtain  the  exact  cost  of  direct 
labor  on  any  individual  order  and  the  total  cost  of  direct  labor  charged  to 
individual  jobs  should  agree  with  the  direct  labor  as  shown  by  the  pay-roll. 
If  these  amounts  do  not  agree,  it  necessarily  follows  that  either  an  accurate 
record  of  time  spent  on  each  job  has  not  been  kept,  or  that  you  are  paying  for 
a  certain  amount  of  waste  time.  In  either  case,  the  discrepancy  should  be 
charged  as  indirect  labor.  In  charging  indirect  labor  to  individual  jobs,  the 
accepted  method  is  to  base  this  on  a  percentage  of  indirect  to  direct  labor,  i.  c, 
if  the  direct  labor  in  the  previous  month  was  $1,000.00  and  the  indirect  labor, 
$100.00,  there  should  be  added  to  each  job  10  per  cent,  of  the  cost  of  direct 
labor  to  cover  this  item  of  indirect  labor. 

General  manufacturing  expense,  such  as  taxes,  insurance,  heating,  light 
and  power,  superintendence,  plant  maintenance,  and  depreciation  may  all  be 
grouped  under  the  one  head  of  "  General  Expense  "  op  treated  separately,  but 
in  either  event  should  also  be  charged  against  individual  jobs  on  a  basis  of  the 
per  cent,  of  expense  to  direct  labor. 


Entered  according  to  Act  of  Congress, 
in  the  year  1909,  by 

The  Business  Max's  Pi'blishing  Compaxy,  Limited 
Detroit,  Michigak 

In  the  office  of  the  Librarian  of  Congress 
All  rights  res-erved 


controlling  accounts. 

We  have  divided  the  harness  factory  proper  into  two  sub-departments,  i*.  c. 
Cutting  Department  (to  determine  the  actual  cost  of  cut  stock),  and  Harness 
^lanufacture. 

In  the  Cutting  Department  the  controlling  accounts  required  are  as 
shown  below. 


.  b 


ir. 


Jan^i 


To  Purchases 


To  Poy  f^oll-B.rect 
..   -Irjdirecf 


To   Ex|J.for- Moijtl^  ll)Cljd<iJf 

deprecatio*)  £.  ri<in)t<iii)f  (jcc 


To  MfiTer-Kil  (Lea^*c<i) 
.    Lol3or     (Direct) 


Expense. 


lO^o 


MATERIAL -(IEATHE<> 


I06-48 


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7146 


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1009 


Ma. 


American  Business  and  Accounting  Encyclopedia 


746D 


In    the    Harness    Manufacturing    Department    the    controlHng    accounts 
required  will  be  as  shown  below. 


Dr 


MATERIAL  % 


ToCutStocK 
To  Hdw  Purc^T^MA 


7lAfe 
2672 


20 
80 

LAt50T? 


By  Mf^'/c  -STotK Issued 
01)  orf>f  Porr\t    2.L.f 
.    Hdw  iiSOed  01)  ord«r» 


bJ22 
847 


40 
GO 


To  rtflv  f^oll  (Direct)  ^ 
.      .         .     (loJ'rect-; 


ByMf^ 


dit^'ibutio^  -^  -J  -. 


%,  (D.rtcttobor-P«,I?ril) 
l|>rcs«iir.n>  Ov«r  or  Di)J«rJ  I 


GENL  EXPENSE 


To  E»p  for  r\of^  iijcludi^p 


To  Mot.r.ol   .*»«€<)  (Pcin*  a  7  t) 
-     lu>bor    f Direct) 

(lurf.reeT    I 


.s-f.) 


Expense    ( Tie) 


JSJO 


By  Mfj  '/o       ?7o 

I^JOncc  r«|>rtft«or5  Ov«f  or  Vlif 


MANZ)FACrzWN6% 


FIMI5HED    G00D5 


13y    Fini»hc4  ^ooda 


To  rlOfjufoctjr")^  ^<- 


I3y  5flle*     (flt  cost-) 


Referring  to  these  departmental  controlling  accounts,  it  will  be  seen 
that  in  the  labor  and  expense  accounts  provision  is  made  for  a  balance  to 
represent  over  or  under  distribution  of  indirect  labor  and  expense.  Since  you 
are  using  the  percentages  based  on  the  actual  experience  of  the  preceding 
month  for  the  purpose  of  figuring  cost  of  jobs  completed  during  the  current 
month,  slight  differences  will  be  shown  when  this  month's  indirect  labor  and 

expense  is  ascertained. 

Indirect  labor  and  general  factory  expense  are,  to  a  large  extent,  fixed 
items,  but  the  percentage  of  expense  to  direct  labor  will  vary  with  variations 
in  production.  As  an  example,  if  every  machine  in  your  machine-sewing 
department  is  running  on  full  time,  the  cost  of  indirect  labor  and  expense  will 
be  practically  the  same  as  it  would  be  if  one-third  of  those  machines  were 
idle.  In  the  first  case  the  production,  and  consequently  the  expense  for  direct 
labor,  will  be  greater  than  it  would  be  in  the  latter  case  and  this  will  result 
in  a  corresponding  decrease  in  the  percentage  of  expense. 

If  you  were  to  wait  until  the  end  of  the  month  before  figuring  the  cost 
of  that  month's  completed  orders,  the  total  indirect  labor  and  expense  would 
be  apportioned  among  the  different  jobs  and  there  would  be  no  balances,  but 
by  using  the  previous  month's  percentages  you  can  ascertain  the  cost  of  indi- 
vidual jobs  very  accurately  as  soon  as  completed  and  any  slight  differences, 
one  way  or  the  other,  would  be  shown  in  the  controlling  accounts  at  the  end 
of  the  month.  These  differences  will  be  adjusted  during  the  next  month  by 
increasing  or  decreasing  the  percentage  used.    To  illustrate,  we  will  suppose 


1010 


746D-746E  American  Business  and  Accounting  Encyclopedia 


Ma. 


that  last  month  showed  total  indirect  labor  and  expenses  equal  to  40  per  cent, 
of  the  direct  labor  charge.  At  the  end  of  the  present  month  we  find  that  these 
items  figure  but  39  per  cent.  Since  you  have  used  the  40  per  cent,  basis,  you 
will  have  distributed  too  large  an  amount  on  the  current  month's  jobs  and  to 
adjust  this  difference,  you  will  make  a  corresponding  reduction  in  the  percent- 
age to  be  used  next  month. 

(746E)     The   following  distribution  of  accounts  is  in  connection  with 
a  large  machinery  manufacturing  business  making  its  own  castings. 


production  department. 

General  Foundry  Dept. 

1.     Iron   and   Coke   Charged. 

Breaking,  Hoisting  and  Charging. 

Cupola   Expense. 

Casting. 

Coremaking. 

Moulding. 

Helping  Moulders. 

Flasks   (up  keep  of). 

Foundry  Expense. 

Foundry   Facing,    Blacking— material   and   labor  making. 


2. 

3. 

4. 

5. 

6. 

7. 

8 

9. 
10. 
11. 
12. 
13. 
14. 
15. 
16. 
17. 
18. 


Cleaning  Castings. 
Loading  Castings. 

Productive  Sales. 
Non-productive  Sales. 


Pipe  Foundry  Dept. — 


19. 
20. 
21. 
22. 
23. 
24. 
25. 
26. 
27. 
28. 
29. 
30. 


Brass  Foundry  Expense. 
Brass  Foundry  Production. 

Iron   Mixtiire. 

Pipe  Cores. 

Pipe  Moulding,  Helping  and  Casting  (labor  of  manufacture). 

Pipe  Cleaning,    Dipping,   Testing  and    Weighing. 

Pipe  Expense. 

Pipe  Productive  Sales. 

Pipe  Non-productive  Sales. 

Loading  and    Shipping — Pipe. 

Pipe  Flasks. 


Machine  Shop  Dept. — 

31.  Machine  Shop  and  Toolroom   Expense. 
32. 

33.  Machine  Shop  Productive  Sales. 

34.  Machine  Shop  Non-productive  Sales. 
35. 

36. 


1011 


Ma.  American  Business  and  Accounting  Encyclopedia 

Blacksmith   Shop   Dept. — 

37.     Bhicksmith  Shop  Expense. 

Blacksmith  Shop  Productive   Sales. 
Blacksmith  Shop  Non-productive    Sales. 


746E 


38. 
39. 
40. 
41. 


Pattern  Shop  Dept.— 

42.     Pattern   Shop   Expense. 

Standards— All   standard   patterns. 
Patterns — Patterns  belonging  to  customers. 
Pattern  Shop  Productive  Sales. 
Pattern  Shop  Non-productive  Sales. 
Miscellaneous   Pattern    Expense. 
Miscellaneous  Productive  Sales — 

48.     Miscellaneous    Productive   Sales. 


43. 
44. 
45. 
46. 
47. 


NON-PRODUCTIVE 

DEPARTMENT. 

General 

Expense — 

49. 

Office   Salaries. 

50. 

Office  Expense. 

51. 

Engineering  Department. 

52. 

Soliciting  Expense. 

53. 

Legal. 

54. 

Advertising. 

55. 

Water. 

56. 

Taxes. 

57. 

Insurance. 

58. 

Interest  and  Exchange. 

59. 

Sundry  General  Expense. 

60. 

Discounts. 

61. 

62. 

Plant   Maintenance — 

63. 

Watchman. 

64. 

Stable. 

65. 

Engine  and  Boiler. 

66. 

Electrical. 

67. 

Yard. 

68. 

Buildings. 

69. 

Oils. 

70. 

Sundry  Plant  Maintenance. 

1 1. 
Materials — 

72. 

Wood. 

73. 

Coal. 

74. 

Coke. 

75. 

Pig  Iron. 

76. 

Scrap  and  Sales. 

77. 

Scrap   (metals)   and  Sales. 

78. 

Lumber  and  Sales. 

79. 

Merchandise  and  Sales. 

80. 

Babbitt  and  Sales. 

81. 

Blacksmith  Coal  and  Sales. 

82. 

83. 

746E-746F  American  Business  and  Accounting  Encyclopedia  Ma. 

84.  Capital   Stock. 

85.  Capital  Stock  Discount. 

86.  Real  Estate  and  Improvements. 

87.  Horses  and  Wagon  Property. 

88.  Tools,   Machinery,   Crane  and   Cupola. 

89.  Flasks    (stock). 

Corporation  Accounts — 

90.  Bills   Receivable. 

91.  Bills    Payable. 

92.  Cash. 

93.  Dividends, 

94.  Office  Furniture  and  Fixtures. 

95.  Pay  Roll. 

96.  Freight. 

97.  Vouchers. 

98.  Experimental. 

99.  Betterments. 

100.  Productive  Sales. 

101.  Non-productive   Sales. 

102.  Sundry  Cash. 

103.  Royalties. 

104.  Profit  and  Loss. 

(746F)     In  steel  industries  we  find  a  classification  as  below  illustrated: 
material  or  book  inventory  accounts. 

Pig  Iron — 

(a)  Low  Phosphorus  Pig  Iron. 

(Below  .04  in  phosphorus  and  sulphur.) 

(b)  Standard  Basic  Pig  Iron. 

(Sulphur  under  .05  per  cent.) 
(Phosphorus  under  .08  per  cent) 
(Silicon  under  1.00  per  cent.) 

(c)  Off  Basic   Pig  Iron. 

(Anything  higher  than   standard.) 


Scrap — 
(a) 

(b) 


Co.'s  Billet  Mill  Scrap, 

(Scraps,  ends  and  cobbles.) 

Co.'s  Open  Hearth  Furnace  Scrap. 
(Pit  Metal,  Runners,  etc.) 

Co.'s  Cold  Mill  Scrap. 

Co.'s  Hat  Mill  Scrap. 


(c) 

(d) 

(e)     Bought  Scrap. 
Ferro  ^langanese 
Ferro  Silicon 
Spiegel 
Aluminum 
Limestone 
Lime 
Dolomite 
Magnesite 
Fire  Clay 

Loam   (Common  Dirt) 
Fluor  Spar 


Moulds  and   Pit-Coatings 
Silica    Cement 
Common   Sand 
Common   Red   Bricks 
Silica  Sand 

Fire  Bricks  (Clay  Bricks) 
Silica   Bricks 
^lagnesite  Bricks 
Runner  Bricks 
Silicon   Spiegel 
Lumber 


1012 


1013 


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American  Business  and  Accounting  Encyclopedia  746F.746G 


Carborundum 

Iron  Ore 

Chrome  Ore 

Bar  Iron 

Bar  Steel 

Stirring  Rods  and  T.  R. 

Stoppers  and  Nozzles 


Gas  Coal 

Steam  Coal 

Smithy  Coal 

Ingots 

Billets  and  Slabs 

Stores  and  Supplies 


GENERAL  ACCOUNTS. 


that    it   may   be 


i 

IP 
III 


These  will  consist  of — 

1.  General  Ledger  Current  account. 

2.  Works  Cash  account. 

3.  General  Pay  Roll  account. 

4.  Such    Office    and    Sundry    Expense    accounts 

desired  to  keep,  for  example: 

(a)  Superintendent's  and  manager's  salaries. 

(b)  Office  Salaries. 

(c)  Office    Supplies. 

(d)  Telegraph,  Telephone,  etc.,  etc. 

DEPARTMENTAL   MANUFACTURING   ACCOUNTS. 

The  Departmental  Manufacturing  accounts  which  will  be  kept  are  as 

follows : 

1.  Repairs,  Maintenance  and  Construction. 

2.  Discharging  Coal. 

3.  Operating  Fly. 

4.  Steam   Generating. 

5.  Cost  of   Electricity. 

6.  Yard  Transportation  and  Hauling. 

7.  Electric  Railway. 

8.  Gas  Producers. 

(746G)     In  a  carriage  manufacturing  establishment  the  accounts  are 
distributed  as  follows: 

PRODUCING. 

Department — 

1.  Superintendent   and   Clerks. 

2.  Stock  Receiving. 

3.  Other  Non-producing. 
4a.     Smith    Shop. 

4b.  Wheel   Tiring. 

4c.  Gear  Assembling. 

5a.  Gear  Painting. 

5b.  Body  and   Seat  Painting. 

5c.  Shaft    and    Pole    Painting. 

5d.  Wheel  Room  Painting. 

6a.  Trim   Shop. 

6b.  Top  Making. 

6c.  Leather  Cutting. 

7a.  Crating. 

7b.  Car   Loading. 

7c.  Setting  up. 

1014 


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746G-746I    American  Business  and  Accounting  Encyclopedia 

7d.     Repairs. 

Miscellaneous. 


Ma. 


(746H)     In  an  electric  light  company  the  various  accounts  are  distributed 
under  the  principal  headings  of: 

Construction. 

Manufacturing. 

Maintenance. 

General  Expense. 
Construction. 

1.  Land. 

2.  Station    Buildings. 

3.  Motive   Power. 

4.  Arc  Apparatus. 

5.  Incandescent   Apparatus. 

6.  Power  Apparatus. 

7.  Poles  and  Lines. 

8.  Installations. 

9.  Conduit. 

10.  Cable. 
Manufacturing — 

11.  Fuel. 

12.  Water  Rent. 

13.  Oil  and  Waste. 

14.  Productive  Labor. 

15.  Repairs  of  Motive  Power. 

16.  Repairs    of    Electrical    Apparatus. 

17.  Manufacturing  Sundries 
Maintenance. 

18.  Poles  and   Lines. 

19.  Conduit  and   Cable. 

20.  Installations. 

21.  Motors,  Transformers,  etc. 

22.  Incandescent   Lamp   Renewals. 

23.  Arc  Globes. 

24.  Carbons. 

25.  Labor. 

26.  Sundries. 
General   Expense — 

27.  Rents. 

28.  Taxes. 

29.  Insurance. 

30.  Interest. 

31.  Legal   Expense. 

32.  Salaries— Office,  etc. 

33.  Sundries. 

(7461)     The  accounts  of  a  steam  railroad  are  distributed  under  the  main 
headings  of: 

Maintenance  of  Way  and  Structures. 
Maintenance  of  Equipment. 
Conducting  Transportation. 
Construction. 


1015 


Ma.  American  Business  and  Accounting  Encyclopedia 

Equipment. 
General  Expense. 

Maintenance  of  Way  and  Structures— 

1.  Repairs   of    Roadway. 

2.  Renewals  of  Rails, 

3.  Renewals  of  Ties. 

4.  Repairs  of  Bridges  and  Culverts. 

5.  Repairs  of  Fences,  Road  Crossings,  Signs  and  Cattle  Guards. 

6.  Repairs  of   Buildings  and   Fixtures. 

7.  Repairs  of  Docks. 

8.  Repairs  of  Telegraph. 

9.  Stationery  and  Printing. 

10.  Sundries. 

Maintenance   of   Equipment — 

11.  Superintendence. 

12.  Repairs    of    Locomotives. 

13.  Repairs  of  Passenger  Cars. 

14.  Repairs  of  Freight  Cars. 

15.  Repairs  of  Work  Cars. 

16.  Repairs  of  Shop  Machinery  and  Tools. 

17.  Stationery  and   Printing, 

Conducting  Transportation — 

19.  Superintendence. 

20.  Engine  and   Round-House   Men. 

21.  Fuel   for    Locomotives, 

22.  Water   Supplies   for   Locomotives. 

23.  Oil,  Tallow  and  Waste  for  Locomotives. 

24.  Other   Supplies   for   Locomotives. 

25.  Freight   Train    Service. 

26.  Freight   Train   Supplies   and    Expenses. 

27.  Passenger   Train    Service. 

28.  Passenger  Train  Supplies  and  Expenses. 

29.  Switchmen,   Flagmen  and  Watchmen. 

30.  Telegraph    Expenses. 

31.  Station    Service. 

32.  Station   Supplies. 

33.  Switching  Charges, 

34.  Car   Mileage   Balance, 

35.  Hire   of   Equipment. 

36.  Damage   and    Loss    of    Freight    Baggage, 

37.  Damage  of  Property,   Including  Live  Stock. 

38.  Injuries  to  Persons. 

39.  Clearing  Wrecks, 

40.  Operating  Docks, 

41.  Advertising. 

42.  Outside    Agencies. 

43.  Operating    Marine    Equipment. 

44.  Stock   Yards   and    Elevators. 

45.  Rents    of    Buildings    and    Other    Properties. 

46.  Stationery   and    Printing. 

47.  Operating  Yards,  Tracks  and  Terminals. 
4S.  Sundries, 

49. 

1016 


7461 


746I-746J    American  Business  and  Accounting  Encyclopedia 

General    Expenses — 

30,     Salaries    of    General    Officers. 

Salaries   of  Clerks  and   Attendants. 

General    Office    Expenses. 

Insurance. 

Law    Expense. 

Stationery    and    Printing. 

Sundries. 


Ma. 


51. 
52. 
53. 
54, 
55, 
56, 
57. 
58, 
59, 
60. 
61, 
62, 
63, 
64, 
65, 
66. 


Pay  Rolls. 
Paymaster, 

Freight   Earnings, 
Passenger    Earnings, 
Miscellaneous    Earnings. 
Stores    Department, 
Sundries, 


Construction. 

67.  Engineering  Expenses. 

68.  Right  of  Way. 

69.  Grading. 

70.  Bridges  and  Culverts. 

71.  Fences. 

72.  Rails  and   Fastenings. 

73.  Ties. 

74.  Switches   and    Frogs, 

75.  Ballastings, 

76.  Buildings  and   Furniture. 

77.  Docks. 

78.  Track   Laying. 

79.  Fuel   and    Water   Stations. 

80.  Shop,   Houses  and   Turn  Tables. 

81.  Cattle    Guards. 

82.  Telegraph   Line, 

83.  Transportation. 

84.  Sidings. 

85.  Interest,  Discount  and  Exchange. 

86.  General    Expense. 
Equipment — 

Distributed  by  Class. 

(74r)J)     In  the  business  of  a  large  shoe  manufactory,  the  distribution  is 
made  under  the  headings  of: 
Manufacturing  Accounts. 
Department  Expense  Accounts. 
Manufacturing  Expense  Accounts. 
Leather  Sorting  and  Distributing. 
Selling  Expen.se  Accounts. 
General  Expense  Accounts. 
Merchandise  Purchase  Accounts. 
New  Construction,  and  Additions  to  Plant  Accounts. 

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746J-746K    American  Business  and  Accounting  Encyclopedia 


Ma. 


Manufacturing  Accounts — 

1.  Special   Quality. 

2.  Welts. 

3.  Turns. 

4.  Dorothy  Dodd. 

5.  3d  Quality  inc.  Q.  Q. 

6.  4th  and  5th  Quality. 

Department  Expense  Accounts — 

7.  Upper  Cutting. 

8.  Trimmings. 

9.  Skivings. 

10.  Tongues. 

11.  Tip  Cutting  and  Perforating. 

12.  Box  Toes  and  Assembling. 

13.  Tip  Stitching. 

14.  Lining  Makers. 

15.  2nd  Stitching. 

16.  Back  Strapping. 

17.  Pressing. 

18.  Stitchings — Foxings. 

19.  Cementing. 

20.  Closing  On. 

21.  Buttonholes. 

22.  Vamping. 

23.  Samples  and  Singles. 

24.  Stock   Fitting. 

25.  Gem  Inner. 

26.  Upper  Receiving  and  Assembhng. 

27.  McKay  Lasting  and  Stitching. 

28.  Turns. 

29.  Beating  Out. 

30.  Nailing. 

31.  Last  Sorting  and  Picking. 

32.  Re-lasting. 

33.  Welt  Lasting. 

34.  Welt  Room. 

35.  Goodyear   Room   and   Stitching. 

36.  Heel   Shaving  and   Randing. 

37.  Edge   Trimming. 

38.  Edge   Setting  and   Blacking. 

39.  Buffing. 

40.  Bottom  Finishing. 

41.  Heel  Finishing  and  Lining. 

42.  Ironing  and  Treeing. 

43.  Packing. 

Manufacturing  Expense   Accounts — 

44.  Advertising. 

45.  Bad  and  Doubtful. 

46.  Collection   and   Exchange. 

47.  Depreciation. 

48.  Freight  and   Cartage. 

49.  General    Manufacturing    Expense. 

50.  Insurance. 

51.  Taxes  Charged  OS. 


52. 
53. 
54. 
55. 

56. 
57. 
58. 
59. 
60. 
61. 
62. 
63. 
64. 
65. 
66. 
67. 
68. 


Office  Expenses. 
Telephone  and  Telegraph. 
General  Labor. 


Repairs. 

Book-keeping   Department. 
Credit  and   Correspondence  Department. 
Factory  Office. 

Machine   and    Carpenter   Shop. 
Patterns  and  Lasts,   Renewals  and   Repairs. 
Distributing. 
Pay   Roll   Department. 
Purchasing   Department. 
Shipping    Department. 
Supply  Department. 
Sweeping    Department. 

Light,    Heat   and    Power   Operating  and    Maintenance. 
Leather   Sorting   and    Distributing — 

69.  Upper   Leather. 

70.  Remnants. 

71.  Sole   Leather. 

72.  Heels  and   Tops. 
Selling  Expense  Accounts — 

73.  General  Sales  Department. 

74.  Retail   Sales   Department. 

75.  Traveling  Salesman. 

76.  Chicago   Office. 
General  Expense  Accounts — 

77.  Administrative. 

78.  Printing  Department. 

79.  Distributing    Department. 
Merchandise   Purchase  Accounts — 

80.  Material   and   Supplies. 

New   Construction   and   Additions   to   Plant   Accounts 

81.  Beating  Out. 

82.  Dies. 

83.  Lasts. 

84.  Followers. 

85.  Factory   Fixtures. 

86.  Tools  and  Machine — Small  Tools. 

87.  Plant  and   Machinery.  • 

88.  Land  and   Buildings. 

89.  Motive   Power,    Electric   Light   Plant  and   Shafting. 

90.  Special  New  Additions. 

91.  Patterns. 

(746K)     In  a  bituminous  coal  mine  the  following  classification  is  used, 
sub-divided  generally  under  the  departments  of  coal  and  coke: 


Coal   Expense  Accounts — 
Expense  of  Mining. 
Hauling. 
Loading. 
Repair  to  Cars. 


COAL  SECTION. 


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American  Business  and  Accounting  Encyclopedia  "^^GK 


(1) 


(2) 


(3) 


Repair  to  Tracks. 
Electric    Light. 
Entry  Driving. 
Rooms   and    Rolls. 
Ventilation. 

Drainage  and  Watering  Mine. 
Timber  and   Props. 
Dead   Work. 

Repairing  Building  and   Chutes. 
Repairs.   Machinery. 
Superintendents  and  Clerks. 
Engineering. 
General    Expenses. 
Incidentals. 

Total    Expenses    Mine   No. 
Total    Expenses    Mine   No. 
Expense   of   Mining — 
Hand  Mining. 
Contract   Machine   Mining. 
Day   Work    Machine   Mining. 
Drilling,  Shooting  and   Loading. 
Loading  Company  Coal. 
Proportion  Power  House  Expense. 
Ladders  and  Tool   Boxes. 
Running   Man  Trip. 
Sharpening  Tools. 
Powder   ^Lin. 
Check   Man. 
W'ire  Man. 
Shot    Inspectors. 
Wood   Pulp. 
Earth   Tamping. 
Tamping  and  Powder  Boxes. 
Hauling — 

Proportion    Power    House    Expense. 

Drivers. 

Outside  Hoistmen. 

Underground   Hoistmen. 

Locomotive   Men. 

Rope   Runners. 

Couplers  and  Spraggers. 

Roller    Men   and    Greasers. 

Proportion   Stable   Expense. 

Harness    Repairs    and    Shoeing. 

Clearing  Up  Wrecks. 

Repairs    Haulage    Signals. 

Cleaning   Haulage   Tracks. 

Oil   and    Waste. 

Roller  Repairs  and  Renewals. 

Repairing  Haulage   Entries. 

Loss   of   Animals. 
Loading — 

Outside    Foreman's    Salary. 

^\'eighmen  and  Topmen. 

Pushers   and   Dumpers. 

Couplers  and  Spraggers. 

1020 


746K  American  Business  and  Accounting  Encvclu^^edia 

Proportion    Power    House    Expense. 

Running   Chute    Engine. 

Loading  by   Day   Labor. 

Loading   by    Contract. 

Running  and  Repairing  Box  Car  Loader. 

Car   Handlers. 

Attendance    Elevators,    Screens,    etc. 

Cost   Dummy   Doors. 

Unloading  Dust  and  Yard  Waste. 

Cleaning  Yard   Tracks. 

Damage  to   R.   R.   Cars  and  Tracks 

(4)  Repairs  to  Cars — 

Repairing  Wrecked    Cars. 
Repairing  Worn  Out  Cars. 
Replacing  Lost  Cars. 
Replacing  Wheels   and   Axles. 

(5)  Repairs   to  Tracks — 

Hoist   and    Locomotive   Tracks. 
Ordinary  Entry  and   Room  Tracks. 
Taking  up  Old  Rails  and  Tics. 
New  Ties  Used. 

Track  Spikes,   Bolts  and  Fish  Plates. 
New   Rails  Used. 

(6)  Electric   Light — 

Proportion  Power  House  Expense. 
Repairs    Interior   Wiring. 
Replacing   Lamps   Outside. 
Replacing  Lamps  in  Mines. 

(7)  Entry  Driving — 

Yardage   in   Straight    Coal. 
Yardage  in  Coal  and  Rock. 
Yardage  in  Straight  Rock. 
Allowance  for  Boney  Coal  or  Rock. 
Allowance  for  Rolls. 
Allowance   for   Water. 

(8)  Rooms  and  Rolls- 

Rooms   Turned. 

Allowance   for    Rolls    in    Rooms. 
Allowance  for  Brushing  Roof. 
Allowance  for  Boney  Coal  or   Rock. 
Allowance   for  Water. 

(9)  Ventilation- 

Proportion  Power  House  Expense. 

Gas  Inspectors. 

Fan   Expenses  and   Engineer. 

Building   and    Repairing    S.toppings. 

Brattice    Cloth    and    Bratticing. 

Building  and  Repairing  Mine  Doors. 

Trappers. 

Cleaning  Air  Ways. 

Repairing  Air  Ways. 

(10)  Drainage  and  Watering  Mine- 

Proportion  Power  House  Expense. 
Outside   Pumps  and   Pumpmen. 
* 

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Ma. 


Inside  Pumps  and  Pumpmen. 
Water  Men  and   Supplies. 
Ditches  and  Dumps. 

(U)    Timber  and  Props- 
Driving  Entries  and  Rooms. 

Retimbering  and  Robbing  Rooms. 

Repairing  Haulage   Entries. 

Repairing  Air  and  Traveling  Ways. 

Unloading   and   Piling. 

Hauling  and   Sawing. 

Loading   and    Delivering. 

Drawing  Props. 
(13)     Dead   Work— 

Retimbering    Rooms. 

Regrading   and    Brushing    Entries. 

Prospecting   Faults. 

Loading  and   Hauling   Rock, 

Dumping  and  Stowing  Rock. 

Underground  Inspection. 

Watchman. 

Repairing  Company  Tools. 

(13)  Repairs   to   Buildings   and    Chutes — 

Main  Chute  and  Trestle. 

Crusher,  Elevator  and  Screen  Building. 

Power  and  Boiler  Houses. 

Engine   House. 

Barn   and   Corral   Buildings. 

Boarding   Houses. 

Blacksmith   and    Machine   Shops. 

Other    Mine    Buildings. 

R.   R.  Tracks  and   Mine  Scales. 

(14)  Repairs    Machinery — 

Boilers  and  Connections. 
Steam  Lines. 

Stationary  Steam  Engines. 
Steam  Hoisting  Engines. 
Electric  Hoisting  Engines. 
Air   Compressors. 
Electric  Generators. 
Electric   Locomotives. 
Miscellaneous   Electric   Motors. 
Outside  Pumps. 
Underground   Pumps. 
Outside   Water    Lines. 
Underground  Water  Lines. 
Outside  Air  Lines. 
Underground  Air  Lines. 
Outside   Electric   Power  Lines. 
Underground  Electric  Power  Lines. 
Fans  and   Fan   Engines. 
Proportion  Crushers,   Elevators,  etc 
Tipples   and    Screens. 
Renewal    Wire    Ropes. 
Mining   Machines. 
Machinery  Inspection. 
(15)     Superintendents  and  Clerks — 

1022 


Proportion  Gen.  and  Mine  Supt's.  Salaries. 
Mine   Foreman. 
Mine  Clerks. 
Janitor  Service. 
Office  Fixtures. 

(16)  Engineering — 

Mine   Surveyors    and   Assistants. 
Office  Supplies. 
Outside    Expenses. 

(17)  General  Expenses — 

Proportion    Stationery   and    Printing. 

(18)  Incidentals — 

Miscellaneous    Teaming. 
Pay   Day   Expenses. 
Express  on  Money. 
Free  Coal. 

coke  section. 

Coke  Expense  Accounts — 

Superintendents   and    Clerks. 
Crushing  and   Elevating. 
Charging  Ovens. 
Burning   and    Drawing. 
Loading  Coke. 
Loading   Cinders. 
Firing  Cold  Ovens. 
Repairs  to  Coke  Ovens. 
Repairs  to  Buildings. 
Coke   Experiments. 
Incidentals. 
Total  Coke  Expenses. 

COKE  EXPENSES. 

(40)  Coal  Used— 

Tons  at 

(41)  Superintendents    and    Clerks — 

Proportion  Gen.  and  Mine  Supt's.  Salaries. 
Coke   Oven    Foreman. 
Proportion   Office  Clerks. 
Proportion  Office  Supplies. 

(42)  Engineering — 

Same  as  Account  No.  16. 

(43)  Charging  Ovens — 

Proportion  Power  House  Expense. 
Handling  Coal  at  Bins. 
Cleaning  at  Bins  and  Scales. 
Weighing  Charges. 
Running  Larry  Cars. 
Repairing  Larry  Cars  and  Tracks. 
Repairing  Mbtor  and  Power  Lines. 
Repairing  Scales. 

(44)  Burning   and    Drawing — 

Coke   Pullers. 
Plastering  Oven  Doors. 

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Proportion    Power    House    Expense. 
Proportion    Pumping    Expense. 
Repairs   Oven    Water    Line. 
Repairs   Tools. 
Charging  Hole   Covers. 
Watchmen. 

(45)  Loading  Coke — 

Loading  R.  R.  Cars. 

Cleaning  R.   R.  Tracks, 

Damage   to    R.    R.    Cars   and   Tracks. 

Expense  and  Repairs  Tools. 

Watchmen. 

Foreman's    Wages    (Proportion    of). 

(46)  Loading  Cinders — 

Loading  and  Unloading  R.   R.   Cars. 
Hauling  Away  in  Wagons. 
Cleaning   Docks. 
Expense  and   Repairs  Tools. 
Proportion  Stable  Expense. 
Foreman's    Wages    (Proportion   of). 

(47)  Firing  Cold   Ovens — 

Wood  Used. 

Coal   Used. 

Charging,    Burning   and    Drawing. 

Disposing  of   Cinders. 

(48)  Repairs  to  Coke   Ovens — 

Brick  and   Fire   Clay, 

Stone,   Lime,    etc. 

Cast   Iron   Door  Frames. 

Repacking  Ovens. 

Repairs  Dock  W'alls. 
(49")     Repairs  to  Building — 

Slack  Bins. 

Store  and  Tool  House. 

Scale    House. 

Trestles  and   Bridges. 
(50)     Coke    Experiments — 

Preparing  and   Coking  Coal. 

Transportation  on  Samples.  ; 

Cost   of  Analysis. 
Incidentals — 

Pay  Day  Expenses. 

(747)       FACTORY  EXPENSE  DISTRIBUTION". 

The  following  is  quoted  from  an  address  made  by  Mr.  Chas.  E.  Hatha- 
way at  a  convention  of  The  International  Accountants'  Society. 

There  seems  to  be  but  little  difficulty  in  factory  accounting  until  the  problem 
of  expense  distribution  is  reached,  and  so  far  as  direct  costs  are  concerned  there 
seems  to  be  plain  sailing.  The  debiting  of  production  and  the  crediting  of 
raw  material,  stock  and  labor  is  now  quite  a  universal  practice  and  probably 
understood  by  all :  but  with  the  next  stage  in  cost  accounts,  the  handling  of 
the  indirect  or  "  overhead  "  expense  there  comes  differences  of  opinion  as  to 
methods  to  be  used.  This  subject  enters  into  every  manufacturing  proposi- 
tion. 

1024 


747 


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The  expense  of  manufacturing  must  be  iDorne  and  paid  for  by  the  sales 
of  a  plant's  product,  and  this  expense  must  naturally  become  a  part  of  the 
cost  of  production  and  merged  into  it.  The  first  operation  in  tabulating  cost 
records  is  of  course  the  first  or  direct  cost  and  represents  cost  of  actual  labor 
and  material  which  is  directly  used  in  the  production  of  any  article  of  manu- 
facture. But  the  whole  cost  of  this  article  does  not  stop  here.  The  expense 
of  the  plant  incidental  to  its  manufacture  must  also  be  considered,  for  the 
plant's  product  must  pay  for  the  plant's  expense  and  if  a  proportionate  part 
or  share  of  the  expense  is  not  added  to  the  direct  cost  of  the  manufactured 
article  the  true  cost  is  not  known.  This  particular  article  must  help  pay  for 
the  expense  of  operating  the  department  in  which  it  was  produced  and  must 
also  stand  a  part  of  the  general  expense  of  the  whole  plant  in  which  it  is 
made.  We  cannot  stop  the  co^t  with  the  direct  charges  and  limit  to  this,  and 
say  this  is  the  cost  to  manufacture. 

Up  to  this  point  the  actual  cost  to  manufacture  is  positively  known,  but 
in  figuring  the  amount  of  factory  and  general  expense  to  be  added  to  first 
cost  our  estimating  begins.  The  manufacturer  and  his  accountant  are  con- 
fronted with  the  question,  '*  How  much  of  the  expense  account  to  carry  on  my 
business  must  this  particular  article  pay?"  And  the  question  is  before  us 
today,  how  much  of  this  expense  to  manufacture  is  to  be  added  to  the  direct 
cost  of  production,  how  shall  we  arrive  at  the  projier  amount  and  what  is  the 
best  method  to  be  adopted  in  the  calculation  of  it. 

There  are  three  ways  which  may  be  used  to  systematically  dispone  of 
manufacturing  expense  over  production :  the  "  man-hour  "  plan  st>-called.  the 
"  machine-hour  "  plan  and  the  "  percentage  "  method.  All  these  different 
methods  have  had  their  advocates,  but  in  most  plants  there  are  conditions 
which  absolutely  prohibit  the  adoption  of  at  least  one  of  these  methods,  and 
the  accountant  after  studying  the  situation  carefully  is  forced  to  select  'one 
of  the  other  two  methods.  The  plan  which  would  appeal  to  one  manufacturer 
would  be  thrown  down  by  another  as  not  applicable  to  conditions  as  they 
exist  in  his  factory. 

Let  us  bring  all  three  methods  together  and  see  if  it  is  not  ix)ssible  to 
select  oiie  which  comes  the  nearest  to  filling  the  general  conditions  of  regular 
factory  practice  with  the  least  unnecessary  detail  and  expense  to  operate  and 
at  the  same  time  give  satisfactory  results. 

It  is  assumed  at  the  outset  that  the  books  of  the  company  show  the  oj^erat- 
ing  of  each  department,  the  general  expense  of  the  whole  plant,  offices, 
administration,  etc.,  and  the  productive  labor  of  each  department  as  well  as 
for  the  whole  plant.  It  should  also  be  borne  in  mind  as  already  outlined,  that 
the  direct  cost  of  any  piece  of  productive  work  should  share  part  of  the 
expense  of  the  department  doing  the  work  and  is  of  necessity  operated  that 
the  article  can  be  manufactured,  and  also  share  in  the  administrative  or  non- 
productive expense  of  the  organization  necessary  to  operate  and  administer 
the  business  end  of  the  industry  established  to  undertake  the  manufacture  of 
this  same  article  for  pecuniary  profit.  This  brings  us  to  the  starting  point,  and 
we  can  safely  assert  that  in  addition  to  the  direct  cost  our  cost  record  should 

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show  two  more  items : 

1st — Departmental  expense. 

2nd — General  expense, 
and  the  question  is  now  simply  what  method  should  be  used  in  transferring  this 
expense  into  the  cost  of  production. 

Let  us  first  consider 

THE   MAN-HOUR  PLAN. 

This  scheme  for  distributing  expense  was  one  of  the  first  methods  used, 
but  has  in  most  shops  now  been  discarded.  While  there  are  possibly  a  few 
factories,  comparatively  speaking,  still  using  the  old  plan,  it  is  quite  probable 
it  has  been  outgrown  by  all  up-to-date  plants. 

The  general  plan  of  its  operation  is  quickly  understood.  The  expense 
is  calculated  on  the  time  spent  on  production,  and  not  on  the  cost  of  labor  which 
entered  into  the  production,  and  the  distribution  of  the  expense  is  reduced  to  a 
man-hour  rate  as  the  very  name  of  the  method  implies.  An  article  on  which 
54  hours  was  spent  at  a  cost  of  $21,  bore  no  more  of  the  factory  expense  than 
a  job  of  the  same  number  of  hours  which  cost  only  $5.  It  made  no  difference 
whether  the  article  was  worked  on  by  a  skilled  mechanic  or  by  an  apprentice 
boy,  the  expense  to  be  borne  by  the  job  was  the  same,  the  calculation  being 
made  simply  on  time  spent.  It  is  apparent  that  this  is  hardly  a  fair  pro- 
position. It  is  true  if  it  were  possible  to  employ  a  uniform  class  of  labor 
so  that  a  fixed  standard  could  be  established  and  at  the  same  time  keep  the 
force  about  the  same  in  number  during  the  year  so  that  a  calculation 
could  be  made  and  a  number  of  hours  adopted  as  the  standard  work-hours 
for  a  year,  this  man-hour  plan  might  make  good.  But  these  conditions  are 
seldom  found  today  in  a  manufacturing  plant.  The  force  is  increased  or 
decreased  at  different  seasons  to  the  demands  of  production,  and  of  necessity 
there  must  be  a  different  wage  for  different  trades  or  for  the  ability  and 
experience  of  workmen  in  the  same  trade.  Under  this  plan  a  skilled  workman, 
an  inferior  workman,  helper  or  apprentice  boy  are  all  on  a  par,  and  on  a  job 
where  each  worked  the  same  time  there  would  be  the  same  expense  added  in 
each  case.  This  is  manifestly  unfair.  The  amount  of  capital  furnished  by 
the  company  to  pay  for  the  labor  which  entered  into  the  production  of  an 
article  was  ignored. 

To  correctly  solve  the  problem  under  the  man-hour  plan  various  adjust- 
ments must  be  made,  and  it  is  noted  at  the  outset  that  the  very  essentials 
cannot  be  accurately  calculated  and  are  purely  estimates  which  may  or  may 
not  work  out  in  practice,  with  no  assurance  that  conditions  will  continue  even 
on  the  basis  estimated.  In  addition  to  estimating  and  adopting  a  given  number 
of  productive  hours  as  the  standard  for,  say,  a  year's  work,  to  make  the  man- 
hour  plan  an  equitable  means  of  figuring  expense  would  require  the  adoption 
of  a  standard  of  efficiency  for  the  labor;  either  the  apprentice  should  be 
adopted  as  standard  and  the  skilled  mechanic  considered  as,  say,  twice  or 
three  times  the  value  of  the  apprentice's  quantity  of  production  for  an  hour, 
or  vice  versa.  This  would  require  in  making  up  the  cost  record  a  statement 
of  what  men  worked  on  the  job  so  that  their  efficiency  in  work-hours  could 


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be  established,  the  total  of  which  would  be  the  basis  on  which  the  expense 
was  to  be  apportioned.  It  is  apparent  that  such  a  condition  as  this  would 
lead  to  endless  complications.  Without  such  an  adjustment  the  cost  as  shown 
would  be  a  very  unfair  statement  and  the  calculation  of  the  expense  quite  an 
impossible  undertaking. 

To  further  complicate  matters  it  is  apparent  that  an  average  man-hour  rate 
for  the  whole  plant  will  not  do  even  if  calculated.  Each  department  of  the 
plant  should  have  its  own  rate.  It  is  obvious  that  productive  work  done  in  a 
department  operated  at  a  high  rate  of  expense  would  under  these  conditions 
be  charged  with  expense  figured  on  the  plant's  average  rate  which  might  fall 
far  below  the  actual  rate  for  the  department  which  did  the  work,  and  the 
cost  of  the  job  would  not  be  correctly  shown. 

Again  it  is  noted  that  although  the  dollars  and  cents  cost  of  the  labor 
which  enters  into  any  and  every  article  may  be  known,  under  the  man-hour 
plan  the  labor  cost  of  itself  is  absolutely  worthless  in  calculating  the  propor- 
tionate expense  to  be  borne  by  any  particular  job.  Although  the  sum  total 
of  all  the  individual  labor  items  must  of  necessity  balance  out  the  labor 
account  in  the  ledger  and  represent  the  total  amount  of  productive  pay  roll, 
we  are  just  as  far  from  knowing  the  amount  of  the  manufacturing  expense 
or  indirect  charge  to  be  added  to  the  first  cost  as  we  would  be  without  the 
labor  cost  at  all.  The  labor  cost  does  not  help  us  in  the  least  in  calculating 
the  expense.  It  will  be  remembered  that  the  man-hour  plan  deals  with  the 
time  spent  on  the  job  and  not  on  the  cost  of  the  direct  labor.  In  addition  to  the 
labor  cost  the  hours  spent  on  every  piece  of  job  work  must  be  carefully 
recorded  and  totaled.  In  ether  words  two  sets  of  figures  are  required,  the 
labor  cost  and  the  hours  spent  and  either  one  is  worthless  without  the  other.- 
The  hours  after  being  calculated  are  not  used  in  the  general  books,  and  in  this 
respect  is  an  unnecessary  operation  and  waste  of  time,  and  the  bigger  the  plant 
the  more  the  detail  and  time  that  must  be  spent  by  the  cost  department  in 
its  calculation,  and  in  a  large  plant  this  would  be  quite  an  undertaking.  It  is 
extremely  doubtful  if  many  plants  would  care  for  these  statistics  at  the  cost 
which  would  be  required  to  collect,  calculate  and  tabulate  them. 

By  the  man-hour  method  only  one  amount  needed  in  the  calculation  is 
actually  known — the  total  amount  to  be  distributed — all  other  amounts  and 
quantities  must  be  estimated.    There  seems  to  be  no  positive  starting  point. 

I  have  cited  only  a  few  objections,  sufficient,  however,  to  show  some  of 
the  disadvantages  of  the  man-hour  plan.  Others  would  be  discovered  in 
actual  practice.  Any  method  in  business  today  which  means  unnecessary  labor 
and  duplication  of  work,  especially  when  accompanied  by  unsatisfactory 
results  must  be  discarded  for  something  simpler  and  more  efficient.  This 
has  evidently  proved  the  experience  of  most  concerns  who  have  used  the 
man-hour  method,  for  it  seems  to  be  a  fact  that  it  has  been  practically  aban- 
doned and  is  probably  not  used  by  any  up-to-date  plant  at  present,  the  direct 
labor  method  having  been  found  far  more  satisfactory. 


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THE    MACHINE-HOUR    METHOD. 

Somewhat  similar  in  its  detail  to  what  we  have  been  considering  is  the 
machine-hour  method  of  expense  distribution.  The  name  itself  suggests  its 
intent,  which  is  to  use  the  time  spent  by  machine  as  the  basis  for  handling 
the  expense.  In  this  respect  it  closely  resembles  the  man-hour  plan  and  is  quite 
similar  in  its  method  of  computation  and  operation.  This  method  is  intended 
for  use  in  machine  works  or  shops  where  most  of  the  work  done  is  by  machines 
the  sm.aller  amount  being  done  by  floor  labor.  It  is  obvious  that  this  method 
could  not  be  considered  at  all  for  a  pattern  shop,  blacksmith  shop  or  paint 
shop,  or  in  fact  in  any  department  where  there  is  little  or  no  machinery  and 
where  the  labor  is  performed  mostly  by  hand.  Its  object  is  therefore  to 
reduce  the  rate  of  distributing  expense  to  an  hourly  rate  for  each  machine 
working  on  the  job. 

While  it  is  generally  admitted  by  factory  accountants  that  theoretically 
the  machine-hour  method  is  undoubtedly  the  correct  one  for  a  machine  works, 
it  is  found  on  investigation  and  in  practice  to  be  far  more  complicated  than  the 
man-hour  plan,  and  for  this  reason  is  used  only  by  a  small  fraction  of  the 
very  class  of  production  it  was  intended  to  assist  and  for  which  it  was  planned. 
This  plan  goes  even  further  than  does  the  man-hour  method  in  the  estimating 
required,  and  as  a  well  known  audit  company  in  New  York  City  puts  it,  "  it 
begins  with  estimating  and  is  estimating  all  the  way  through." 

It  is  apparent  that  in  a  machine  shop  as  already  stated  there  are  two  items 
which  constitute  the  production ;  that  done  by  the  machine  and  that  done  by 
the  mechanic.  The  machine-hour  plan  is  intended  to  dispose  of  the  expense 
of  operating  the  machinery,  while  the  productive  labor  of  the  shop  must 
dispose  of  the  expense  of  operating  the  shop  outside  of  and  not  included  in  that 
for  operating  the  machines.  In  other  words  there  must  be  two  items  of  factory 
expense  added  to  the  direct  cost  of  any  article  of  production ;  the  machine-rate 
expense  and  the  shop  operating  expense,  and  it  is  noted  at  once  that  they  are 
both  entirely  diflferent  in  their  calculation.  This  is  of  course  in  addition  to  a 
third  item  representing  the  plant's  general  expense.  Every  calculation  added 
means  time  and  expense  and  an  elaboration  of  system  instead  of  simplifying 
it,  and  no  manufacturing  concern  today  cares  to  pay  for  unnecessary  detail. 
Economy  must  be  practiced  in  office  as  well  as  in  shop. 

One  of  the  first  features  to  be  considered  is  the  calculation  of  the  power  to 
operate  each  tool,  which  must  be  calculated  by  the  plant's  factory  engineer 
or  his  technical  assistant.  This  must  of  necessity  be  an  estimate  or  based  on 
engineering  statistics  which  may  or  may  not  fit  the  conditions  of  operating  the 
power  house  of  the  plant  in  question.  The  up-keep  of  the  machine  itself,  its 
repairs  and  maintenance,  may  be  closely  kept,  but  in  order  to  establish  the  total 
machinery  expense  these  must  in  a  measure  also  be  estimated  in  order  to  form 
a  basis  on  which  to  reduce  the  total  expense  to  the  hourly  rate  for  each  machine ; 
hardly  a  safe  basis  for  making  any  careful  calculation. 

The  first  step  in  calculating  the  rate  of  distributing  the  expense  would  be  to 
establish  a  standard  of  work-hours  for  all  tools  in  the  shop.    That  this  is  9 


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difficult  or  in  fact  quite  impossible  accurate  calculation  is  apparent.  The 
time  a  machine  will  stand  idle  is  always  found  to  be  a  very  uncertain  quantity 
and  makes  any  kind  of  a  calculation  hardly  more  than  an  intelligent  guess. 
Who  is  gifted  with  sufficient  foresight  to  be  able  to  state  what  tools  will  be  oper- 
ated continuously  for  nine  hours  a  day  and  which  will  be  used  but  half  a  day 
for  any  number  of  months?  Who  can  estimate  with  any  degree  of  accuracy 
how  many  hours  a  mammoth  jilaner  representing  an  investment  of  perhaps 
$:i 0,000  and  used  only  occasionally  on  very  heavy  or  bulky  castings  will  be 
in  ( peration,  or  even  estimate  the  working  hours  of  a  small  milling  machine 
used  orAj  or  special  work  and  then  not  frequently,  which  the  manager  desires 
tc  have  in  thr  shop  even  if  it  is  idle  a  good  part  of  the  time?  This  can  hardly 
be  figured  and  must  of  necessity  be  estimated,  the  same  as  is  done  in  deter- 
mining what  shall  constitute  a  six  months'  or  year's  work  under  the  man-hour 
plan,  only  it  is  even  more  complicated  in  its  calculation.  Shall  a  machine  o^ 
ordinary  capacity  be  rated  in  its  ability  to  produce  on  a  par  with  another 
machine  of  the  same  power  and  expense  to  operate  which  does  the  work  of  a 
number  of  men  and  is  of  great  efficiency  ?  These  are  all  questions  which  some- 
cne  must  decide  and  pass  on  in  order  that  the  operating  expense  may  be 
divided  by  the  operating  hours  of  each  tool,  that  the  machine  rate  may  be 
established  for  each  machine.  It  takes  but  a  moment  to  see  the  difficulty  of 
arriving  at  the  very  fundamentals  of  the  scheme,  yet  some  figure  must  be 
established  as  standard,  and  it  is  noted  that  the  foundation  of  the  machine- 
rate  plan  is  based  on  estimates  and  assumptions. 

At  the  end  of  the  period  there  will  doubtless  be  found  a  wide  diflFerence 
between  the  actual  hours  a  machine  has  been  in  operation  and  the  estimate  made 
for  it,  which  means  of  course  that  any  adopted  rate  for  the  machine  may  work 
out  far  ciiflFerently  than  the  actual  conditions  have  later  shown  the  machine- 
rate  should  have  been,  due  of  course,  to  the  unforeseen  time  the  machine  has 
been  idle  a:.c'  which  of  necessity  could  not  be  known  at  the  time  the  rate  was 
calculated  and  adopted. 

Starting  with  the  machine  operating  cost  an  estimate  and  continuing  the 
process  of  distributing  the  expense  on  a  machine  hour  rate  based  on  another 
estimate,  it  is  not  at  all  surprising,  in  fact  it  is  to  be  expected  that  at  the 
end  of  a  period  a  very  unsatisfactory  distribution  has  taken  place  and  the 
expense  account  is  very  far  from  being  balanced. 

An  interesting  article  on  machine  rates  appeared  in  a  recent  number  of 
one  of  our  popular  magazines,  written  by  a  mechanical  engineer.  The  trend 
of  the  article  seemed  to  indicate  that  the  mechanical  man  of  a  plant  could 
successfully  estimate  these  very  elements  which  have  been  cited  as  being 
objections  to  the  machine-hour  method.  The  writer  stated  that  the  actual 
lime  a  tool  is  likely  to  be  used  "  will  seldom  exceed  80  per  cent,  of  the  wockin^ 
day,"  and  as  he  further  states  "  is  likely  to  run  down  to  a  much  lowei  percent 
age."  He  unconsciously  admits  that  the  time  a  machine  will  be  in  operation  is 
an  unknown  quantity.  Yet  this  missing  or  uncertain  figure  is  the  very  key 
to  the  calculation  of  the  machine  rate  and  on  which  the  success  of  the  distribii- 
tion  depends,  and  according  to  the  writer's  idea  has  a  range  cf  operation  from 


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80  per  cent,  of  a  working  day  down  to  absolute  idleness.  With  such  a  latitude 
as  this  to  build  on  any  resulting  figures  could  hardly  be  called  a  calculation 
and  one  guess  would  be  just  as  good  as  another.  As  already  stated,  in  a 
machine  shop  of  very  uniform  production  possibly  this  estimatmg  may  be 
done  as  the  writer  of  the  article  claims;  if  so,  then  many  of  the  objections 
usually  met  are  partially  solved,  but  this  would  hardly  clear  up  the  unfortunate 
objections  to  the  method  actually  found  in  general  machine  shop  practice. 

The  mere  fact  that  the  machine-hour  plan  is  not  used  by  a  very  large 
percentage  of  the  very  manufacturing  industries  it  was  designed  and  intended 
to  benefit  is  quite  conclusive  proof  that  it  is  found  wanting.    As  stated  before 
theoretically  it  is  undoubtedly  the  correct  method,  but  in  practice  it  is  not 
altogether  a  success. 

THE    PERCENTAGE    METHOD. 

In  contrast  with  these  two  plans  of  distributing  expense  is  the  percentage 
system  by  which  the  expense  is  calculated  not  on  the  time  spent  by  work- 
man or  machine,  but  on  the  money  value  of  the  direct  labor.  This  plan  seems  to 
be  generally  selected  by  our  leading  public  accountants  and  auditors  and  par- 
ticularly those  who  make  a  specialty  of  factory  accounting  as  the  correct  sol- 
ution  of  the  problem.  So  far  as  I  am  able  to  observe  it  seems  to  be  in  use 
by  our  largest  manufacturing  industries  and  I  am  yet  to  be  informed  of  a 
concern  using  this  method  and  finding  it  other  than  satisfactory.  It  is  certainly 
the  easiest  method  and  where  a  double  entry  cost  system  is  in  use  this  method 
saves  a  great  amount  of  clerical  labor  and  consequently  costs  less  to  operate. 

The  recording  of  hours  worked  is  entirely  unnecessary  and  may  be  dis- 
pensed with,  that  is,  so  far  as  calculating  expense  is  concerned.    The  expense 
is  figured  on  the  direct  wages,  which  of  necessity  must  be  recorded  for  use  m 
the  commercial  books  of  the  company ;  no  additional  figures  are  needed  than 
those  which  are  readily  shown  on  the  general  ledger  and  by  the  pay  roll 
sheets.    It  will  be  seen  at  once  that  this  in  itself  is  a  great  labor  saver,  and  in 
use  of  percentages  which  are  easily  figured  the  expense  can  be  distributed 
very  rapidly,  and  it  is  not  surprising  that  the  percentage  method  appeals  to  the 
factory  accountant  especially  in  large  plants  where  hundreds  or  perhaps  thou- 
sands of  job  orders  are  constantly  in  process  and  must  share  in  the  distribution. 
In  the  ledger  a  factory  expense  account  is  kept  and  in  case  the  plant  is 
divided  into  departments  an  operating  expense  account  is  kept  with  each,  into 
which  all  non-productive  and  expense  charges  of  that  department  are  charged, 
and  the  ledger  accurately  shows  the  exact  cost  of  the  expense  to  operate 
department.    No  need  of  any  estimating  for  we  know  the  exact  amount. 

If  the  pay  roll  does  not  show  in  a  separate  column  the  productive  wages  of 
each  department,  the  amount  of  same  may  be  arrived  at  by  taking  the  total 
department  roll  and  eliminating  the  labor  expense  items  shown  by  the  time 
cards  or  bv  the  expense  cost  records  for  the  department,  and  the  balance  will  be 
the  productive  roll  of  the  department.  This  is  also  a  positive  figure,  no  esti- 
mate. Under  the  percentage  method  of  distributing  expense  these  two  figures 
are  all  that  are  necessary  for  the  calculation. 

1030 


747 


American  Business  and  Accounting  Encyclopedia 


Ma. 


The  principle  of  the  plan  is  now  readily  understood,  and  is  that  the  pro- 
duction of  each  department  should  pay  for  its  own  operating  expense ;  in  other 
words  the  direct  cost  of  Department  A's  product  plus  the  operating  expense 
of  Department  A  will  give  the  true  cost  of  A's  product.  Each  department  is 
handled  the  same  way. 

To  illustrate,  suppose  the  productive  labor  of  Department  A  for  six  months 
is  $30,000,  divided  over  a  large  number  of  jobs  the  sum  total  of  which  equals 
this  amount.  The  ledger  shows  that  the  operating  expense  of  Department  A  for 
the  same  time  to  be  $6,000.  It  takes  no  reasoning  to  show  that  A's  expense  is 
one-fifth  of  its  productive  labor  and  if  to  every  productive  job  worked  on  by 
Department  A,  20  per  cent,  of  the  labor  thereon  is  added,  it  is  apparent  that  the 
total  of  all  these  percentage  items  added  will  equal  the  $6,000  shown  by  the 
ledger.  If  the  total  of  all  these  individual  expense  items  is  credited  to  A's  oper- 
ating expense,  the  expense  account  has  been  wiped  out  and  perfectly  distri- 
buted, all  on  the  basis  of  the  actual  labor  cost  which  was  expended  on  the 
article  manufactured.  Department  B  is  calculated  in  the  same  manner,  and  it 
may  be  shown  that  B's  productive  labor  is  $36,000  and  its  operating  expense 
is  $9,000,  in  which  case  25  per  cent,  should  be  added  to  all  labor  items  of  pro- 
duction by  Department  B. 

It  is  noted  that  these  percentages  are  arrived  at  by  using  the  actual  fig^ires 
from  the  books  without  any  estimating,  and  is  a  true  statement  of  fact  based 
on  what  has  been  the  result  of  operations  for  the  period  considered.  There  is 
no  better  way  to  estimate  for  the  future  than  by  the  results  of  the  past,  and  it 
is  fair  to  presume  that  unless  conditions  materially  change  that  this  same  per- 
centage will  hold  good  for  the  near  future  at  least,  possibly  for  months,  and  in 
making  up  cost  records  and  distributing  expense  monthly  this  same  percentage 
can  be  used.  By  an  examination  of  the  expense  account  each  month  the  result 
of  the  distribution  can  be  readily  noted,  for  while  the  percentage  will  nearly 
wipe  out  the  account  there  will  probably  be  a  small  balance.  If  a  debit  balance 
continues  or  materially  increases  for  a  few  months  after  distribution  has  been 
made,  it  is  noted  that  the  percentage  is  not  large  enough  and  should  be  increased. 
If  a  credit  balance  increasing  in  amount  is  the  result,  the  percentage  used  is 
more  than  enough  to  handle  the  expense  and  over  distribution  has  taken 
place  and  the  percentage  rate  should  be  slightly  decreased. 

We  have  been  speaking  of  the  departmental  or  factory  expense,  and  it  is 
noted  that  this  does  not  include  the  general  expense  of  the  plant,  offices,  admin- 
istration, taxes,  etc.  In  addition  to  the  operating  expense  of  the  diflFerent 
departments  a  second  item  must  be  added  to  cover  the  jobs'  proportion  of  the 
general  expense,  for  this  too  must  be  distributed  over  production  the  same 
as  that  for  the  department  actually  engaged  in  its  manufacture.  This  has 
already  been  referred  to  and  its  calculation  is  as  simple  as  that  for  the  depart- 
ment. While  there  is  an  individual  percentage  for  each  department,  the  same 
general  percentage  is  used  by  all  departments  and  is  the  percentage  on  the  total 
productive  labor  to  equal  the  total  general  expense.  Following  the  illustration 
used  if  we  divide  the  total  general  expenses  for  the  same  six  months  used  in 
figuring  the  departmental  percentage  by  the  total  productive  labor  of  all  depart- 
ments, for  the  same  period  we  arrive  at  the  percentage  required  to  distribute 

1031 


Ma. 


American  Business  and  Accounting  Encyclopedia 


748 


American  Business  and  Accounting  Encyclopedia 


Ma. 


the  general  expense  over  the  items  of  productive  labor.  To  illustrate  again, 
assuming  the  total  productive  roll  to  be,  say  ^-toO.OOO  and  the  total  general 
expenses  $1.50,000  the  resulting  percentage  would  be  33  1-3.  The  two  percent- 
ages having  been  calculated  can  be  adopted  as  standard  until  there  are  decided 
changes  in  production  or  expense,  or  both,  which  render  it  advisable  to  change 
them,  and  using  the  percentages  already  assumed  it  will  be  seen  that  the 
percentages  to  be  added  to  all  items  of  production  by  Department  A  would 
be  for  the  department  and  33  1-3  for  general  and  for  Department  B  25  and 
33  1-3  respectively. 

The  actual  result  of  the  calculation  will  probably  be  an  odd  figure  instead 
of  an  even  percentage  as  just  shown  ih  the  illustration,  and  may  be  found  to 
be  such  as  18.T,  24.1,  or  32.3.  If  the  productive  work  is  divided  over  only 
a  few  jobs  these  actual  percentages  may  be  used  without  a  great  deal  of 
figuring,  but  if  there  are  a  large  number  of  job  orders  to  share  in  the  distri- 
bution, the  nearest  even  percentage  may  be  used,  such  as  20,  25  and  33  1-3, 
which  will  allow  the  amount  of  each  item  of  expense  to  be  figured  mentally  and 
very  rapidly  without  interfering  with  a  satisfactory  distribution. 

These  are  the  features  of  the  percentage  method.  Can  anything  be 
more  simple?  Its  attractiveness  lies  in  the  fact  that  the  percentages  are  figured 
on  actual  book  figures  and  the  element  of  estimating  eliminated ;  no  more 
calculations  necessary  to  arrive  at  the  percentage  rates  than  those  needed  for 
the  regular  book  entries:  the  calculation  of  the  expense  can  be  rapidly  made, 
each  job's  share  of  the  same  being  in  proportion  to  its  own  labor  expended 
thereon ;  it  can  be  used  in  any  manufacturing  plant  and  all  departments  of  the 
same  plant.  It  is  not  at  all  surprising  that  this  method  appeals  to  manu- 
facturers, factory  managers,  and  cost  accountants  on  account  of  the  simplicity 
of  the  method  as  well  as  the  fact  that  it  is  inexpensive  to  operate.  The 
certified  and  chartered  accountants  indorse  and  recommend  it  because  it  is 
an  equitable  method  of  distribution,  and  in  the  installation  of  cost  systems 
preference  is  now  being  given  to  it  over  all  methods,  not  even  excepting 
machine  works,  where  the  machine-hour  method  is  undoubtedly  theoretically 
the  correct  distribution,  but  which  does  not  work  out  satisfactorily  in  practice. 
A  method  which  appeals  and  proves  satisfactory  to  the  manufacturer  and  has 
the  stamp  of  approval  of  our  highest  accounting  authorities  may  very  safely 
be  considered  a  correct  solution  of  the  question  of  distributing  factory  expense. 

(748)     machine  expense. 

As  in  the  case  of  labor,  machines  are  also  classified  as  productive  and 
non-productive. 

By  productive  machines  are  meant  such  as  lathes,  planers,  drills,  looms, 
etc.  By  unproductive  machines  are  meant  such  as  those  in  general  use  fot 
subsidiary'  processes,  such  as  cranes  and  grinders. 

The  productive  machine  is  treated  as  if  it  were  a  skilled  man,  as  though 
it  were  an  operator,  and  this  is  easily  accomplished  by  estimating  the  life  ot 
a  machine,  computing  the  number  of  working  hours  per  year  and  dividing 
the  cost  of  the  machine  by  the  working  hours  for  its  estimated  life.     Thii 

1032 


gives  the  exact  amount  to  charge  against  each  job  and  also  includes  deprecia- 
tion. 

An  experienced  cost  accountant  has  estimated  the  following  items  which 
should  enter  into  the  hourly  rate  chargeable  for  the  use  of  a  machine  in  a 
manufacturing  establishment : 

(1)  Floor  space. 

(2)  Interest  on  investment  in  machine. 

(3)  Repairs  to  machine. 

(4)  Depreciation  of  machine. 

(5)  Proportion  of  shafting,  belting,  and  pulleys  expense,  consisting  of 
interest  on  the  investment,  and  repairs,  and  depreciation. 

(G)     Crane  service. 

(7)  Supplies  which  are  special  to  the  machine. 

(8)  Proportion  of  superintendence  which  is  special  to  a  limited  niniiber 
of  machines. 

(9)  The  expense  of  interest,  repairs,  and  depreciation  on  tools  whose 
use  is  confined  to  the  machine. 

(10)  Power. 

It  will  be  noted  that  the  first  item  is  the  charge  for  floor  space,  and  it  is 
recommended  that  this  charge  should  embrace  the  following  items: 

Interest  on  cost  of  land. 
Interest  on  cost  of  buildings. 
Expense  of  repairing  buildings. 
Charge  for  depreciation  of  buildings. 
Expense  of  lighting  and  heating  buildings. 
Insurance  and  taxes  on  land  and  buildings. 

The  buildings  do  not  actually  cover  all  the  land  on  which  they  stand,  nor 
do  the  machines  cover  all  the  floor  space  of  the  room  in  which  they  are 
installed,  but  it  is  considered  correct  to  take  the  total  ground,  or  floor  space, 
unless  a  part  of  it  is  used  for  other  purposes,  such  as  storage. 

After  the  cost  of  floor  space  has  been  ascertained  the  present  value  of 
the  machine,  and  its  estimated  remaining  years  of  life,  should  be  computed, 
and  an  equitable  charge  per  hour  established  which  would  reduce  the  book 
value  of  the  machine  to  10  per  cent,  of  its  cost  by  the  end  of  its  estimated  life- 
time. By  writing  oflf  the  depreciation  on  the  "  reducing  balances  "  plan  the 
largest  charges  are  made  when  the  machine  is  most  efficient. 

A  certain  amount  should  be  figured  in  to  cover  annual  repair  charges. 
The  cost  of  power  furnished  which  runs  the  machines  should  be  ascertained 
as  exactly  as  possible. 

It  is  a  comparatively  simple  matter  to  ascertain  the  cost  of  electric 
power.    In  most  large  factories  a  separate  meter  is  provided  for  each  machine. 

The  treatment  of  what  is  termed  "  idle  time  "  is  a  matter  for  careful  con- 
sideration. In  our  opinion,  the  idle  time  should  be  closed  into  factor\'  general 
expense  and  pro-rated  accordingly. 

1033 


'.»   s* 


I' 


Ma.  American  Business  and  Accounting  Encyclopedia    748A-749 

(748A)     machinery  and  building  depreciation  tables. 

The  following  depreciation  tables  are  known  as  "  Montgomery's  Tables." 
They  show  comparison  of  rate  of  depreciation. 

(1)  The  original  cost  or  value.  (2)  On  diminishing  values — required 
to  reduce  to  residuary  value  of  10%  at  end  of  working  life. 

Machinery  and  Plant  usually  have  a  residual  value  at  the  end  of  "working 
life,"  which  varies  from  5  to  15%  of  the  original  per  cent.,  but  10  %  will  be 
found  to  apply  to  average  cases. 

Great  care  and  time  have  been  expended  in  arriving  at  these  figures,  and 
their  accuracy  may  be  depended  upon. 

Many  accountants  are  in  the  habit  of  writing  depreciation  off  Machinery 
and  Plant  most  liberally,  with  the  consequence  that  at  the  end  of  fifteen 
or  twenty  years  the  values  in  the  Balance  Sheet  are  far  below  the  actual  values. 
These  tables  are  not  based  to  produce  such  a  result  but  upon  the  actual  working 
life  in  each  case  as  closely  as  it  can  be  ascertained. 

(749)     should  the  factory  make  a  profit? 

The  factory  operations  can  no  more  show  a  profit  and  loss  upon  manu- 
factured goods,  than  could  the  financial  department  were  the  fixed  charges 
or  management  expenses  apportioned  by  fixed  percentage  calculation  on 
the  sales  as  made  and  then  claim  a  supposed  profit  or  loss  upon  these  expen- 
ditures. The  very  object  sought  by  a  system  of  cost-keeping,  the  exact  cost 
of  an  article,  would  be  defeated  if  profit  or  losses  were  allowed  to  a  factory. 
Cost  is  cost  and  there  can  be  no  profit  or  loss  unless  there  shall  be  opposed 
to  or  set  against  it  the  proceeds  of  sale.  Suppose,  for  instance,  a  raw  material, 
constantly  fluctuating  in  price,  increased  very  largely  in  value  while  on  hand. 
After  being  sold,  as  it  were,  to  the  main  office  and  before  being  disposed  of, 
it  decreased  even  more  than  the  increase  referred  to.  It  might  have  been 
that  this  article  was  made  up  to  keep  the  force  of  hands  employed  during  a 
slack  period  in  business,  when  there  was  no  actual  demand  for  tjie  product; 
and  thus  obviating  the  laying  off  and  probable  loss  to  the  plant  of  its  skilled 
operators. 

It  should  always  be  the  factory  superintendent's  business  to  charge 
exactly  at  the  original  cost,  and  the  main  office,  noting  any  fluctuations  of 
value,  could  govern  itself  accordingly.  As  soon  as  you  begin  to  allow  the 
factory  to  make  a  profit  you  are  permitting  the  possibility  of  one  being 
claimed  when  none  should  exist,  increasing  the  apparent  cost  of  the  manu- 
factured article  to  such  a  price  as  to  lose  all  sales. 

There  can  be  but  one  way  to  deal  with  an  item  of  this  sort,  that  is,  as 
noted,  to  take  a  careful  account  of  original  cost  irrespective  of  fluctuations  while 
in  the  factory,  and  let  the  manager  make  note  of  any  fluctuations  in  the  finished 
product  when  selling  it.  In  a  balance  sheet  for  inventory  uses,  special  note, 
calling  attention  to  fluctuations  and  making  reserves  for  depreciation  or  appre- 
ciation, would  be  the  best  way  to  cover  this. — M.  Sanger. 

1034 


750-751       American  Business  and  Accounting  Encyclopedia 


Ma. 


(750)     business  fluctuations. 

The  regular  percentage  governing  the  distribution  of  overhead  expense 
is  considerably  complicated  by  fluctuations  arising  from  business  conditions 
and  quantity  of  business  done.  There  is  a  depression  of  trade  and  only  half 
the  workmen  are  employed,  or  an  excessive  number  of  orders  are  received 
with  the  result  that  overtime  is  necessary  to  fill  them. 

The  following  table  will  present  an  idea  as  to  the  result  of  such  variations. 


Productive 
Wages, 
State  of  Trade.  Per  Annum. 

Depressed   (half-time) $  62,500 

Normal    (full    time) 125,000 

Active    (overtime) 150,000 


Hours 
Worked,      Number  of 
Per  Annum.  Workmen.    Amount 


Expenses  (Direct  and  Indirect/. 
I'ercentage         I'er 
to  Wages.         Hour. 

600,000  250  $75,000  120%  12  %c 

1,200,000  500  75,000  60%  6%c 

1,440,000  600  75,000  50%  5%c 


(751)     MANUSCRIPT  RECORD. 

Economy  of  time,  and  the  instant  and  convenient  acquisition  of  desired 
information  are  as  indispensable  to  the  author,  as  in  the  office  of  any  of  our 
great  corporations. 

Card  systems  are  fast  superseding  the  cumbersome  books  and  book- 
indexes  in  all  progressive  business  houses.  The  reasons  for  this  are  obvious. 
Cards  are  more  convenient  to  handle;  their  unfettered  freedom  admits  of 
sorting  into  any  desired  form  for  any  conceiv^able  kind  of  statistics ;  whereas, 
a  book  would  require  a  painfidly  slow  and  tedious  analysis.  A  soiled  card 
is  easily  replaced ;  not  so  with  a  soiled  leaf,  unless  one  uses  the  loose-leaf 
system.    Furthermore,  the  card  system  possesses  an  elasticity  that  is  unlimited. 

Where  have  I  sent  this  manuscript?  What  manuscripts  have  I  submitted 
to  McUnsey's  ?  What  manuscripts  are  "  out  ?"  are  questions  that  constantly 
confront  the  author.  Questions  he  wants  answered, — answered  with  the 
least  expenditure  of  energy,  answered  correctly  and  answered  immediately. 

The  system  outlined  below  has  been  tested  and  proven  practical.  The  5x8 
size  of  card  was  found  to  be  the  most  satisfactory,  as  it  allows  ample  room 
for  long  titles,  and  the  use  of  a  dating  stamp  in  the  columns  designated. 
The  drawings  are  necessarily  on  a  reduced  scale. 

For  the  story,  essay,  or  special  article: 


TITLE.                Ty   Biw  Wall 

wniTTtM    Oct.  1^0 S     CLA&S  'v^iyrtr.f    NOucnoi    tooe     Poyt.   o* 

Pflbl«»1i»j 

Lof.lA'Ori 

Cyik 

Stryt 

RrRriyd 

nbuya 

CitTjill* 

N.y. 

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Now.  4  iVI  N«»  •».  '^! 

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(Vown  KMtn 

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N..  ,7'i<.> 

►  cb    .-i.4 

i 

TITLE                                                                              I 

Written 

No.  Lines 

No.  Verses 

Post 

Publication 

Location 

Check 

Seat 

Retaraed 

Published 

For  the  poem,  the  caption  is  simply  changed  to  read  "  Title." 
The  cards,  horizontally  ruled,  may  be  had  at  almost  any   stationers. 
Cloth-covered,  card-board  cabinets,  with  from  one  to  four  drawers  are  sold 
very  reasonably.     Guide  cards,  properly  lettered,  serve  to  separate  the  manu- 
script cards  alphabetically.    Mark  on  the  tab  of  one  of  the  guide  cards  "  out.'* 

* 

1035 


Ma. 


American  Business  and  Accounting  Encyclopedia        751-754 


KIPWLLL'S 

**|J.  V   2^  St                                              NtWVORK 

Ttl,   of  M»,>tf»c/.|rf               S#<>1" 

Htfbftri 

FVbl.»yd 

■■ 

-        '                 ,               - 

1 i 

\Mien  a  manuscript  is  submitted,  place  its  corresponding  card  behind  the 
guide  card  out.  This  enables  you  to  know  instantly  what  manuscripts  are 
out.  to  what  publications  they  have  been  submitted,  when  they  were  sent,  and 

the  time  elapsed. 

On  another  guide  card  mark  '*  accepted,"  or  "  published."  In  back  of  this 
file  the  cards  corresponding  to  the  manuscripts  for  which  you  have  been  satis- 
factorily, or  otherwise,  recompensed.  Other  ideas  will  suggest  themselves  to 
the  interested  author. 

For  the  publication : 

Duplicate  entries  must  always  be  made  thus,  the  publication  on  the  manu- 
script card,  and  the  corresponding  title  on  the  publication  card.  In  this  man- 
ner, a  complete  record  is  made ;  and  you  will  have  a  system  that  will  answer 
any  pertinent  question  that  can  possibly  suggest  itself.—//.  E.  Iswg. 

(75?)     MARGIN. 
A  term  used  on  the  Stock  Exchange  to  designate  deposits  of  money  made 
to  ensure  the  performance  of  a  contract  or  to  secure  a  broker  from  loss  on 
speculative  contracts   entered   into  by  him   on   behalf   of   his   client   for  the 
purchase  or  sale  of  stocks,  bonds,  and  products. 

(753)     MARKET  VALUE. 

The  selling  price  in  open  market  of  stocks,  bonds  and  products  for 
which  there  is  a  fluctuating  demand  or  whose  price  is  influenced  by  frequent 
variations  of  supply  and  demand. 

(754)     MATURITY  "RECORD. 

A  record  of  due  dates  of  accounts,  usually  kept  for  the  purpose  of 
securing  cash  discounts  on  accounts  payable. 

In  dry  goods  stores  of  medium  size,  a  very  convenient  form  of  combined 
purchase  and  maturity  record  can  be  arranged,  specimen  ruling  of  which  we 

give  below: 

The  total  of  the  total  column  is  credited  each  month  to  Accounts  Payable 
account :  the  total  of  each  department  column  is  charged  to  the  representative 
department  account  in  the  general  ledger.    The  total  of  each  maturity  column 


pu>^cnAjc  ^~o 

f^/t-ruf^Ty    (■ 

7CCO^O 

t^mrrrc.^ 

CMfe  of 

"Ier*n* 

Toltil 

M.tk 

Glove* 

r~toa*«i*y 

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<J^nu^M•v 

O^y 

T?bOuAr>^ 

D&v 

M*«cW 

°r 

Apr>tl 

«*V-, 

/ 

/ 

-A^ 

1036 


754-756A    American  Bu.sixess  and  Accountixg  Encvcloi'edia       Ma.-Mi. 

should  agree  with  the  Accounts  Payable  column  in  the  cash  book,  thus  pro- 
viding a  valuable  check  on  same. 


Pure 

')cise 

cHI 

■)c)  Motur 

Ty 

^ecorc 

1. 

z 

Raw  MciT«ricil 

ri9i4}>ed  MaTerial  Jod  5uppli«i 

1? 

MJTuriTy  Record 

J    5  1 

bli 

Hides 

Furs 

1  Robes 

Thre«l4&i^s 

|SoW«lie» 

1  5i)()<lnes 

^P^ 

Jj£ 

^•■<H*<HAH<wf 

wfw' 

j^  .^1    J, -jt 

^rO^rtlSP 

1 

Another  style  of  Maturity  Record  here  illustrated  will  also  be  found 
satisfactory  in  many  businesses. 

(755)     MERCHANDISE. 
Goods,  wares  and  commodities  sold  in  trade.     The  stock-in-trade  of  a 
merchant. 

(75G)     METRIC  SYSTEM. 
See  Decimal  System. 

(75GA)     MILLINERY  BUSINESS  ACCOUNTING— WHOLESALE 

AND  MANUFACTURING. 

In  this  class  of  business,  it  is  necessary  for  the  merchant  to  know  at  all 
times  the  amount  and  condition  of  stock  in  every  department.  Therefore, 
the  business  must  be  efficiently  departmentalized,  and  the  accounting  methods 
are  arranged  accordingh-. 

One  of  the  accounting  problems  is  in  connection  with  the  purchasing 
of  supplies  by  some  departments  from  others.  Records  of  such  purchases 
are  kept  by  triplicate  autographic  registers.  One  bill  is  kept  on  file  by  the 
department  making  the  sale.  The  duplicate  is  kept  by  the  ])urchasing  depart- 
ment.   The  triplicate  remains  on  the  roll  for  future  reference. 

Before  filing,  the  originals  are  turned  into  the  general  office  each  day  where 
they  are  tabulated  and  charged  to  the  purchasing  department.     See  Form  1. 

The  sales  of  every  kind  as  well  as  purchases  of  every  kind  are  tabu- 
lated in  the  same  way  each  day  so  that  at  any  time  the  business  manager  can 
ascertain  the  amount  of  goods  purchased,  sold,  and  on  hand  in  each  department. 

The  factory  and  the  five  trimming  departments  are  handled  in  the  same 
manner;  each  department  being  debited  with  raw  material  supplied,  and 
credited  with  finished  product,  thus  exhibiting  at  the  end  of  each  season  what 
has  been  accomplished  by  each  department. 

Invoices  and  charges  are  made  at  the  same  time  by  the  use  of  billin<; 
machines.  The  machine  operator  does  not  ma'ke  extensions,  but  after  the 
items  have  been  re-checked,  the  invoice  is  turned  over  to  an  extension  clerk 
who  also  prepares  it  for  mailing  or  expressage. 

1037 


0 


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Mt, 


American  Business  and  Accounting  Encyclopedia     756A-758 


Both  sales  book  and  cash  book  have  columns  provided  for  each  ledger, 
thus  enabling  the  book-keeper  to  prove  his  daily  postings  and  avoiding  delay 
at  the  end  of  the  month. 

In  this  class  of  business  a  great  many  claims  are  made  against  transporta- 
tion companies  on  account  of  goods  lost  or  damaged  in  transit.  These  are 
entered  on  a  "  special  claims  "  book  but  are  not  entered  on  the  general  books 
until  the  claim  has  been  adjusted.  It  may  be  found  desirable  to  devote  a 
separate  page  to  each  claim,  this  page  containing  a  complete  history  of 
the  case  so  that  reference  to  other  books  will  not  be  found  necessary. 

Form  four  is  a  sample  of  card  bills  receivable  record  with  space  provided 
for  the  entry  of  payments  on  account. 

Form  three  is  a  daily  cash  balance  or  cashier's  report. 


See  Dead  Rent. 


(757)     MINIMUM  RENT. 


(758)  MINING  ACCOUNTING. 
Copper-nickel  mining  operations,  like  ali  mining  operations,  are  of  an 
intensely  interesting  character.  The  first  question,  namely,  the  operating 
accounts  at  the  mine,  may  best  be  understood  and  described  by  having  the 
Monthly  Cost  of  Production  Statement  before  us.  This  important  statement 
treats  the  principal  operating  accounts  in  the  order  in  which  they  occur  and 

1038 


. 


t 


758 


American  Business  and  Accounting  Encycloi'edia 


Mi. 


Costo|  Produarf^  (Not  Mi^e)Ore 

ForMonl^ 

bi.nnA   (Moftt^)                  no 

Fran     (  D«6inninrt)               Ho 

ror  reri6<i 

Avtra&e  A\',a'j  of  Ore.                    Vo 

Ai/eraf^  As<,ay  dtOrt                      Vo 

rTi\i\ictA                        ToDi  of  Ore. 

PrnJ,irtA                           ToMofOrt 

(ontainina                          IlKColiiier 

^pyiHiyiiiy mi^DjiBtr 

To  \a  1  Melfl  1  (onTe  n  t<           \\a 

TJ.lUAJC.t^UU        Ike 

CnU 

7" 
T\6 

C  nstihA 

f\r  lT«  n 

Ter.,k 

Per  Tof^ 

Per 

b 

Pfril 

^tpv 

T.Tdi  BPcV 

on 

Pfr 

IL 

Min/nA  L  OS  t 

"*" 

1 

Mlftlft&CaiT 

S„u.lJ'^ 

'  '?^^|.l.,i 

1  rr 

.Aibor 

Pfitrjof  Sttarv 

1 

Pkt«4  Stc^ 

f   •'   I             \-f-  .     , 

\a\al 

Ho  isfi  notour 

HoistiftACoiT 

Ui\..    ^^ 

^u|iKli«i 

I   rr 

Lobar 

W«-J 

VJaaA 

PLrr^or  ^tcar\ 

Pkrfint  ^tiiin 

*^^^           V.T.I 

ToT.I     ^^^ 

iukkli*^ 

Su|^lie& 

lIL 

Ldbor 

Ptff^nf  Stean, 

1 

P|»tfvnf^tr/l« 

^"^            'T.r.l 

f 

1  oTzjI 

1 

Total  Cos  Tot 

1 

ToTfl)  Cost  ot 

Mining 

1 

M  1  D  1  r>  fl 

Mi(^i(^(^  Cost  oj  Ore. 

Statement  No.  1. 


gives  the  cost  of  each  and  all  of  the  operations.     (See  statement  Xo.  1.) 
The  statement  is  divided  into  three  principal  accounts,  namely: 
Mining  Cost.     (Mining  ore  underground.) 
tloisting  Cost.     (Bringing  ore  to  surface.) 
Rock  House  Cost.     (Crushing  ore  for  smelting.) 


Ml 


ID€ 


1 


No.1    Mtr>p 


No  3.  iVIll^f 


No^3  ^'^ 


-M 


JJL 


m^ 


C^sT 


CosTop  \{oaiX  Beds  of  Ore 

Prbdutedi^CMoort)       \jO 
-Elian  eaclp  flD<<  all  Mii)gt 


P'rt^.^ 


:e 


.rap^bot-ral 


Tot^l 


fiiL 


or^Cost 


fVrroy 


JjL 


VI 1 9C4 
oTqI  Cif- 


CosT     I  ToTfl  I  Cost  of 


Total  CosToi^  locust  beds  ot  Ore 
\o<juc<.<l  |^ror\  Cor\r\ci^ce.r\ci^t   to  bote 


\>a<.\tAOrt. 


:£sa: 


S«= 


M 


me 


7 


Nq-i  Mii^< 


N02.M 


MiyipA   Co«.f 


RoQsfm.^Cost 


Total  Cos  T  of 
(^oastf/j  Ore   \aAa\c 


tt,eToTal  CosTciJ  (\oflsTcJ  OrcjierToi^  isT^e  Price  Clpor^td  |-or<allOrt  toSpiel 


cr 


Statement  No.  2. 


1039 


Ml. 


American  Business  and  Accounting  Encycloi'edia 


rr)8 


758 


American  Business  and  Accounting  Kncvcloi'edia 


Mi. 


n*  Sac  Iter                                                                                      1 

Itcr^S  of  Co&T 

Mo»ti 

IteryS  «J  Cost 

^jAt.i.ny'Ca                             Ni' 

AJLL"!?           r„      "*'»".' 

fo^S 

GsT 

Ittryi 

est 

lotfi 

C.iT 

IT«p\$ 

Cast 

^rtg 

&dk 

gU&l 

Ri,U 

Rpa*t«J  Ort 

T.T^I  Or. 

Total  Ore 

M.r<r.ol 

C.Kc. 

Waod 

«;«kLl.#^ 

LaVar 

l^cjxi.r^ 

r.'t."if:«stf«rMo^r^ 

llifllCoii- to  r^tt  ■ 

Statement  No.  3. 

All  preliminary  operations,  such  as  clearinjif  land,  sinkinpf  shaft,  etc..  are 
generally  charged  to  Development  of  ^Mine.  but  when  the  production  of  ore 
commences,  we  must  open  the  above  accounts,  in  order  to  ascertain  the  cost 
of  ore  ready  for  transportation  to  the  smelter. 

To  the  first  account.  Mining  Cost,  we  charge  all  labor  and  supplies  and 
also  a  proportion  of  steam  used  for  operating  the  air  drills  used  in  mining 
under  the  surface.  The  next  operation  account  is  Hoisting  Ore  to  the  Surface. 
This  account  is  also  charged  with  same  items  as  above.  Then  comes  the  Rock 
House  Cost,  which  means  the  cost  of  crushing  the  ore  so  that  it  may  be  more 
readily  transported  and  handled.  Adding  the  cost  of  these  different  opera- 
tions, we  have  the  total  cost  of  mining,  hoisting  and  crushing  ore.  A  record 
must  be  kept  of  the  tons  of  ore  mined  (a  large  quantity  of  which  will  be 
worthless  rock,  which  is  thrown  on  the  dump).  The  cost  of  production  will  be 
based  on  the  tons  of  ore  to  the  rock  house.  The  weight  of  ore  to  the  rock 
house  is  incorporated  in  this  statement,  also  the  average  mineral  contents  of 
the  ore  as  estimated  by  the  assay  office  (the  accuracy  of  the  assay's  estimate  will 
be  verified   later  when   the  ore   is   smelted   and   the   actual   mineral   contents 


^'"'^^^Ci.V^''^- 

MnTf  rinl  Sr\e\\ed 

w»,fikr       1        A^snv 

M*r^,l  Conf^r^fs                  1 

Toni         Xb.       1  7.  Cu    1     7.N. 

Tan^ 

Lb^ 

Tbo» 

Lb. 

r                           -f- 
1 

P  roductiot^ 

Tons        Lbs 

\'7.C.. 

7.  N. 

Nic  Ko  1 

TflLiI 

1 

,              ^Wf,l|IK   ■ 

E.  X  tr^cTior^ 

« 

CoKe   Co9Sur\t3Tio9 

7a     of    Cak|>erl^«ca^«rr<j 

VaafCoK*       on      fli<nr<1f 

V^     ej       ISIiVKsI  R,.tovf  r»J 

i 

fo  of   Cof^e      or>      fsAciJe  rici\ 

li  oj   C  oKtf     Q^      Ores 

Statement  No.  4. 


secured).     By  dividing  the  tons  of  ore  produced  I)y  the  cost  at  this  stage,  we 
secure  the  cost  of  mining  per  ton  of  ore. 

In  copper-nickel  mining  and  smelting,  it  is  necessary  to  submit  the  ore 
to  an  intermediate  process  before  sending  to  the  smelter.  This  consists  of 
roasting  the  ore  and  is  accomplished  by  dumping  the  ore  in  great  heaps  con- 
taining many  tons,  where,  after  roasting  or  burning  for  about  three  months, 
the  ore  is  ready  for  smelting.  The  roasting  is  for  the  purpose  of  extracting 
sulphur,  which  slowly  burns  itself  out,  the  beds  emit  volumes  of  smoke  and 
the  sulphur  precipitated  from  this  smoke  destroys  all  vegetation  for  miles,  so 
great  desolation  reigns  around  the  mining  district. 

transportation  cost. 

The  transportation  cost  of  conveying  the  ore  to  the  beds  is  next  foimd. 
This  is  a  heavy  cost  of  the  ore.  It  is  conveyed  sometimes  by  train  and  quite 
often  by  means  of  an  aerial  tram  which  is  a  heavy  continuous  cable  on  wliich 
buckets  are  strung  at  intervals  and  conveyed  in  this  way  sometimes  for  miles. 

The  transportation  cost  is  treated  just  the  same  as  the  mining  cost  and  is 
charged  with  all  labor  and  supplies  and  now  if  we  add  this  cost  to  the  mining 
cost,  we  have  the  cost  of  the  ore  on  the  roast  beds.  Then  comes  the  transpor- 
tation to  smelter  cost,  and  we  have  the  total  cost  of  the  ore  in  the  smelter 
ready  for  securing  the  metal  contents  by  smelting,  where  the  most  interesting 
operations  of  all  commence,  that  is,  the  extraction  by  smelting  of  the  metal 
contents  of  the  ore  and  will  prove  to  some  extent  the  accuracy  of  the  estimates 
of  mineral  contents  in  the  raw  ore  as  given  by  the  assay  office.  The  assay 
states  the  ore  contains  a  certain  percentage  of  metal  contents:  the  smelting 
operation  should  extract  the  contents  of  metal,  if  unable  to  do  so,  the  smeltin^r 
process  is  either  faulty  or  the  assay  is  not  correct  as  to  the  metal  contents. 

cost  of  smelting. 

We  will  now  follow  out  the  same  plan  of  securing  the  cost  of  smelting 
and  in  doing  so  nuist  necessarily  describe  briefly  the  operations  of  smelting 
and  thus  reply  to  the  second  question  of  treating  the  ore  by  milling  and  smelt- 
ing. The  cost  of  smelting,  as  shown  by  the  Smelting  Statement  (See  State- 
ment No.  3),  consists  not  only  of  labor  and  supplies  as  in  the  other  operations, 
but  requires  a  record  of  the  ore  used  in  smelting  and  certain  fluxing  agents  such 
as  coke,  quartz,  etc.  The  proportion  of  these  agents  to  the  ore  is  given  by  the 
superintendent  on  a  card  called  the  Charge,  and  the  man  in  charge  of  the  fur- 
nace must  adhere  rigidly  to  this  charge,  as  the  success  of  the  smelting  opera- 
tion depends  largely  upon  the  proportions  of  the  charge.  When  at  a  certain 
temperature  the  metal  contents  are  drawn  from  the  cupola  and  run  into  con- 
verters where  it  is  subjected  to  great  blasts  of  air  and  steam  producing  certain 
effects  and  then  from  the  converter  is  secured  the  metal  contents  consisting  of 
almost  pure  nickel  and  copper  matte. 

To  find  the  cost  of  smelting  we  divide  the  metal  contents  secured  by  the 
cost  of  all  material,  wages,  supplies,  etc..  as  shown  by  statement  Xo.  '6,  ' 


1040 


1041 


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758-759       American  Business  and  Accounting  Encyclopedia 


Mi. 


Moi^tl^ly 


l3ol<ni)C€  Sl^eeT 


-Aii-tli. 


Mi^e  gpd  -^p^glTfr 


Kfillwny' 
Aerml  I  I 


M\np  anA  <^r^plr<» 


MermI  I  ror^wny 


55It 


Vllli/irtP  7f^ 


VlllMrtP  7c' 
SkffirtI  Vcs 


t^.lKf\^r 


C^slj) 


Li^hiliTi 


— =-^ l-MhiliTi^«;        

IVill^ir^rt  (    o^t     


o<nstii^A  Orp  Cn5:t 


>r\eltii^<^    Cost 


CeT^fra\  C\^nrC^f^ 


-Jul 


inrnnr  (> 


9^ry  ^  •^p*'7^f 


Po^tn  ^e  Tg  I  e  <^  raji |)  etc 


Cr<>^.T 


Statement  No.  5, 
SELLING   THE    PRODUCT. 

The  output  of  the  smehing  or  the  mineral  contents  secured  is  charged  to 
head  office  at  cost  as  shown  by  the  Smelting  Statement.  Invoices  are  made  out 
in  the  usual  way,  showing  the  weight  of  the  shipments  and  their  value. 

operations  of  general  supply  store  at  mines. 
All  purchases  for  supply  house  are  charged  to  supplies.  No  goods  are 
issued  without  an  order  from  the  superintendent  stating  the  account  they  are 
for.  These  orders  are  then  charged  to  their  respective  accounts  and  credit 
given  to  supplies,  the  balance  of  this  account  should  represent  the  goods  on 
hand  and  will  check  the  inventory. 

MAKING  regular  MONTHLY  REPORTS  TO  HEAD  OFFICE. 

Before  sending  off  monthly  reports  to  head  office  it  is  well  to  take  off  a 
trial  balance  which  will  contain  the  following  accounts.  (See  Statement  No. 
5.)  The  monthly  reports  should  consist  of  a  statement  showing  all  cash 
receipts  and  disbursements  and  is  practically  a  copy  of  the  cash  book.  These 
and  perhaps  a  copy  of  the  trial  balance  are  the  reports  necessary  for  the  head 
office.  They  should  be  certified  to  by  an  auditor.  A  statement  also  showing 
percentage  of  coke  to  ore  and  percentage  of  metal  recovered  to  ore  is  generally 
submitted. 

1042 


KEEPING  OE  RECORDS  AT   HEAD  OFFICE. 

Mine  account  at  head  office  is  treated  in  a  very  simple  way.  It  is  charged 
with  all  cash  advance'^  the  mine  and  it  is  credited  with  all  invoices  of  metal 
received  from  the  mine.  The  balance  of  the  account  is  considered  an  asset 
represented  by  the  construction  and  equipment  accounts  and  the  ore  on  hand 
as  shown  by  the  balance  sheet  from  the  mine  which  is  audited. 

The  head  office  sells  the  metal  and  credits  their  sales  account  in  the  usual 
way.  The  head  office  profit  and  loss  -account  would  therefore  contain  the 
following  accounts: 

DR. 

Copper — Cost   from    mine 

Nickel — Cost   from   mine 

Expense    Accounts 

CR. 

Sales — Metal  sold  for 

Stock  on  Hand 

Balance  Profit  from  Trading 


(759)      DAILY  MINING  COSTS. 


COPPER   MINE. 

The  following  system  has  been  found  entirely  satisfactory.  The  basis  of 
the  system  is  a  number  of  daily  blanks  which  are  filled  in  by  the  various  fore^ 
men.  They  are  handed  into  the  office  by  the  timekeeper,  where  they  are  duly 
posted,  the  labor  being  posted  in  a  time  book,  Fonn  1,  and  from  there  the 
weekly  totals  are  posted  to  the  cost  ledger  from  which  the  monthly  cost  sheet 
is  made  out. 

The  mining  sheet,  Form  2,  needs  no  explanation.  Accompanying  these 
sheets  is  another  giving  name  of  each  man  and  his  time  in  each  particular 
working. 


LEVELL  NO  5 


HoVrst, 
Dote 


Week  Eryd.,jft  Ai;6  St^oO 


"Tdtal    ^osteJ    i<j  Vt    oi   tibove   in  Coi"t   Lcdter 


■tORU    1. 

1048 


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(5* 


COLONIAL  COPPER  CO 

Locfllity 

PlDw^er 

Cflpfr 

^Vi9 

"ITp^ber 

o;i 

Gi^Jlci 

i*^Or:ii„ 

Li.9d.9f 

M»ckei* 

Cflfrvrn 

P2^«\|>4 

MAIN  SHAFT 

LEVEL    1 

i 

3   • 

4-  -  - 

<•         5    -  - 

STATION"  1- 

"«               Z- 

3- 

STOPE.  1  -  •  - 

• 

■  -" 

2  - 

1 

FoRu  ;:. 


Dot?                                                      l«>»riC 

COLONIAL   COPPER  ( 

CO. 

<  \sacAr*v 

«»*/»^rn^c.                1 

DfSI^Q(itror^ 

Hoist 

Ore  -  B. 

Wood 

Pi^Pyp  SftritiSrj 

Cor)cei)W& 

R.R 

Fnrl*y 

RotK 

WOOD - 

COAI 

Oil- 

LABOR 

ENGINEER-  -  -  - 

riRLMAN 

TEAM 

Form  o. 


COLONIAL    COPPER    CO 


CAPE    DOR. 


.i*5o 


DAILY   REPORT    or  CONCENTRATOR. 


DAY  ISJICHT 

Rock  C**i'«hed 

Rock  M.ll/d 


Gro3»  Yield  oj-  Copptfr* 

C*"©**  Yield   o^  Contentrntfi. 

Ho^rs    \n  Opei*<ftron 

Mfi>  Ei^ployeJ 


Tons 

o2;nd» 
)     '  I 

Myr\ber 


REMARKi 


SiCMATl/nC 


Form  4. 


In  addition  to  the  milling  costs,  the  next  card,  Form  3,  has  record  of 
pnmp  station  and  the  concentrator  rock-breaker,  the  railroad  operation  showing 
costs  and  the  fnel  for  mine  boilers.    The  column  headed  wood  is  for  the  purpose 


759-764        American  Business  and  Accounting  Encyclopedia       Mi.-\fu. 

of  keeping  the  cost  of  men  engaged  in  the  woods  cutting  cord  wood.  The  ore 
bin  has  to  do  with  the  maintenance  and  operation  of  incline  trestle  work  and 
bin.    The  blank  columns  are  for  the  purpose  of  unclassified  or  general  work. 

The  daily  return  from  milling  department  is  shown  by  the  next  card. 
Form  4. 

Items  of  cost  outside  of  labor  are  carried  monthly  to  the  general  ledger  by 
means  of  journal  entries. 


See  Stock. 


See  Coins. 


(TGO)     MINUTE  BOOK. 


(TGI)     MONETARY  TABLE. 


(r62)     MONTHLY  STATEMENT. 

A  term  sometimes  used  to  designate  either  a  monthly  trial  balance  or  a 
monthly  financial  statement  of  any  kind. 

(763)     MORTGAGE. 

A  conditional  conveyance  of  property  as  security  for  the  payment  of  a 
debt  or  performance  of  an  obligation,  the  said  conveyance  to  become  void  upon 
the  due  payment  of  the  debt  or  performance  of  the  obligation. 

(764)     MULTIPLICATION. 

A  brief  method  of  adding  to  itself  a  given  number,  or  quantity,  a  specified 

number  of  times. 

Some  short  methods  of  multiplication  may  be  described  as  follows : 

To  Multiply  by  9 — Annex  a  cipher  to  multiplicand  and  subtract  original 

number. 

To  ]yIuLTiPLY  BY  11 — Auucx  a  cipher  to  multiplicand  and  add  original 
number. 

To  ^luLTiPLY  BY  998— Auucx  three  ciphers  to  multiplicand  and  subtract 
two  times  the  origina?  number. 
.     To  Multiply  by  5— Annex  cipher  to  multiplicand  and  divide  by  •?. 
To  Multiply  by  20— Annex  two  ciphers  to  multiplicand  and  divide  bv  5. 
To  ^Iultiply  by  331/3 — ^Annex  two  ciphers  to  multiplicand  and  divide  by  3. 

LIKE    figure    method. 

45         •?6         44 
47         3()         iVl 

Notice  conditions.  Tens  alike,  units  alike  or  the  two  figures  of  one  number 
alike. 

45X47        7X5  =35 

4xr7  +  5      =51 
4X4  ='?i         0115,33  ans. 

Rule:    For  the  first  figure  in  result  multiply  the  units. 


1044 


1045 


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American  Business  and  Accounting  Encyclopedia 


7M 


II 


For  the  second  figure  in  the  resiih  add  the  unlike  figures  and  multiply 

by  one  of  the  like. 
For  the  remainder  of  the  resuh,  multiply  the  tens. 
(Always  carry  as  in  ordinary  multiplication.) 
This  is  a  very  valuable  method  and  can  be  applied  in  numberless  ways. 
4321  X  555 

5X1 

5X(l  +  2) 
6  X  (1  +  2  +  3) 
6  X  (2  +  3  +  4) 
5X(3  +  4) 


=  5 
=  15 
=  31 
=  48 
=  23 

2398155  =  ans. 


5X4 
463  X  43 

3X3  =9 

3X(6  +  4)  =39 

4X(6  +  3)  =39 

4X4  =19 

19909=  ans. 
At  first  glance  this  may  appear  complicated  but  in  actual  practice  it  will 
not  be  found  so. 


Spedficatioft  for  Municipal  Balance  Sheett 

Analysis  and  Classification. 


KcvciMies  and  Dinimcnicnts. 


Rcvsmie  — 


ONOIMARV: 


ixnuoMOiNAiiv: 

!•■■■.  CmmM  AecrtfM 


Exptnditurc 


ORDINARY  : 


Mrimu 


fClMrtUm 

•mMoIWocIu 

Mn 

AdatalMnUoa  of  J«nlc> 

fMIc*  D«B«ft»flll 

McaUk 

r«rk« 

MatkM 


Aods  and  Liabdmes. 


AcnvL. 


CwblaBMik 


Aitnmcn.  Public  Wofk*  la  prasrc*. 
A«*aaeM.  Loc«l  l»no»«»««t»  la  piinieM 
OUMt  *4«asccs 


B....>.       /    ••««■«  ^ad. C«»T«I 
KtSIRVL....  {    Makiat  Paad.  Local  lm»n«caMM 
I    SaKlaf  Tnut  Pvad* 


.  «M&ti  u  (o  KMic.  Hick  aad 
Mallaa.  AdTcnMsa  aad  iNaUoacn' 


KabaMa  aad  Allawaacta 
faallaiarln 
Oihar  aearcca 

KXTRAOROINARV: 


IHbaatana.  t^aattal 

Dtbtalana.  Lacal  liapcnuiaaat 

latefCM— Oaaaral  l>fb*atvn« 

lautm    Latal  finmtaMai  Oakaalatm 

MaktaM  Faad 

raklk  Work*  la  K«i«ii«« 

l«aal  lasrovnwws  la  pngtrt* 

fUkfv  aearr** 


FiXKO. 


/   NCCeSSARY  INVCSTMCNTS. 

WaMtwotka  SrMca 

Electric  U«M  tratca 

Hire  Halla  aad  Appaiataa 

Market 

•chool  BalUlaca  aad  BMl»atat9 

Ctty  Bail  aad  farakar* 

Pabllc  Ubraiv 

raMIc  Park 

Kaal  Saiat* 

llrnpllal 

PabUc  «ai%i  BaalaaMrt 

Otb«  aacaaaary  la*c«tacata 

SPCCULATIVC  INVC8TMCNTS. 


Passivi. 


-I 


Mack  la  KalHnya 

atock  la  6ra««)  RoatfCoMpaalta 

Olbcr  aaacialaii**  lavcataaaata 

Mdc** 


Pa*«mcata 
■oaaa  Aceaaai 
LMalla 


LUbilltia 


BONOSO 


{ 


Dckaalaraa.  Oaaaial 
Ocbaataraat  Local  la 


Floating  . 


•..dataadanaM 
daaaadaapaiS 


Ooaaoaa,  da*  aai 
Ooaaa.  Catftai 
Laaaa.r 

Acaaaal 

Otkcr  ladcMadaaaa 

CAmAU._..{    ••'«•<••  alAatcta  aver  UaMlilca 

PaalgaedbT  P.  H.  Macpkima.  C 


li^ 


1046 


765 


American  Business  and  Accounting  Encyclopedia 


Mu. 


(765)     MUNICIPAL  ACCOUNTING. 

Municipal  accounting  does  not  diflFer  in  principle  from  the  accounting  of 
any  other  commercial  business.  The  application  of  the  principle  is,  however, 
somewhat  different.  In  but  few  instances  does  the  ordinary  system  of  munic- 
ipal accounts  exhibit  the  true  condition  of  the  affairs  of  the  corporation. 
Financial  reports  as  usually  presented  may  exhibit  a  correct  statement  of 
the  receipts  and  the  disbursements,  but  rarely,  if  ever,  is  the  statement  of 
assets  and  liabilities  anything  more  than  an  approximate  estimate  of  the  position 
of  the  corporation. 

Herewith  is  presented  a  specification  for  a  Municipal  Balance  Sheet.  The 
analvsis  and  classification  of  the  several  items  which  enter  into  the  accounts 
of  the  average  municipality  is  given  in  such  form  as  if  carried  out  in  detail 
will  enable  the  treasurer  to  furnish  a  complete  and  comprehensive  statement 
of  the  corporate  affairs: 

It  is  essentially  necessary  to  include  in  any  model  or  system  much  more 
in  items  and  detail  than  will  be  found  requisite  in  any  one  municipality.  In 
the  illustration  here  given,  this  holds  good. 

The  municipal  revenues  for  each  year  consist  of  the  debts  accruing 
due  by  levy  or  otherwise  from  all  and  sundry  to  the  corporation,  although 
these  may  not  necessarily  be  collected  within  the  period.  Land  taxes,  water 
rates,  electric  light  rates,  licenses,  school  grants,  fines  and  fees,  form  the 
ordinary  sources  of  revenue ;  the  extraordinary  revenues  are  derived  from 
sale  of  debentures,  bonds,  temporary  loans,  sale  of  public  property,  franchises 
and  the  like. 

The  details  of  the  various  sources  of  revenue  having  been  ascertained, 
they  should  at  once  be  made  a  inatter  of  record,  in  books  especially  designed 
for  the  purpose,  with  such  accompanying  particulars  as  will,  either  at  the 
present  or  in  the  future,  give  all  needed  information.  These  records  are  in 
the  form  of  registers  or  rclls,  as  the  tax  roll,  water  rate  roll,  electric  light 
roll,  license  register,  market  fee  register,  and  such  other  books  as  are  lound 
to  be  necessary  or  convenient  to  cover  the  various  forms  or  sources  of  revenue. 
All  these  registers  or  rolls  should  be  susceptible  of  proof  as  to  clerical  correct- 
ness within  themselves,  the  better  plan  being  by  the  use  of  the  columnar  system 
of  debits  and  credits.  Accounts  for  each  roll  should  find  a  place  in  the 
general  ledger,  the  sum  of  the  debits  being  entered  at  one  operation.  The 
counterbalancing  entry  will  be  to  the  credit  of  "  revenue  account."  After 
the  credits,  in  the  form  of  collections,  rebates,  allowances,  etc.,  are  entered, 
the  balances  will  represent  the  amounts  appearing  opposite  the  various  items 
in  the  statement  of  assets,  and  should  agree  in  each  case  with  the  amount  of 
the  outstandings  appearing  in  the  various  rolls. 

The  ordinary  expenditures  are  such  as  are  incurred  in  the  daily  conduct 
and  maintenance  of  municipal  government.  In  any  other  business  these  would 
be  called  operating  expenses.  The  extraordinary  expenses  are  in  the  nature 
of  redemption  of  debentures,  interest  on  payments  thereon,  repayment  of  tem- 
porary loans,  construction  of  pennanent  works,  purchase  of  real  estate,  etc. 
The  expenditures  of  a  municipal  corporation  for  a  given  year,  are  the  debts 

1047 


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American  Business  and  Accounting  Encyclopedia 


<65 


contracted  by  the  corporation  within  the  particular  period,  even  though  they 
may  not  be  satisfied  by  payment.  In  the  average  municipahty  the  revenues 
will  ordinarily  be  exhibited  at  their  true  value  in  the  published  statement  for 
the  year.  The  expenditures  are  rarely  so  stated.  To  present  a  fair  and 
correct  statement  of  the  condition  of  affairs,  all  tlie  accounts  for  debts  con- 
tracted within  the  period  should  be  passed  upon  by  the  proper  committees  or 
council,  and  if  immediate  payment  is  not  possible,  carried  by  the  treasurer  to 
the  credit  of  the  individuals,  the  debits  being  made  to  the  proper  accounts 
of  expenditure.  These  debts  will  then  be  recorded  in  the  ledger  as  liabilities, 
and  will  appear  in  the  balance  sheet  as  such,  while  the  expenditures  of  the 
year  will  be  shown  at  their  correct  status. 

In  the  specification  presented,  the  "  ordinary  "  expenditures  and  "  ordi- 
nar}^ "  revenues  are  in  effect  the  debit  and  credit  sides  of  the  municipal  profit 
and  loss  account. 

The  assets  are  subdivided  into  four  classes — active,  reserve,  fixed,  and 
passive.  Active  assets  comprise  cash,  which  includes  the  amounts  in  the 
treasurer's  hands,  and  the  balances  due  from  the  bank  on  accounts  current ; 
taxes  current,  outstanding ;  tax  arrears,  outstanding ;  water  rates ;  electric 
light  rates;  rents;  advances  on  account  of  permanent  public  works,  or  local 
improvements ;  and  miscellaneous.  Reserve  assets  include  sinking  funds  or. 
general  or  local  improvement  accounts,  and  other  specially  invested  funds, 
Fixed  assets  are  subdivided  under  two  heads,  viz.,  necessary  investments 
and  speculative  investments.  The  first  includes  all  permanent  investments, 
as  water  works  system ;  electric  light  system ;  fire  halls  and  apparatu:: ;  mar- 
kets ;  school  buildings  and  equipment ;  city  hall  and  f umiture ;  public  librar}' ; 
parks,  real  estate ;  public  works  equipment ;  and  other  investments  of  a  like 
nature.  The  second  includes  stock  held  in  railway  or  gravel  road  compn^iies. 
or  such  other  enterprises  of  a  public  nature  as  are  permitted  by  statute.  Pas- 
sive assets  represent  investments  which,  while  somewhat  permanent  in  char- 
acter, are  intended  to  be  written  off  as  the  debentures  issued  to  cover  the  cost 
thereof  are  reduced,  the  life  of  the  work  and  of  the  debentures  to  be  con- 
current. In  this  class  is  also  included  the  item  of  local  improvements  of  an 
amount  equal  to  the  debenture  indebtedness  outstanding  on  that  account, 
an  annual  reduction  being  made,  equivalent  to  the  yearly  redemption  of  deben- 
tures. Advances  by  way  of  bonds  also  come  under  this  head,  the  amount 
to  be  written  off  annually  running  concurrently  with  the  retirement  of  the 
debentures  which  produced  the  original  amount  of  the  bonus. 

The  second  division  of  the  balance  sheet — the  liabilities — is  divided  into 
three  classes,  viz.:  bonded,  floating,  and  capital.  lionded  liabilities  is  subdi- 
vided under  two  heads :  (1 )  debentures,  general ;  and  (2)  debentures  issued  on 
account  of  local  improvements,  this  latter  being  a  direct  liability  secured  by 
collateral  in  the  form  of  rights  to  levy  upon  the  rate  payers  interested  and 
benefitted  by  the  several  works.  Floating  liabilities  comprise  debentures  due 
and  unpaid,  coupons  due  and  unpaid,  loans  current,  loans  on  account  of  local 
improvement  in  progress,  and  accounts  payable. 

Capital  liability  represents  simply  the  surplus  of  assets  over  liabilities. 

1048 


7B5-766      American  Business  and  Accountixg  Encyclopedia 


Mu. 


The  subsidiary  books  required  for  the  purpose  of  keei)ing  the  records 
in  a  mimicipality  are  many  and  varied,  according  to  the  conditions  governing, 
and  they  are  perfect,  or  imperfect,  according  to  the  ability  of  the  designer. 

(766)'    uniform  system  of  municipal  accounting. 
The   following  system   has  been  adopted  by  a  large   number  of  cities 
throughout  the  country  and  it  is  expected  that  before  long  it  will  be  in  general 
use  in  the  municipalities  of  the  United  States. 


Gen'l  Mwn"ici|)o\  DetJt  CooTinoed 


Public  Hi^l^way 


s     i, 


For 
dftV 


fc^'5trf*'^Rf^)ainQ^ 


tlSVw't  Lj^JjtiQO 

taSlrpptSbnoKlino 


4laAbolmo9of  GnaJe-ctosji 


»t)Ob 

tiiMiscpilafjeouv. 


Totol  Riblic  Hi^t)- 


/\ecQ|i\tu  latiof) 

I.  GpOPrt'lOfficPri  oqd 
Cff.ces 


2  PyblicCfjoritiPS  c»«>cl 
Corr«»cTtoi7  i 


4Pi»blic  Hpc. 

5  Ry  bl  ic  So  1^  itcifiot^ 


.life 


l3ne)oev 


ToTcil  CfenM  riyr)iti|» 
bc»|)orTr»\pr)Ts 


For 


of 


ar)6 
3imoYS 


For 
LooTfi  Total 
biibwr- 


Il.Pyblic  E6vzoT\cr}or)d  f^ecrenTjcr) 


Rz>bhcScl7ool; 


:<i 


For 
cfTV 


y.oSyjSPrvistofjof  ScVjofcIs 

if:  (E  lpn\eijtbry  Sc  hoc  Is 

7lGr««*\r\or  5c  J^oois 

pHi^h  Scfjools 


y.+Sch^ools  for  5)>f  c  lul 


7fcMisc«»MonPoi?s. 


Totnl  Public  5c Ws 

Pt/blic  L\brones. 
Art,  Etc. 

8.oS2?|y>rvis»orj  of  Pyblic 

Librcirie?,  pTc 

8.|R;bllcLtbrory 

8.lPz?blicArtGalWi 

ftSPz^blic  M2?5ez?r\5 

«4Ryblic  SToTyeso^d 

5cul|)ttfrv 

SSMiscelloneotfS. 


Total  P^/bllcL^b^orw( 
Art,  ftc. 


Pi?blicr\pcrPoTiof), 

CeUbraTiorjs,  E.tt. 

')eS»}x>Pvi5ioo  ft/blic 

ftirKs.  fTc 

•^.iRj^blicFbrKs 

').3P^;blic  RirKwuysarjc^ 


').^R>blic  PloY^ro2>t7d 

<^4F^blic  GYr\rjci\l)f\ 

*).5Pvblic  Rkilljs,  Q>oTfnr)(j. 

•)fcPi;blic  CelpbroTio9S_^ 
«?7Mi$cellao<'oUs, 


l^til  labile  RpcrpoTion?. 


GrQi)dTotQl  PybUcEduca 
Tic»)  oqd  r\pcreoT>or) 


For 
fVicr 


Fcr 

aqd 
jobiTftl 


TcTol 
ibur- 


1049 


Mu. 


American  Business  and  Accounting  Encyclopedia 


766 


Ger?ercil  M»t)ici[5ol  I)ebcirTr\er)t^ 


Gpr>eral  Officers 
CI  9<i  Offices. 


For  I   F< 


DtsSm'^pneiSts 


1. 1  Mayor's  Officr. 

llC'ty  Coyrjcil 

1.3  City  Cl«-K 


1.4  Lnw  bp|)artnpr)r_ 
Fitja^c?  Offices 
15  C  ity  Ai>ditor  opCoP\[>TrollB 
r.*CiTyTr<»asyrpr 
1.7 City  Collector. 
14  CtTy  Assessor^ 


1-^  5i9Kn)^  FlW)d  Cop\r\issi09 
ers 


llDStotisTicalOffkers  (ifar)y) 
III  Ol^Gef^'IOff leers  C.f  onyl 
mCity  HollCGe(7erolOfficei) 
Lotlectioos 


l»Mi5C«»liat)eo»s. 


Total  Gpi)Prol  Officers 
or)J  Offices 

ftblic  Chanties 
cr)6  Corrections 

l.oS»|x»rvislor)of  ChoriTies 

C^JCorrectioo* 

l.lR)or,  Alpys  (joasp,  eTt 

liOyt-door  f^elief 


or 
9t 


-lOf 


Vpq  rs 


l.iCbil<^refj's  irjstiti/TioQS 

l«Loij^if)^  Hoyses 


l5Mi$ce|lai)eo^i  CHaritiP5_ 

l.kHos|)ital$ 

S7lr)Sor)e 


IjRriiorjs  Of)<J  r^pfort^tones 

l-^MisCPlloQeous 

~Totol  F^blic  CljflriTiPS 

or)<i  Corrections 


rTotal 

jbiibwr 

bP(^prjS 


For 

LoafjslTotal 
oqd  gbi^bvr 


GeQiriyi^ic»t)Ql  Dp[it    Corfif)V?6 


PyblicSoffTy 


3.oSz;t>prvi5iot)  of  Public 

Scifpty. 
a.lCoyrts 


3.aR>lice  bpl)artn\enr 

SSMilitio  arjd  Arryoripi 

34Fire  bp|)«rTp\pr)t 

35li7s|)pctio(^  ^9^  Irjsfjpcfor 
UPohhc  R)Ur?ds. 


3-7R;blic  Wpi^tjts  or)<) 
Meaitfrps, 


3.8(iiscellanpoUs 

Total  Public  Safety 


ft;blicHeciltTj 

4.oSi>tx»rvisiot)  Rjblit  Heolt^ 
"  .1  Hpolft)  bp  |xnrtp\pnt 

4  3HpQltf)|Qsf)Pctori. 

4irior^UP 

4SMi5Cpilor)foVS 


Tot^l  Public  Hpoirtj 


Public  SoQitcitior) 

5.o52/\>PrvisioQ 

5  iStrppt  Cleorjio^ 

Slf^efySP  oqS  Gcrbci^e 


disbosol 


disbosc.L 

S4MlSCPllof)POl}S 


lotol  R/blie5flf)itciticr 


766 


American  Business  and  Accounting  Encyclopedia 


Mu. 


I  I  I  I  I  I  I  I 


The  general  titles  for  departments  and  subdivisions  of  the  city  under  the 
•'  Uniform  System  "  are  arranged  and  the  schedules  are  set  forth,  in  the 
following  order: 

Schedule  A. — Revenue  and  Expense  of  the  current  year. 

Schedule  B. — Current  Assets  and  Liabilities  at  the  end  of  the  year. 

Schedule  C. — Cash  Receipts  and  Disbursements  during  the  year. 

The  schedules  of  Cash  Receipts  ancj  Disbursements  are  followed  by 
the  distribution  of  same  to  the  several  departments  of  General  Officers  and 
Offices,  Public  Charges  and  Collections,  Public  Safety,  Public  Health,  Public 
Sanitation  and  Public  Highways  and  Bridges.  (These  come  under  the  general 
heading  of  "  General  Municipal  Departments.") 

1050 


Then  follow  schedules  of  Disbursements  on  Account  of  Public  Educa- 
tion and  Recreation,  Municipal  Industries  and  Municipal  Investments  and 
Interest  on  Indebtedness. 

Some  of  the  offices  and  departments  on  these  schedules  may  not  b€ 
operated  in  all  cities,  but  the  uniform  system  of  distribution  of  receipts  and 
payments  must  necessarily  provide  for  the  requirements  of  all  cities. 


schedule  a. 

Revenue  and  Expense  of  the  Current  Year.     (Not  including  receipts  or 
payments  on  account  of  loans  or  other  capital  accounts.) 

Revenue  of  the  year,  collected  and  paid  into  the  Treasury $ 

Revenue  of  the  year,  uncollected  and  outstanding 

Total   Revenue,   collected   and   uncollected $ 

Expense  of  the  year,  paid  out  by  the  Treasury $ 

Expense  of  the  year,  unpaid  and  outstanding 

Total  expense,  paid  and  unpaid $ 

Excess  (or  deficiency)  of  Revenues  for  the  year $ 

"  Revenue  "  includes  only  the  true  income  of  the  city  which  has  accrued  during 
the  current  year.  Part  of  this  "  Revenue  "  has  been  collected  and  part  is  still  uncol- 
lected (taxes,  etc.),  at  the  end  of  the  year. 

"Expense"  includes  only  the  expenditures  and  liabilities  for  current  purposes 
incurred  during  the  year;  i.e.,  "running  expenses"  of  the  city.  Part  of  this  "  ex^ 
pense"  has  been  paid  and  part  is  still  unpaid  (last  month's  bills,  etc.)  at  the  cn'\ 
of  the  year. 

schedule  b. 

Balance  Sheet  of  Current  Assets  and  Current  Liabilities. 

current  assets. 

Cash  in  Treasury  for  general  purposes $ 

Uncollected  taxes    

Licenses  and  revenues  receivable 

Other    accounts    receivable 

Supplies,  etc.,  on  hand 

Other  current  assets:  • 

Total   current   assets ^ 

CURRENT  LIABILITIES. 

Audited  vouchers,  drafts  or  warrants  unpaid $ 

Other  accounts  payable 

Temporary  tax  loans  payable 

Accrued    interest    payable 

1051 


\ 


Mu.  American  Business  and  Accounting  Encyclopedia  IW 

Advance  to  be   i  efunded 

Other  current  liabilities   

Total    Current    Liabilities $ 

Revenue   surplus    (being  net   current   assets   available   for   gen- 
eral   purposes)     $ 

Total     $ 

SCHEDULE  C. 
CONSOLIDATED    CASH    STATEMENT. 

Cash  balance  in  treasury  at  the  beginning  of  the  year $ 

Cash  receipts  during  the  year 

Total     $ 

Cash  disbursements  during  the  year $ 

Cash  balance  in  treasury  at  the  end  of  the  year $ 

Details  of  Cash  Balance  at  end  of  the  year: 

Total  cash  balance  as  above 

Reserved  for  special  purpose. 
$ 

Total  cash  reserved  for  special  purposes $ 

Balance    available    for    general    purposes $ 

The  plan  of  having  a  bureau  or  officer  to  install  a  system  of  public 
accounting  and  bookkeeping  in  all  counties  and  to  inspect  each  and  every 
office  in  the  state  is  being  tried  in  some  states.    The  law  briefly  is  as  follows : 

A  department  of  the  state  auditor  is  established,  known  as  the  bureau 
of  inspection  and  supervision  of  public  offices,  consisting  of  a  chief  and  three 
deputies. 

Separate  accounts  kept  for  ever)-  appropriation  or  fund  made  by  a 
taxing  body,  showing  date  and  manner  of  every  payment  made  out  of  the 
funds  provided  by  such  appropriation,  the  name,  address,  and  vocation  of 
each  person  or  organization,  corporation  or  association  to  whom  paid  and 
for  what  purpose  paid.  Separate  acounts  shall  be  kept  for  each  department, 
public  improvement,  undertaking,  institution  and  public  service  industry  under 
the  jurisdiction  of  every  taxing  body  and  of  the  state,  and  all  services  rendered 
by  or  property  transferred  from  one  department,  public  improvement,  under- 
taking, institution  or  public  service  industry  to  another,  shall  be  paid  for  at 
its  full  and  true  value  by  the  department,  public  improvement,  undertaking, 
institution  or  public  service  industry  receiving  same,  and  no  department,  public 
improvement,  undertaking,  institution  or  public  service  industry  shall  benefit  in 
any  financial  manner  whatever  by  an  appropriation  or  fund  made  for  the 
support  of  another.    All  unexpended  balances  or  appropriations  shall  be  trans- 

1052 


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American  Business  and  Accounting  Encyclopedia 


Mu. 


ferred  to  the  fund  from  which  appropriated  whenever  the  account  with  an 
appropriation  is  closed. 

a  standard  schedule  of  revenue  and  expense. 

For  Public  Service  Corporations  and  Municipal  Industries,  as  Amended  by 
the  Special  Committee  of  the  American  Association  of  Public  Accountants. 

REVENUE   FROM    OPERATING. 

Gross  Earnings  from  Public   Services    $ 

Gross  Earnings  from  Private   Consumers    

Gross  Earnings  from  By-Products,   etc 

Total    J 

Deduct  Rebates,  Refunds,   Discounts,   etc 

Total  Revenue  from  Operating ^ 

EXPENSE  OF  OPERATING. 

1.  Expense  of  Manufacture. 

Operation     ^ 

Maintenance     

Product  Purchased   (Gas,  etc.) 

2.  Expense  of  Distribution. 

Operation     

Maintenance     

3     General   Expense   (Salaries,  Office   Supplies  and   Expenses) 
Total   (1,  2  and  3) 

4.  Taxes    (Real    Estate   and    other).. )|; 

5.  Franchise  Taxes  (paid  or  accrued  annually  or  otherwise) . . 

6.  Rentals  (Leaseholds,  etc.)    

7.  Insurance  (Fire,  Accident  and  Fiduciary) 

8.  Damages     (including    extraordinary    legal    and    other    ex- 

penses and  losses)    

9.  Guaranty   (bad  debts  written  off  and  reserve  for  doubtful 

accounts)     

10.  Depreciation  (Deterioration  written  off  and  reserve  for  es- 

timated  depreciation)    

Total   Expense  of  Operating $ 

a.  Net  Revenue  from  Operating  (or  Deficiency) 

b.  Other  Revenue,  or  Income,  net   (from  sources  other  than  operating) 

c.  Appropriations    for    Operating,    provided    by    the    municipality    from 

general    funds    

Total  Available  Income  $ 

DISPOSITION   OF   AVAILABLE   INCOME. 

11.  Interest  on  Funded  and  Floating  Debts $ 

1053 


' 


r 


Mu. 


American  Business  and  Accounting  Encyclopedia 


766 


CITY  OF  FITCHBURG.  MASS. 

Auditor's  Office,  August  22,  1907. 
The  following  table  presents  the  Ledger  footings  of  the  City  Aaditor,  showing  the    balances    un> 
expended  Nov.  30. 1906,  together  with  the  appropriations,  receipts,  and  expenditures  for  eight  months  ending 
July  31. 1907. 


302  Asseseora'  Clerical  Serv., 
342  Assessors  -Plans, 
357  Board  of  Health, 
451  Burbank  HospiUl  Mtce. 
96  City  Engineering, 
248  Copying  Old  Records, 
312  Dwelling  House.  W.  Fitchburg 
616  F'ire  Department 

318  Oypey  Moth  Extermination. 
262  House  OfTal. 

17  Incidentals. 
183  Lighting  Streets. 
Liquor  Licenses, 
349  Lowe  Playground, 
244  Military  Aid. 
3M  Police  Department, 
205  Printing. 

441  Public  Burial  Grounds. 
492  Public  Parks. 
175  Public  Library, 
285  Rep.  and  Care  Pub.  Bdgs.. 

Salary  School  Janitors.  {5.415.04 
Fuel,  3,639.26 

226  Salaries, 
163  School  Teachers  Salaries, 

319  School  House,  Ashburnham  St.. 
528  School  House,  South  Street. 
199  School  Uouse,  East  St., 

135  School  locideDtals  and  Books. 

456  "Street  Macadam  Coostruction. 

484  Street  Macadam  Maintenance. 

575 'Sewer  Constructiou, 

586  Sewer  MainYenance, 

186 'Side  Walk  Construction, 

267  Side  Walk  Maintenance. 

306 'Street  Construction. 

422  Street  Maintenance, 

502  •Street  Paving  Construction, 

495  Street  Paving  Maintenance, 

432  (Street  Watering, 

461  Special  Sewer  Account, 

314  State  Aid. 

386  Soldiers'  Relief, 
45  Support  of  Poor, 
23     Almshouse.  $6,427.25  { 

26     Outside  Poor.        6.924.29 ) 

292  Taxes  Abated. 

*To  be  covered  by  Loan. 
tAssessDienti  to  be  credited. 
ArrnopiriATtoMs  to  fav  MATvmrc  !n- 
OaBTBDHBSS.  Intbubst,  ■tc..  por  1907. 

Armory  Sinking  Fund, 

General  Sinking  Fund. 

School  Loan  Sicking  Fund, 

Sewer  Loan  Sink-ng  Fund. 

State  Normal  School  Sink.  F'd, 

Water  Loan  Sinking  Fund, 

Fire  Station  Loans, 

Grade  Cros.sing  Loans, 

Lowe  Playground.  Loan. 

Oak  Hill  Road,  Bridge  Loan. 

Paving  Loans, 

Post  Office  Park  Loan. 

Public  Building  Loan. 

School  House  Loan, 

Sewer  Loans. 

Sidewalk  Loan. 

Street  Construction  Loan. 

Interest  on  Temporary  Loans, 

Interest  on  Bonas, 

Interest  on  Water  Debt, 

Interest  on  General  Debt, 

County  Tax, 

State  Tax, 

Sute  Highway  Tax. 


Appropria- 
tions. 

$500.00 
500.00 

4.800.0O 
14,000.00 

2,800.00 
500.00 

37,500.00 

300.00 

2.900.00 

5,227.82 

35.000.00 


Balance* 
Unexpended 
Nov.  30, 1906 


'Received.         Teol.      Expended. 


t441.00 


(25.00 

340.0A 

51.36 
775.00 
285.28 


8,925.90       2491.33 

25.00 
3,000.00 


31,000.00 
2,800.00 
2.700.00 
2,000.00 
5,500.00 

26,000.00 


15.500.00 
90.625.00 


10,000.00 
4,000.00 
3,000.00 
2,300.00 

25,500.00 

9,500.00 
1,000.00 


8.000.00 
17.000.00 


.78 


1,943.40 

15,295.02 
1,972.58 


375.44 
922.60 
823.67 
691.59 


737.37 


1.409.72 

33.90 

4.040.05 

2,442.70 
1,372.60 


40  00 
229.17 
608.32 


275.87 
39.48 

539.54 

15.43 

18.69 

1.633.75 

132.17 

B.OOO.OO 

4.00 

59.00 

1.196.37 


S500.00 

500.00 

4.825.00 

14,000.00 

3.140.04 

941.00 

51.36 

38,275.00 

.  585.28 

2,900.00 

16.345  05 

35,000.00 

25.00 

3,000,00 

32.409.72 
2.833.90 
6,740.83 
2.000.00 
7,942.70 

27.372.60 


15.500.00 
90,665.00 

1,943.40 
15.524.19 

1.972.58 
10,608.32 

4,000.00 

651.31 

3,039.48 

1,462.14 

2,315.43 

842.36 

27,133.75 

691.59 

6,632.17 

1,000.00 

5,737.37 

4.00 

8,059.00 

18,196.37 


$276.25 
300.00 
3,441.79 
8.000.00 
2,351.31 


26,143.17 
572.45 

1,977.28 

13,706.05 

23,313.67 

6.26 

2.893.51 

476.00 

25.208.35 

2,571.47 

4,597.77 

1,972  07 

6.181.70 

14.378.53 


Unea. 

pended 

Balance*. 

$223.75 

200.00 

1,383.21 

6,000.00 

788.73 

941.00 

51.36 

12,131.83 

12.83 

922.72 

2,639.00 

11,686.33 

18.76 

106/49 

T.201.37 

262.43 

2,143.06 

27.93 

1.761.00 

12.994.07 


Balance* 
Overdrawn. 


$476.00 


9,694.52 

61.143.13 

2,580.01 

15,305.70 

38.80 

9,143.70 

1,593.77 

4,791/46 

10,383.19 

2,895.34 

2,582.25 

4,777.62 

21,330.31 

27.502.79 

2,304.45 

3,792.82 

3,627.92 

5,356.69 

3,296.50 

5,662.96 

13,394.64 


66.90 


6,805.48 
29,521.87 

218.49 
1,933.78 
1,464.62 


144.14 


1,839.35 

380.68 

2,396.05 
4.844.83 


64S.6I 


1,593.77 

79146 

9,731.88 

1.120.11 

2.462.19 

20,487.95 

369.04 

1,612.86 

2,627.92 

3,292.50 


68.90 


$366,452.82   $32,129.35   (25,783.77  $414,365.94  $349,598.98  $110,045.16   $46.27819 


11,033.29 

2,500.00 

4,500  00 

1,500.00 

800.00 

16.000.00 

3,744.50 

3,000  00 

300.00 

700.00 

7,475  00 

300.00 

500.00 

19,300.00 

7,695.00 

4.925.00 

28.300.00 

16,000.00 

1,804.32 

18.345.00 

36,629.79 

28,619.00 

32,000.00 

197.30 


$1,798.29     $4,513.87 


2.639.43       3.587.50 


$1.03329 

2,500.00 

4,500.00 

1,500.00 

800.00 

16,000.00 

3.T44.50 

3,000.00 

300.00 

700.00 

7,475.00 

300.00 

500.00 

19,300.00 

7.695.00 

4.925.00 

28,.'K)0.00 

22.312.16 

1.804.32 

18.345.00 

42,856  72 

28,6)9.00 

32,000.00 

197.30 


$2,500.00 

300.00 

3,300.00 


7,750.00 

3,220.00 

950.00 

7,400  00 

M,343.93 

10,135.00 
22,472.32 


$1,033.29 

2,500.00 

4.500.00 

1.500.00 

800.00 

16,000.00 
1,244.50 
3.000.00 

700.00 

4,175.00 

300.00 

600.00 

11,550.00 

4,475.00 

3,975.00 

20.900.00 

7,968.23 

1.804.32 

8,210.00 

20,384.40 

28,619.00 

32,000.00 

197.30 


$236,168.20     $4,437.72     $8,101.37  $248,707.29  |72.371.25  $176,336.04 


1054 


766-768 


American  Business  and  Accounting  Encyclopedia     Mu.-Na, 


Remainder  of  Available  Income $ 

12.  Reserved  for  Sinking    Funds     $ 

13.  Reserved  for  Amortization    Funds    

14.  Reserved  for  Other   Funds    

Total    Reserves    $ 

15.  Dividends   (Private  Plants) 

16.  Appropriation  to  General  City  Funds  (Public  Plants) 

Total  disposition  of  Available   Income $ 

Credit  (or  Debit)  balance  transferable  to  "  Surplus  " $ 

(767)     CITY  appropriation  record. 

The  illustration  on  opposite  page  is  a  copy  of  the  official  report  of  the 
city  auditor  to  the  city  government  every  month  and  it  shows  at  a  glance  the 
condition  of  the  several  departmental  accounts. 

It  is  also  a  guide  to  the  committees  of  the  various  departments  and  to  the 
department  officials. 

(768)     NAVIGATION  BUSINESS  ACCOUNTING. 

In  the  general  ledger  are  carried  two  accounts  with  each  boat,  one  as  an 
investment  account  and  the  other  as  a  profit  and  loss  account.  In  the  profit 
and  loss  account,  the  boat  is  charged  with  all  operating  expenses  and 
repairs  and  credited  with  the  total  receipts  from  freight  and  towing.  The 
balance  of  this  account  shows  net  earnings. 

RECORD  AND  EXPENSE  DISTRIBUTION  BOOK. 

This  book  is  rather  large  but  its  usefulness  offsets  that  inconvenience. 
Each  line  represents  a  trip  of  the  boat  and  shows  a  complete  record  of  the 
trip.  It  gives  details  of  receipts  and  makes  a  fine  distribution  of  the  various 
operating  expenses.  One  page  accomodates  a  season's  business  and  the  balance 
of  this  book  mtist  agree  with  the  profit  and  loss  account  in  connection  with 
the  boat  in  the  general  ledger.  A  cost  record  sheet  can  be  taken  from  this 
book  in  a  very  short  time  for  any  number  of  trips  or  for  any  length  of  time. 

TRIP    SHEET. 

The  trip  sheet  is  made  out  by  the  captain  of  the  steamer  at  the  end  of 
every  trip  and  contains  a  record  of  receipts  and  disbursements  as  far  as 
he  is  concerned.  At  the  end  of  the  trip,  he  is  given  a  check  to  cover  the 
pay  roll  and  other  expenditures.  The  captain  receives  a  stated  amount  per  day 
for  provisions,  therefore  the  office  has  nothing  to  do  with  buying  the  provisions 
for  the  boat.  This  does  away  with  the  chance  of  commissions  on  grocer}'  bills. 
The  fuel  is  purchased  through  the  office  and  means  a  saving  of  as  high  as  ten 
cents  a  ton  in  many  instances  for  the  reason  that  sorr-  captains  receive  a  com- 
mission on  the  fuel  bills.     Upon  receipt  of  the  trip  sheet  in  the  office,  it  is 

1055 


Na. 


American  Business  and  Accounting  Encyclopedia 


708 


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checked  and  all  bills  belonging  to  that  trip  and  which  have  been  paid  by  the 
office  are  entered  on  that  trip  sheet.  The  trip  sheet  will  show  every  bill  in 
connection  with  the  trip.  The  trip  sheet  is  then  ruled  up  and  copied  in  the 
record  and  expense  distribution  book.  By  this  method  we  save  keeping  all 
these  expense  accounts  in  the  ledger.  The  trip  sheet  and  all  bills  and  papers 
in  connection  with  the  trip  are  filed  together  in  a  large  envelope.  By  being 
careful  in  opening  the  envelope  mailed  by  the  captain  when  he  sent  in  his  trip 
sheet,  the  same  envelope  can  be  used  for  filing  purposs.  On  the  outside  of  the 
envelope  will  be  a  notation  in  regard  to  the  date  and  number  of  trip.  As 
bills  come  into  the  office  make  a  notation  on  same  as  to  number  of  trip  and 
provide  a  file  for  each  boat  so  that  you  can  refer  to  the  bills  of  any  boat. 


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demurrage  register. 

The  demurrage  register  is  a  record  of  the  time  used  in  loading  and  dis- 
charging the  cargo.  The  parties  chartering  the  boat  agree  to  load  and  dis- 
charge the  boat  in  a  certain  length  of  time  and  all  time  used  over  this  amount 
they  pay  for  at  the  rate  of  $100  per  day.  The  price  depends  upon  the  boat.  In 
cases  of  a  season's  charter,  they  have  the  privilege  of  making  up  for  lost  time, 
that  is,  if  they  load  and  discharge  the  boat  in  less  time  than  agreed  upon,  the 
difference  would  go  to  offset  any  overtime.  This  is  on  the  salt  water.  The  time 
is  marked  on  the  bill  of  lading.  At  the  end  of  the  year  or  season,  each  boat  is 
credited  with  any  demurrage  that  would  be  due. 

COST  summary. 

The  cost  summary  is  a  comparative  sheet  to  show  running  expenses.  At 
the  top  is  printed  such  lines  as  may  be  required  for  the  name  of  the  boat,  etc. 
The  expense  of  various  departments  is  shown  separately.  All  information  for 
this  sheet  is  taken  from  the  record  book.  By  comparing  the  sheets,  it  is 
a  very  easy  matter  to  note  any  extra  expense  in  any  department.  By  giving 
a  sheet  of  the  above  to  the  captain  of  another  boat  it  makes  them  do  better 
work  and  look  after  things  closer. 

official  logs. 

These  sheets  explain  themselves  and  are  made  out  every  trip,  one  by  the 
captain  and  one  by  the  chief  engineer.  In  case  of  wrecks  or  disasters  they 
become  very  important  in  the  adjustment  of  the  insurance  matters.  Both 
logs  are  filed  with  the  other  papers  belonging  to  the  trip. — P.  S.  Matthews,  Jr, 

(769)     NET. 

That  amount  or  quantity  which  remains  after  all  offsets  or  deductions  have 
been  made  or  redundancies  removed. 
"  Without  any  further  deduction.' 


»» 


770-775        American  Business  and  Accounting  Encyclopedia      Nk.-No, 

(770)     NET  CAPITAL. 

The  surplus  of  actual  assets  over  actual  liabilities. 


(771)     NET  PROFIT. 

The  amount  remaining  after  cost  of  material,  cost  of  production,  expense 
of  selling  and  administration  have  been  deducted  from  the  amount  realized 
from  sales. 

The  amount  remaining  after  all  business  expenditures  have  been  deducted 
from  income  derived  from  services  rendered. 

"After  all  expenses  of  distribution  and  establishment  charges,  discount, 
interest,  etc.,  have  been  charged  against  profits,  the  balance  remaining  is  net 
profit." 

(772)     NOMENCLATURE  (ACCOUNTING). 

The  suitable  expression  of  technical  requirements  and  methods  used  in 
the  science  of  accountancy. 

Nomenclature  depends  very  much  on  classification,  as,  for  example,  shall 
we  call  Bills  Receivable  account  a  Real  or  a  Representative  account?  What 
is  the  difference  between  a  cost  card  and  a  cost  summary  ?  The  first  is  a  sum- 
mary of  the  details  of  one  particular  order,  while  the  second  is  a  recapitulation 
of  completed  orders  from  which  the  totals  of  material,  labor  and  shop  expense 
are  obtained  at  the  end  of  each  month  to  be  credited  to  the  accounts  indicated 
and  debited  to  finished  goods. 

(773)     NOMINAL  PARTNER. 

One  whose  name  is  used  in  a  business,  but  who  takes  no  part  in  the  man- 
agement of  the  business. 

(774)     NOTE. 
A  written  or  printed  paper  acknowledging  a  debt  and  promising  payment. 

(774A)     note   book    (audit). 
A  memorandum  book  designed  for  accountants  in  which  they  note  the 
particulars  and  features  of  work  accomplished  in  an  audit  as  the  same  pro- 
gresses. 

(775)  notes — accommodation. 
A  term  used  to  describe  that  class  of  bills  of  exchange  which  represent 
no  actual  exchange  of  real  value.  Notes  or  bills  drawn  for  discount  without 
relation  to  any  actual  sale  of  goods  or  indebtedness.  A  note  given  without 
consideration  for  the  purpose  of  raising  money  by  discounting,  or  obtaining 
loans,  on  the  security  of  the  endorser  or  endorsers,  or  for  mutual  accommo- 
dation. 


1058 


1059 


II 


No. 


American  Business  and  Accounting  Encyclopedia        776-779 


(77G)     NOTES  discounted. 

Notes  or  Bills  discounted  are  liabilities  contingent  on  their  being  paid 
by  the  acceptors  when  due.  A  special  column  is  usually  provided  in  the  Notes 
Receivable  Register  to  record  transactions  of  this  nature. 


(777)       NOTES  PAYABLE. 


See  Bills  Payable. 


(778)     NOTES — promissory. 

A  written  promise  to  pay  a  certain  sum  of  money,  at  a  future  time,  uncon- 
ditionally; an  unconditional  written  promise,  signed  by  the  maker,  to  pay 
absolutely  and  at  all  events,  a  sum  certain,  in  money,  either  to  the  bearer  or 
to  a  person  therein  designated  or  his  order.  ^ 


(779)       NOTES   RECEIVABLE. 


See  Bills  Receivable. 


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1060 


779A-784     American  Business  and  Accounting  Encyclopedia       No.-Ofb 

(779A)     note — renewal 

Notes  given  to  take  up  other  notes  falling  due,  but  which  it  is  not  con- 
venient to  pay. 

If  the  renewal  note  includes  interest  a  journal  entry  is  a  necessity,  but 
when  the  interest  is  paid  by  check  and  the  note  renewed  for  the  same  amount, 
some  book-keepers  simply  make  a  memorandum  on  the  Bills  Payable  account 
and  book  that  the  note  was  renewed  at  such  a  date. 

(779B)     restrictive  enix)rsement. 

An  endorsement  on  a  note  making  it  non-negotiable.  As  "  Pay  to  John 
Smith  only." 

(780)     NOVATION. 

A  term  used  to  describe  an  agreement  made  by  creditors  with  the  con- 
tinuing partners  in  a  business  after  the  withdrawal  of  one  partner,  by  which 
the  creditors  agree  to  look  to  the  continuing  partners  for  full  payment  of  all 
debts  of  the  firm  due  at  date  of  the  withdrawal. 


(781)     NUMERICAL  REFERENCE. 

A  system  of  reference  by  numbers  instead  of  by  the  alphabet.  Thus, 
in  loose-leaf  and  card  ledgers,  accounts  are  frequently  indexed  by  numbers, 
the  loose  sheets  or  cards  being  kept  in  numerical  order,  with  proper  guide  cards 
or  tabs. 

Numerical  reference  is  also  largely  used  for  records  of  contracts  or. 
mortgages,  everything  pertaining  to  the  contracts  or  mortgages  being  stami>ed 
with  the  number  given  and  filed  away  under  that  number. 


(782)     OBSOLESCENCE. 

"  The  process  by  which  an  article  before  it  is  worn  out  falls  either  whollv 
or  in  part  into  desuetude,  and  as  a  result  is  no  longer  of  current  application  in 
the  trade  for  which  it  was  designed." 

(783)     ON  SALE. 
A  temi  used  to  designate  goods  received  on  consignments  for  sale. 

(784)     OPEN  ACCOUNT. 

An  unbalanced  account,  as  opposed  to  a  closed  account  which  has  been 
balanced  by  pajrment  or  transfer  of  balance. 

A  running  or  unsettled  account ;  not  completely  settled,  but  subject  to  fut- 
ure adjustment. 

1061 


Op.  American  Business  and  Accounting  Encyclopedia  785 

(785)     OPENING  BOOKS  AND  ENTRIES. 

Those  entries  necessary  to  properly  commence  the  books  of  a  business 
whether  of  an  individual  proprietor,  co-partnership,  or  corporation.  We  append 
an  illustration  of  the  opening  and  closing  entries  connected  with  the  transfer 
from  a  partnership  to  a  corporation. 

The  old  books  having  been  closed  and  the  net  assets  of  the  business 
properly  divided  between  the  partners  in  accordance  with  their  respective 
interests  in  same,  we  will  say  that  these  interests  are  determined  as  follows: 

A— $9,000. 
B— $7,000. 

It  is  proposed  to  capitalize  the  new  corporation  at  $20,000,  A's  son  C 
investing  $2,000,  and  B's  son  D  investing  a  hke  amount. 

.  The  corporation  takes  over  the  business  just  as  it  stands,  viz.: 

Total  assets    $21,000 

Total  liabilities    5,000 

Net  assets    $16,000 

The  assets  consist  of  Cash,  Accounts  and  Bills  Receivable,  Real  Estate, 
Building,  Plant,  raw  and  partly  finished  material,  supplies,  tools,  etc.  For 
our  present  purposes  it  is  unnecessary  to  specify  these  in  illustrating  our  open- 
ing entries,  which  will  be  arranged  as  follows: 

JOURNAL. 

Recite  particulars  of  incorporation  such  as  published  by  Secretary  of 
State  on  issue  of  license. 

Dr.  Cr. 

CAPrTAL  STOCK. 

200  shares  of  $100  per  share  $20,000.00 

Subscribed  as  follows: 
A. 
$9,000.00      90  shares  of  $100. 

B. 
7,000.00      70  shares  of  $100. 

2,000.00      20  shares  of  $100. 

D. 
2,000.00      20  shares  of  $100. 

By  purchase  of  the  business  of  A  and  B  in  pursuance  of  resolutions  of 
Board  of  Directors  at  their  meeting  held  October  10th,  1908. 

Dr.  /  '  Cr. 

ASSETS. 

$21,000.00 

(As  per  listed  asset  accounts.) 

LIABILITIES. 

(As  per  listed  liability  accounts) $5,000  00 

1062 


785 


American  Business  and  Accounting  Encyclopedia 


(Agreed  purchase  price  of  interest) 9,000.00 

B. 
(Agreed  purchase  price  of  interest) 7,000.00 

CASH  BOOK. 

Entries  on  Cash  Received  side: 

C.  for  20  shares  of  stock $2,000.00 

D.  for  20  shares  of  stock 2,000.00 


Op. 


A  machine  manufacturing  concern,  owned  and  operated  by  Arthur  Ellis 
has  this  day,  as  per  charter,  organized  under  the  laws  of  the  State  of  Pennsyl- 
vania a  corporation  to  be  known  as  the  Philadelphia  Machine  &  Tool  Company, 
Inc.,  with  1000  shares  of  $100  each,  making  $100,000. 

The  promoters  of  the  company  are  Arthus  Ellis,  (jeo.  D.  Laphan,  J.  M. 
Kramer,  Wm.  D.  Snow,  H.  R.  Holcombe.  Each  party  interested  has  subscribed 
for  200  shares,  all  of  which  are  full  paid. 

The  Resources  and  Liabilities  of  Arthur  ElHs,  on  this  date,  as  shown  by 
his  single  entry  books  and  the  account  of  stock,  are  as  follows: 

RESOURCES. 

nventory    $33,220.00 

Cash  on  Hand   8,360.00 

Office  and  Shop  Fixtures 2,970.00 

Accounts  Receivable  (City  and  Country) 7,535.00 

Bills   Receivable    3,000.00 

Machinery    .• 5,000.00 

Total   Resources    $60,085.00 

LIABILITIES. 

Accounts  Payable,  per  Ledger  $  4,680.00 

Bills   Payable    5,000.00 

$  9,680.00 

In  the  new  company,  Arthur  Ellis  subscribes  for  200  shares  ($20,000), 
which  he  pays  as  follows: 

Cash     $  3,360.00 

Office  and  Shop  Fixtures 2,970.00 

Bills  Receivable   (guaranteed) 3,000.00 

Machinery    5,000.00 

Merchandise    5,670.00 

Total— Arthur  Ellis   $20,000.00 

G.  D.  Laphan,  subscribes — cash 20,000.00 

J.  M.  Kramer,  subscribes — cash 20,000.00 

Wm.  D.  Snow,  subscribes^-cash 20,000.00 

H.  R.  Holcombe,  subscribes^-cash 20,000.00 

$100,000.00 

1063 


i 


Op.  American  Business  and  Accounting  Encyclopedia  785 

It  is  agreed  that  the  new  firm  shall  purchase  the  balance  of.  stock  of 
Mdse.  belonging  to  Arthur  Ellis.  The  total  invoice  is  $33,'^^0.  The  amount 
turned  over  for  stock  is  $5,670,  the  remainder  is  .$*27,55(). 

It  is  also  agreed  that  the  personal  accounts  due  Arthur  Ellis  shall  l^e 
collected  by  the  new  company  and  credited  to  Arthur  Ellis,  and  that  the  new 
company  shall  liquidate  the  personal  and  Bills  Payable  liabilities  of  Arthur  Ellis 
and  charge  same  to  him. 

From  the  foregoing  statement,  the  following  journal  entries  are  made  to 
Dpen  the  books  of  the  new  company: 

Dr.  Cr. 

Capital  Stock   $100,000.00 

A.  Ellis  $20,000.00 

G.  D.  Laphan  20,000.00 

J.  M.  Kramer  20.000.00 

\V.  D.  Snow   20.000.00 

H.  R.  Holcombe   20.000.00 

Cash    $83,360.00 

Office  and  Shop  Fixtures  2,970.00 

Bills    Receivable    3,000.00 

Machinery    5,000.00 

Merchandise  Inventory  5,670.00 

A.    Ellis    $  20,000.00 

E.  D.  Laphan   20,000.00 

J.  M.  Kramer  20,000.00 

W.  D.  Snow   20,000.00 

H.  R.  Holcombe 20,000.00 


JOURNAL  ENTRY. 

To  buy  the  remainder  of  the  stock  as  per  Stock  Book  belonging  to  Arthur 
Ellis,  *"2T,550.  This  item  con.sists  of  Iron,  Steel,  Coal,  Supplies,  etc.,  as  per 
inventory.  Total  inventory  $33,2 '^O  less  $5,670,  which  was  turned  over  in  part 
payment  for  stock  subscribed. 

Purchase    Account    $27,550 

To  Arthur  Ellis  $27,550 

When  any  of  the  parties  who  owe  the  old  house  of  Arthur  Ellis  pay 
their  indebtedness,  credit  Arthur  Ellis  in  the  books  of  the  company,  and  when 
any  of  the  personal  or  bills  payable  liabilities  of  Arthur  Ellis  are  paid  debit 
Arthur  Ellis  for  the  amount  in  the  books  of  the  company.  It  is  better  to 
carry  an  account  of  this  nature  in  the  General  Ledger,  keeping  it  separate 
from  Accounts  Receivable  or  Payable. 

A.fter  the  organization  of  the  new  company,  the  subscribers  donate  as 
Treasury'  Stock  100  shares  each,  making  500  shares,  the  same  to  be  sold  at 
$50  per  share  to  produce  additional  Working  Capital.  These  shares  are 
placed  on  the  market  as  6%  Preferred  Stock,  and  the  Standard  Trust  Co.  is 
paid  a  bonus  of  10%  for  disposing  of  them. 


785-787        American  Business  and  Accounting  Encyclopedia 


JOURNAL   ENTRY. 


Op. 


Treasury  Stock   $50,000 

To  Working  Capital   $50,000 

The  Treasury  Stock  is  sold  to  sundry  parties  at  $50  per  share,  and  cash  is 
received  to  the  amount  of  $•^■),(M)(^. 


ENTRY  FOR   THE   S.\LE  OF  TREASIRV   STOCK. 

Cash     $22,500 

Commission     2.500 

Discount  on  Treasury  Stock 25,000 

To  Treasury  Stock 


$50,000 


ENTRY    FOR    PREFERRED    .^TOCK. 


Capital  Stock   $50,000 

To  Preferred  Stock   $50,000 

The  balance  sheet  will  now  show  as  follows : 

ASSETS.  LIABILITIES. 

$78,310.00 Cash 

33,220.00 Inventory 

3,000.00 Bills  Receivable 

2,970.00 Furniture  and  Fixtures 

5,000.00 Machinery 

27,500.00 Discount  and  Commission  on  Treasury  Stock 

Capital  Stock — 

Common $50,000.00 

Preferred,    6%    50,000.0i> 

Working  Capital   50,000.00 


$150,000.00 


$150,000.00 


It  will  be  noted  that  the  holders  of  common  stock  have  not  only  guaranteed 
6%  dividends  on  preferred  stock,  but  the  discount  and  commission  must  also 
be  wiped  out  from  future  profits. 

(786)  OPEN  ENDORSEMENT. 

The  endorsement  of  a  check  by  simply  writing  across  the  back  the  name 
of  the  payee.  Such  an  endorsement  makes  the  check  payable  to  bearer,  and  also 
gives  a  second  party  to  whom  the  check  may  be  handed  for  some  consideration 
the  right  to  reindorse  it,  making  it  payable  to  the  order  of  a  third  party. 

(787)  OPERATING  CAPITAL. 

The  amoimt  available  for  carrying  on  the  business  and  which  can  be 
used  for  the  purpose  of  supplies  or  payment  of  cost  of  production  and 
selling  expense. 

Working  capital. 


106^ 


1065 


788-792        American  Business  and  Accounting  Encyclopedia       Op.-Or. 

(788)     OPERATING  EXPENSE. 
That  incurred  in  the  regular  transaction  of  a  business.     Used  most  fre- 
quently in  connection  with  the  accounts  of  railroads,  transportation,  telegraph, 
telephone,  and  similar  corporations,  which  cannot  be  adapted  to  the  ordinary 
classification  suitable  for  manufacturing  businesses. 

(789)  OPTION. 

A  Stock  Exchange  term  used  to  denote  a  sale,  carrying  with  it  the 
privilege  to  make  or  receive  delivery  within  a  certain  specified  time. 

(790)  ORDER. 

A  verbal  or  written  request  by  one  person  to  another  to  deliver  mer- 
chandise or  value  and  charge  same  to  the  account  of  the  person  signing  or 
giving  the  order. 

(791)       ORDER   BLANK. 

A  form  used  for  the  records  of  orders  received  in  substitution  for  a 
bound  order  book. 

(792)       ORDER    BLANK    SYSTEM. 

The  order  blank  system  of  recording  sales  consists  of  specially  ruled 
blanks,  which  are  made  in  duplicate  or  triplicate.  They  take  the  place  of 
ordinary  sales  records,  and  the  total  of  the  order  is  posted  direct  to  the  ledger 
from  the  order  blank,  the  number  of  the  order  blank  serving  for  the  folio 
of  the  ordinary  sales  records.  They  are  then  filed  away  in  consecutive  numer- 
ical order,  and  are  very  easy  of  reference. 

If  the  salesmen  are  properly  instructed,  the  order  blank  system  of  record- 
ing sales  is  a  great  labor  saver,  the  original  entry  by  the  salesman  constituting 
the  posting  record,  and  entirely  eliminating  both  day  book  and  sales  book. 
Not  many  years  ago  it  was  considered  absolutely  essential  to  copy  the  sales- 
man's record  of  his  sale  into  a  day  book  and  to  journalize  it  from  the  day 
book  before  posting  to  the  ledger. 


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1066 


792-797        American  Business  and  Accounting  Encyclopedia       Or.-Ou. 

In  some  cases  where  the  number  of  sales  are  not  extremely  numerous, 
it  is  also  customary  to  index  each  order  brnder  alphabetically  so  that  the  bills 
sold  to  a  customer  can  be  referred  to  by  a  salesman  without  troubling  the 
ledger  clerk  for  the  folios. 

When  made  in  triplicate  the  original  order  blank  usually  goes  to  the 
customer  as  a  bill,  the  duplicate  goes  to  the  proper  department,  or  shipping 
clerk,  and  the  triplicate  is  handed  to  the  bookkeeper  or  filed  away  for  reference. 

A  sample  of  the  form  of  order  blank  generally  used  in  connection  with 
this  system  is  appended : 

(793)     order  book. 

A  record  of  orders  received. 

(794)     order  register. 

Order  registers  are  frequently  used  for  the  purpose  of  giving  each  o«-der 
a  number  and  thereby  furnishing  a  check  on  the  charging  out  of  all  orders 
filed,  as  each  number  must  be  accounted  for. 

(795)     ORGANIZATION  EXPENSE. 

This  title  covers  a  variety  of  expenses,  which  may  include  Traveling  expense 
in  soliciting  for  sale  of  stock.  Telegraph,  Telephone,  Fuel,  Posting,  Advertising, 
Law  Costs,  Surveys,  Engineers'  expenses.  Maps,  Drafting,  Filing  and  Recording 
fees,  payments  for  securing  Rights  of  Way,  Bonuses,  payment  on  Franchise 
accounts  and  general  work  of  the  clerical  staff. 

As  these  expenditures  are  for  the  benefit  of  the  business  in  future  years 
as  well  as  for  the  year  in  which  the  business  is  organized,  they  are  usually 
carried  on  the  books  as  fictitious  assets  and  liquidated  over  a  period  of  from 
three  to  five  years. 

Preliminary  Expense. 

(796)     ORIGINAL  ENTRY. 

The  first  record  on  the  main  books  of  account  of  the  transactions  of  a 
business.  Thus,  the  entry  of  an  order  in  the  order  book  is  not  considered  the 
original  entry  if  the  order  book  is  an  auxiliary  book  from  which  postings  are 
not  made.  On  the  other  hand,  in  case  of  a  pay  roll  book  where  the  detatls  are 
entered  but  the  totals  are  transferred  to  the  cash  book  and  posted  from  thence, 
the  pay  roll  book  is  the  book  of  original  entry. 

(797)     OUTSTANDING  DISCOUNTS. 

Some  accountants  in  preparing  balance  sheets  for  their  clients  make  allow- 
ance for  cash  discounts  by  opening  a  Purchase  Ledger  Discount  Suspense 
Account  and  a  Sales  Ledger  Discount  Suspense  Account.  The  estimated 
amounts  of  discounts  are  charged  and  credited  to  these  accounts  and  charged 
and  credited  to  the  regular  discount  account.  After  the  books  are  reopened 
for  the  record  of  the  next  year's  transactions,  these  suspense  accounts  are 
written  back  to  the  regular  discount  account. 

On  the  balance  sheet  the  amount  of  the  Purchase  Ledger  Suspense  Account 
is  deducted  from  the  Hability  of  Accounts  Payable,  and  the  amount  of  the  Sales 

1067 


Ov.-Pa.        American  Business  and  Accounting  Encyclopedia     797-805 A 

Ledger   Suspense   Account  is  deducted   from   the  amount  of   the   Accounts 
Receivable. 

(798)     OVERCHARGE 
An  amount  charged  in  excess  of  the  regular  price,  agreed  terms,  or  con- 
tract. 

(799)     OVERDRAFT. 
A  term  used  by  banks  to  designate  the  sum  drawn  by  customers  in  excess 
of  the  amount  standing  to  their  credit  on  the  books  of  the  bank. 

(800)  PAGING. 
In  the  work  of  posting,  it  is  found  a  considerable  saving  of  time  to  enter 
the  ledger  folio  from  the  indexes  into  the  books  from  which  postings  are  to 
be  made,  prior  to  posting,  the  posting  being  indicated  by  a  check  mark  at  the 
side  of  the  page  number.  Modern  books  of  account  have  special  check  columns 
provided  for  this  puqx)se  next  to  the  folio  column. 

(801)     PAID-UP  CAPITAL. 

See  Stock. 

(SO-i)     PAR.     • 
The  value  named  on  a  certificate  of  stock,  bond,  or  other  commercial  paper. 
The  equality  of  actual  and  nominal  value. 
The  face  value. 
The  original  price. 

(80;r)     PAR  OF  EXCHANGE. 

The  rate  of  exchange  between  the  currencies  of  diflferent  countries. 
Exchange  is  said  to  be  at  a  premium  or  discount  according  to  its  relation  to 
this  rate. 

(804)     PARTIALLY  MANUFACTURED  GOODS. 

See  Manufacturing  Costs,  etc. 

(80",)     PARTNERSHIP. 
"  Partnership   is  the  relation  which  subsists  between  persons  carrying  on  a 
business  in  common  with  a  view  to  profits." 

(805A)       PARTNERSHIP PURCHASE   OF,    NECESSARY   INVESTIGATION. 

A  list  of  all  books  used  should  be  made  and  particulars  repKDrted  in  respect 
to  all  documents  relating  to  the  matter  of  any  importance. 

A  mass  of  detail  must  usually  be  investigated  in  respect  of  the  transac- 
tions of  previous  years,  and  the  method  of  business. 

If  the  books  have  not  previously  been  audited,  it  will  be  necessary  to  under- 
take a  considerable  amount  of  clerical  work,  sometimes  involving  the  construc- 
tion of  a  set  of  books  on  the  double  entry  principle. 

The  tradiiig.  and  profit  and  loss  accounts  should  be  arranged  in  compara- 
tive form  so  that  variations  and  fluctuations  may  be  seen  at  a  glance.    These 


8()r)A 


American  Business  and  Accounting  Encyclopedia 


Pa 


comparative  statements  should  be  accompanied  by  ])ercentage  computations. 
If  possible,  these  computations  should  be  compared  with  the  percentages 
obtained  in  similar  businesses. 

Sales  should  be  verified  as  far  as  possible  with  the  idea  of  ascertaining 
that  the  goods  have  been  actually  delivered,  or  if  not,  that  they  are  not  included 
in  the  inventory. 

Returns  should  be  investigated  to  ascertain  that  apparent  sales  are  not 
in  reality  goods  out  on  approbation,  and  also  to  obtain  an  idea  as  to  what 
proportion  of  the  sales  consists  of  packages,  containers,  sacks,  bottles,  etc., 
to  be  allowed  for  on  return. 

Consignments  to  agents  must  be  checked,  and  unsold  consignments  taken 
at  cost,  and  not  treated  as  sales. 

Old  Plant  and  Machinery  sold  must  not  be  included  as  sales,  and  work 
done  for  repairs  and  renewals  on  the  place  should  be  charged  out  at  cost 
price  and  shown  separately  in  the  accounts. 

Generally  it  should  be  noted  whether  the  sales  include  large  contracts, 
and  if  there  is  a  reasonable  probability  of  these  being  renewed,  or  similar 
ones  obtained:  also  whether  the  customers  are  changeable  or  regidar:  while 
profits  from  speculations,  such  as  in  corn  options,  or  any  unusual  sources  of 
profit,  must  be  placed  under  a  separate  heading  in  the  trading  account. 

Purchases — Invoices  must  be  checked  and  dates  noted,  a  watch  being 
kept  for  any  that  are  post-dated. 

The  Receiving  Book  will  help  to  show  wliether  any  goods  are  included  in 
stock  for  which  invoices  have  not  been  received,  while  statements  for  all 
open  accounts  should  be  examined  to  prevent  any  omission  of  invoices  for 
goods  taken  into  stock. 

\\ages — Any  favorable  drop  in  prices  during  the  periods  under  review 
should  be  noted.  A  scrutiny  of  some  of  the  pay  rolls  should  be  made  to 
ascertain  the  composition  of  the  various  weekly  totals. 

In  the  case  of  collieries  and  other  concerns  where  rates  vary  according  to 
the  state  of  trade,  it  is  important  to  ascertain  whether  the  average  rate  has 
been  normal. 

Stock— It  must  be  first  noted  whether  the  valuation  has  been  made  on  the 
same  lines  each  year,  for  cases  are  not  uncommon  where  in  fat  years  the  basis 
has  been  10  per  cent,  under  cost  and  in  lean  years  above  cost. 

In  this  event  an  adjustment  must  be  made,  and  the  accounts  redrawn  on  a 
uniform  basis,  but  otherwise,  if  the  stock  is  approximately  the  same  from 
year  to  year  the  price  at  which  it  is  valued  matters  not.  for  the  intending 
purchaser  will  not  pay  for  this  asset  at  book  prices  unless  he  considers  the 
valuation  a  fair  one. 

Stock  Sheets  must  be  checked  and  compared  with  the  stock  accounts,  if 
such  be  kept. 

Goods  out  on  approbation  will  be  verified  bv  an  inspection  of  the  Appro- 
bation Record,  inquiry  being  made  if  the  goods  have  been  out  a  long  time 
whether  they  will  be  returned,  or  are  in  the  nature  of  samples,  in  which  case 
they  must  be  debited  to  trading  account. 


1068 


1069 


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American  Business  and  Accounting  Encyclopedia 


805A 


Consignments  will  be  compared  with  the  original  stock  invoices  and  the 
account  sales. 

Work  in  progress  must  be  taken  at  cost  with  addition  of  proper  propor- 
tion of  expense  less  provision  for  any  expected  loss  unless  the  profit  on  any 
jobs  can  be  fairly  accurately  gauged,  when  the  valuation  will  be  a  matter 
of  arrangement.  If  any  big  contracts  were  running,  before  taking  them  over 
it  would  be  desirable  for  the  purchaser  to  obtain  expert  advice. 

If  wilful  misrepresentation  is  contemplated  by  the  vendor  the  stock  pro- 
vides an  easy  loophole  for  fraud,  and  therefore  very  great  care  must  be  exer- 
cised in  this  direction  if  an  independent  valuation  is  not  to  be  made,  the  last 
stock  sheets  being  fully  examined;  but  if  the  stock  to  be  purchased  has  been 
taken  by  an  outside  valuer,  then,  if  the  totals  are  approximately  the  same  from 
year  to  year,  it  is  immaterial  what  the  basis  of  the  valuation  be,  provided 
it  is  uniform,  as  the  object  of  the  investigation  is  to  acertain  the  amount 
of  profit  earned  during  the  period. 

Expenses — All  expenses  properly  chargeable  must  be  included,  and 
apportionments  made  for  rents,  taxes,  insurances,  commissions,  and  salaries. 

Bad  Debts — The  list  of  debtors  will  be  checked  in  the  usual  way,  full 
provision  being  made  in  the  last  year  for  all  bad  debts  and  discounts. 

As  the  debts  outstanding  in  the  early  years  under  investigation  will 
either  have  been  paid  or  have  become  exceedingly  "  doubtful  "  ere  the  end 
of  the  least  year,  the  amount  to  be  charged  to  each  year's  trading  account  can 
be  fairlv  accuratelv  calculated. 

Depreciation  and  the  Value  of  Fixed  Assets — Here  many  difficulties  arise. 
If  a  valuation  has  been  made  and  agreed  upon  respecting  the  fixed  assets,  their 
value  does  not  concern  the  investigating  accountant,  his  only  duty  being  to  see 
that  no  expenditure  properly  chargeable  to  revenue  has  been  capitalized,  and 
that  sufficient  depreciation  has  been  written  off. 

If  the  value  is  more  than  "  book  value  "  jt  is  sometimes  hard  to  determine 
the  amount  of  the  annual  depreciation,  and  to  distinguish  the  extent  to  which 
the  difference  is  due  to  appreciation  through  fluctuation  in  their  capital  value, 
as  distinct  from  excess  depreciation  provided;  while  if  the  "actual  value" 
is  less  than  the  book  value  it  is  equally  difficult  to  decide  what  proportion  is 
revenue  and  what  capital  loss.  Indeed,  the  only  way  is  to  follow  general  rules 
based  on  previous  experience,  modified  according  to  the  special  requirements 
of  the  case. 

If  the  fixed  assets  have  not  been  valued  by  an  independent  valuer, 
then  such  steps  must  be  taken  as  are  practicable  to  arrive  at  some  opinion  as  to 
their  worth.  Invoices  for  machinery  and  fixtures,  and  contracts  for  buildings, 
are  the  data  from  which  the  information  can  best  be  obtained. 

After  the  trading  profit  has  been  ascertained,  there  are  certain  adjustments 
which  have  to  be  made,  these  generally  being  as  follows. 

Interest  on  Loans  and  Bank  Interest — If  sufficient  capital  is  to  be  intro- 
duced to  pay  oflF  the  loan  this  charge  against  profits  will  not  exist,  and,  even 
if  not  so,  the  charge  is  not  against  the  trading  profit  earned,  but  is  an  appropria- 
tion of  such  profit,  and  must  be  so  considered. 


1070 


805A-806      American  Business  and  Accounting  Encyclopedia 


Pa. 


Partners'  Salaries — If  a  partnership  be  contemplated,  and  the  vendor  has 
not  charged  anything  for  his  services  in  the  past,  this  item  must  be  taken 
into  account;  and  the  same  principle  applies  if  the  intending  purchaser  will 
be  compelled  to  employ  a  manager  to  perform  the  duties  formerly  discharged 
by  the  vendor. 

Two  statements  will  thus  have  been  obtained,  viz. : 

(1)  An  account  showing  the  trading  profit  or  loss  for  a  certain  number 
of  years,  and  the  net  return  that  will  be  available  if  the  business  continues 
to  be  as  successful  as  in  the  past,  after  eliminating  certain  charges  not  payable 
by  the  purchaser  or  the  new  firm. 

The  object  of  this  statement  is  to  show  whether  the  business  oflFers  suffi- 
cient inducement  as  regards  profits  for  the  prospective  purchaser  or  partner  to 
invest  his  money,  and  also  to  act  as  a  guide  to  the  amount  to  be  paid  for  good 
will. 

(2)  A  balance  sheet  at  the  end  of  the  period  showing  the  assets  and 
liabilities  at  that  date.  After  the  value  of  the  assets  has  been  agreed  this 
serves  as  the  basis  upon  which  the  business  will  be  taken  over. 

After  preparing  the  accounts  the  investigating  accountant  has  to  consider 
whether,  in  his  opinion,  the  prospects  of  the  business  warrant  the  purchase, 
or  partnership,  and  in  the  latter  case  whether  the  additional  capital  to  be  intro- 
duced will  show  a  corresponding  return. 

If  such  capital  is  to  be  used  to  discharge  pressing  liabilities,  and  not 
to  develop  the  business,  the  result  is  that  the  return  per  cent,  will  probably  be 
reduced,  as  the  earning  capacity  will  not  be  increased;  and  a  business  which 
in  the  past  has  shown  a  good  profit  may  give  but  a  small  return  on  a  larger 
capital. 

In  calculating  the  amount  to  be  paid  for  good-will  the  following  points 
must  be  considered: 

(1)  The  precise  nature  of  the  business;  whether  attached  to  locality, 
person,  or  trade;  whether  the  retirement  of  the  vendor  is  likely  to  have  a 
prejudicial  effect,  and  whether  the  business  is  in  a  declining  locality  or  is  a 
declining  trade. 

.  (2)     The  tenure  of  the  premises,  and  if  a  renewal  can  be  obtained  on  the 
same  terms. 

(3)  The  amount  of  capital  required  and  the  probable  return  thereon. 

(4)  The  necessity  of  skilled  supervision  in  place  of  the  vendor. 

(5)  Whether  the  vendor  intends  to  carry  on  a  similar  business. 

(6)  Whether,  taking  all  these  points  into  consideration,  there  is  a  pros- 
pect that  the  business  will  remain  as  profitable  as  under  the  old  management. 

(806)  PASS  BOOKS. 
A  small  book  made  up  from  time  to  time  from  a  banker's  ledger  and 
forwarded  to  the  customer.  It  is  not  considered  as  a  statement  of  account 
between  the  parties,  yet  it  has  been  held  that,  when  the  customer  neglects  for 
a  long  time  to  make  any  objection  to  the  correctness  of  the  entries,  he  will  be 
bound  by  them. 


1071 


Pa. 


American  Business  and  Accounting  Encyclopedia.        806-809 


!Many  banks  now  use  the  pass  book  simply  as  a  receipt  for  the  deposits 
made,  giving  the  depositor  a  separate  sheet  on  which  is  a  statement  of  all  his 
transactions  in  full.  These  statement  sheets  are  written  up  daily,  and  when  a 
depositor  leaves  his  book  for  balancing,  it  only  requires  a  comparison  of  the 
total  deposits  entered  in  the  pass  book  with  those  entered  on  the  statement  and 
ledger,  and  if  they  agree  the  rest  is  simply  a  deduction  of  the  total  charges  from 
the  total  of  the  deposits,  including  the  previous  balance,  which  leaves  the  balance 
due  the  depositor.  Keeping  these  account  current  sheets  written  up-to-date 
enables  a  bank  without  difficulty  to  have  every  pass  book  ready  for  delivery  to 
the  deix)sitor  the  morning  following  the  day  it  was  left. 

(80;)     PATENTS.      * 

."  Patent  right  is,  primarily,  an  asset  to  the  extent  of  the  capital  invested 
in  the  development  or  ])urchase  of  the  patent,  and  if  a  patent  retains  its 
remunerative  (jualities  throughout  the  period  of  its  legal  existence  its  salable 
value  may  increase  year  by  year,  in  which  case  there  can  be  no  depreciation, 
especially  as,  under  certain  conditions,  patent  rights  can  be  extended  on  applica- 
tion to  the  proper  authorities.  Under  ordinary  circumstances,  however,  it  is 
usual  to  charge  off,  annually,  a  fixed  proportion  of  the  cost  of  acquiring  a 
patent." 

Companies  are  sometimes  formed  for  the  purpose  of  selling  goods  covered 
by  a  particular  patent,  with  the  provision  that  when  the  patent  has  expired 
the  business  of  the  company  will  terminate.  In  this  case  the  advisability  of 
writing  off  an  annual  percentage  is  not  apparent.  (See  also  Depreciation  and 
Good-will.) 

(808)     PATTERNS. 
An  account  respecting  value  of  patterns  owned  by  a  business,  being  the 
models  from  which  the  articles  or  machines  manufactured  are  made. 

(SO!))     PAY-ROLL. 

A  record  of  wages  paid. 

Manv  diff'erent  methods  of  arranging  ])ay  rolls  have  been  devised  with  a 
view  both  of  saving  clerical  work  and  obtaining  a  check  on  the  accuracy  of  the 
pay  roll. 

Pay  rolls  are  frequently  complicated  by  the  employes  obtaining  advances 
on  their  pay,  and  being  charged  with  goods  or  supplies.  In  the  days  when 
bookkeepers  transferred  everything  into  the  journal  prior  to  posting  to  the 
ledger,  they  also  kept  their  pay  roll  accounts  in  the  lengthiest  and  most  round- 
about way  po"^sible.  From  the  pay  roll  they  copied  all  the  names  of  the  employes 
into  the  journal,  and  having  opened  an  individual  account  with  each  employe 
in  the  ledger,  they  proceeded  to  post  to  those  accounts  from  the  journal.  Now 
any  proper  system  used  will  provide  for  but  two  postings  to  ledger  accounts, 
the  charge  of  the  total  to  ledger  account  and  the  credit  to  cash.  The  pay  roll 
book  itself  is  so  arranged  with  a  system  of  short  leaves  following  the  name 
pages  that  the  names  of  the  employes  need  be  written  only  once  in  thirteen 


1072 


I 


809 


American  Business  and  Accounting  Encyclopedia 


Pa. 


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weeks,  perhaps,  instead  of  every  week.  Where  the  employes  are  charged  with 
goods  and  cash  advances,  a  combined  pay  roll  and  ledger  is  used,  which  is 
especially  adapted  to  the  requirements  of  plantations  and  lumber  camps,  where 
a  general  store  is  maintained  and  employes  are  paid  by  tickets  representing 
the  value  of  wages  earned,  which  they  can  either  exchange  for  cash  at  the  com- 
pany's office  or  for  goods  at  the  company's  store. 

Many  pay  roll  books  or  sheets  are  arranged  for  signatures  of  employes, 
acknowledging  receipt  of  wages  paid.  The  disadvantage  of  this  is  that  on 
signing  the  record  each  employe  is  in  a  position  to  see  the  rate  of  wages  others 
are  receiving,  and  this  is  frequently  undesirable.  While  devices  have  been 
invented  for  the  purpose  of  hiding  all  other  entries  on  the  pay  roll  except  that 
of  the  employe  signing  it  (see  illustration),  we  think  the  best  plan  is  to  issue 
tickets  to  each  employe,  the  tickets  stating  the  amount  of  wages  due  and  the 
instruction  that  on  receipting  same  and  presenting  it  to  the  cashier  the  amount 
will  be  paid.  These  receipts  can  then  be  filed  away  as  vouchers  or  pasted  on 
the  pay  roll  book  or  sheet. 

A   LOOSE-LEAF   PAY-ROLL. 

A  Loose-Leaf  Pay-Roll  form  is  submitted  which  will  be  found  very  satis- 
factory for  general  use  and  is  designed  particularly  to  meet  the  requirements  of 
factories  where  it  is  desired  to  check  the  total  time  with  the  recapitulation  of 
work  tickets. 

The  time  sheet  for  each  week  is  made  up  independently  and  is  sent  to  the 
cost  clerk,  who  compares  each  workman's  time  with  that  reported  as  employed 


1073 


Pa. 


American  Business  and  Accounting  Encyclopedia 


809 


809-810        American  Business  and  Accounting  Encyclopedia 


Pa. 


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on  the  various  jobs.  The  total  of  these  should  agree  with  the  total  .hours 
entered  on  the  pay  roll,  thereby  providing  an  absolute  check  on  the  accuracy 
of  the  same. 

By  having  the  binding  edge  on  the  right,  one  name  sheet  is  sufficient  for 
several  weeks  and  the  time  sheets  can  easily  be  inserted  in  the  proper  place, 
preparatory  to  the  completion  of  the  pay  roll. 

A  new  name  sheet  can  be  made  out  at  stated  periods  or  whenever  changes 
in  employes  render  it  desirable.  The  time  sheets  are  allowed  to  remain  in 
their  proper  place,  week  after  week,  having  the  most  recent  one  always  on  the 
top  and  when  a  new  name  sheet  is  made  out  the  old  one  is  folded  over  length- 
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permanent  binder.  In  factories  where  a  large  number  of  workmen  are 
employed,  a  separate  sheet  is  used  for  each  department  and  numbered  accord- 
ingly. 

The  distribution  of  amounts  into  denominations  is  a  great  convenience,  as 
by  this  means  the  exact  amount  required  in  each  denomination  may  be  procured, 
thereby  facilitating  the  filling  of  pay  envelopes  without  the  probability  of  a 
shortage  or  oversupply  of  change. 

The  cross  footing  of  these  columns  also  provides  a  check  on  the  accuracy 
of  the  total  footing. 

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WE.EK  ENDING    6EPT  9 

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(810)     department  store  pay-roll. 

The  card  is  designed  to  fit  the  regulation  document  file,  and  is  ruled. 
At  the  top  of  the  card  is  a  space  for  the  name  of  the  employe,  and  address 
if  desired,  date  of  entering  employe,  rate  of  salary,  clock  number  and  depart- 
ment to  which  assigned. 

The  rulings  and  headings  on  the  card  are  practically  self-explanatory. 

The  first  column  allows  for  the  date  of  the  last  day  of  the  week or  pay 

day;  the  second  records  the  number  of  pay  days;  the  third  the  charges  for 
materials,  merchandise,  etc.,  against  the  employe;  the  fifth  the  amount  due 
the  employe  and  charged  to  the  pay  roll,  and  the  fourth  is  the  difference 
between  columns  3  and  5. 


1075 


Pa. 


American  Business  and  Accounting  ENCvcLOPEDrA 


810 


810 


American  Business  and  Accounting  Encyclopedia 


Pa. 


Ill 


W 


4 


The  cards  may  be  filed  numerically,  alphabetically  or  by  departments 
representing  the  accounts  in  the  general  ledger,  to  which  the  pay  roll  is  to  be 

charged. 

For  example,  take  the  departmental  method.  Guides  are  printed  to  repre- 
sent the  several  accounts  in  the  general  ledger,  viz. :  executive,  general,  adver- 
tising, manufacturing,  department,  etc.  Back  of  these  guides  are  filed  the  cards 
of  all  employes  assigned  to  that  department — preferably  in  alphabetical  order. 
If  an  employe  is  transferred  from  one  department  to  another,  transfer  the 
card  also.  If  an  employe  is  out,  or  leaves,  take  out  his  card  and  place  it  in  the 
"  inactive  tray."  This  method  keeps  the  pay  roll  always  active,  and  shows  at 
all  times  the  employes  in  any  given  department. 

I, 

SYSTEM   IS  SIMPLE  IN  ACTUAL  OPERATION. 

This  system  is  very  simple  in  actual  operation.  The  date  is  first  entered, 
the  time  then  extended  in  the  "  days  in  "  column  from  the  time  card  or  time 
sheet  (according  to  the  method  used  in  keeping  time),  and  the  amount  due 
the  employe  entered  in  the  "  salary  "  column.  After  the  charges  have  been 
entered  in  the  "  charges  "  column  and  the  difference  between  this  amount  and 
that  in  the  "  salary ''  column  extended,  the  pay  roll  is  ready  to  be  made  up. 
In  the  event  of  there  being  no  charges  to  the  employe,  the  only  column  used 
is  the  "  salary." 

In  putting  up  the  pay  roll,  the  paymaster  places  the  cards  in  front  of  him 
and  arranges  his  money  convenient  to  his  reach.  Each  card  is  then  consid- 
ered individually,  and  the  amount  extended  in  the  "  paid  "  column,  is  made 
up  and  passed  over  to  an  assistant,  who  recounts  the  money,  calls  back  the 
amount,  and  places  it  in  an  envelope.  This  process  continues  throughout  the 
pay  roll. 

After  the  money  is  "put  up,"  the  pay  roll  is  ready  to  foot  up  and  sum- 
marize. Let  us  presume  for  the  sake  of  illustration  that  we  have  our  salaries 
divided  into  seven  accounts :  executive,  general,  office,  advertising,  team,  manu- 
facturing and  departments,  and  the  department  salaries  are  sub-divided  into 
departments  A.,  I>.,  and  C.  We  proceed  to  list  on  the  adding  machine  all  cards 
back  of  each  guide.  These  totals  are  summarized  under  their  respective  head- 
ings, and  the  result  constitutes  our  record  of  salaries  paid  out ;  already  depart- 
mentized  for  the  posting  to  the  general  ledger. 

Time  may  be  saved  by  keeping  a  supplement  of  the  pay  roll  on  small  3  x  5 
cards  bearing  only  the  name  or  number  of  each  employe,  arranged  in  the 
same  order  a-^  the  pay  roll  cards.  From  this  list  the  office  boy  can  address 
the  envelopes  without  coming  in  contact  with  the  actual  pay  roll,  keeping  the 
envelopes  in  the  same  order  as  the  cards.  This  method  will  save  a  lot  of  time 
when  putting  up  the  money. 

This  system  has  the  distinct  advantage  of  having  the  complete  record  of 
all  payments  made  to  any  one  individual  in  one  place  and  in  compact  form. 
If  receii)ts  are  required  for  envelopes,  the  signature  may  be  obtained  on  the 
card  without  exposing  the  balance  of  the  roll  to  inquisitive  eyes. 


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The  pay  roll  is  always  active,  containing  no  "  dead  matter,"  and  names 
are  rewritten  only  at  intervals  of  over  IS  months— a  tremendous  saving  of 
labor,  time  and  money.—//.  C.  Anmihlc. 


1076 


1077 


Il 


Pa.-Pe.       American  Business  and  Accounting  Encyclopedia 


810-812 


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.t 

The  relation  of  a  given  amount  to  100.  Thus :  60  is  1/6  .of  360,  or 
16  66/100%    (60-^-360  =  16.6).     40  is  1-9  of  360,  or  ll^lt^    (40-^360 

=  11.11).  'II.. 

(812)     percentages  on  turnover. 

The  calculation  of  percentages  and  their  comparative  record  is  one  of  the 
most  valuable  forms  of  statistics  in  the  science  of  accounts.  These  percentages 
are  obtained  in  two  ways  by  accountants.  One  way  is  to  take  the  percentages 
on  sales,  another  is  to  take  it  on  turnover.  The  former  is  quite  commonly 
used :  the  latter  is  the  more  valuable. 

What  is  a  "  turnover "  ?  It  is  the  actual  cost  of  the  goods  sold.  We 
append  an  illustration : 

Inventory — January    1st,    1908     $18,972.45 

Purchases   of  material    32,586.20 

Labor 12,979.50 

^       $64,538.15 
Deduct  inventory,  January   1st,   1909 21,465.89 

The  turnover  (or  cost  of  goods  sold) $43,072.26 

Sold  for    $62,985.80 

Or  a  profit  on  the  turnover  of  462%oo  per  cent. 

1078 


812 


American  Business  and  Accounting  Encyclopedia 


Pk. 


If  at  the  end  of  the  next  year's  business  we  find  that  the  turnover  is  prac- 
tically the  same,  but  that  the  sales  only  amount  to  $59,945.75,  or  a  profit  on  the 
turnover  of  39  17/100  per  cent.,  we  know  that  the  goods  have  been  sold  at  a 
less  ratio  of  profit  than  before. 

Or  if  the  turnover  is  more,  and  the  amount  of  the  sales  the  same,  we 
know  that  the  cost  of  manufacture  has  probably  increased,  and  can  intelligently 
trace  the  cause  of  diflference. 

It  is  evident,  therefore,  that  all  percentages  of  expense  of  any  kind 
should  be  calculated  on  the  turnover,  not  on  the  sales,  because  the  turnover 
does  not  vary,  but  affords  a  stable  basis  of  cost;  whereas  the  amount  of  the 
sales  will  always  vary  according  to  the  ratio  of  profit  at  which  the  goods  may 
be  sold.  It  may  cost  as  much  to  sell  goods  at  25  per  cent,  profit  as  to  sell 
them  at  40  per  cent,  profit.  Percentages  based  on  sales  will  not  show  the  cor- 
rect results  so  clearly. 

percentages  of  profit. 

Usually  figured  on  difi^erent  lines  of  goods  carried  in  a  general  country 
store. 

profits  in  shoes. 

"  The  gross  profit  in  this  line  will  run  in  the  average  store  throughout 
the  country  from  25  per  cent,  to  50  per  cent.  There  will,  of  course,  be  a 
wide  variation  in  the  various  departments.  In  shoes  a  merchant  usually 
endeavors  to  get  the  very  best  possible  values  to  sell  at  $2,  $2.50,  $3  and  $3.50. 
Some  merchants  will  buy  shoes  at  $1.25  to  sell  at  $2,  while  others  will  pay  as 
high  as  $1.60  to  sell  at  this  same  price.  Some  merchants  will  buy  shoes  at 
$1.50  to  sell  at  $2.50,  while  others  will  pay  as  high  as  $1.90,  and  in  extreme 
cases,  $2,  to  sell  at  the  same  price.  Some  merchants  will  pay  $1.75  for  shoes 
to  retail  at  $3,  while  others  will  pay  $2.25,  $2.35,  and  even  $2.50  for  goods  to 
sell  at  the  same  price. 

hats  and  clothing. 

In  men's  hats  the  margin  of  profit  is  usually  higher.  In  most  stores  $9 
goods  are  sold  at  $1.25 ;  $12  goods  at  $1.50 ;  $18  and  $21  goods  at  $2.50 ;  $24 
goods  at  $3.50,  and  so  on. 

In  clothing  one  merchant  will  pay  $7.50  for  a  suit  to  retail  at  $10,  while 
another  will  pay  $5.50  or  $6,  and  so  it  goes.  It  has  been  found,  however, 
that  if  a  man  will  make  an  average  gross  profit  of  25  per  cent,  on  all  his 
lines,  and  do  an  active,  aggressive  business,  this  margin  of  profit  will  allow 
him  plenty  of  room  for  doing  some  aggressive  merchandising  and  still  leave 
him  a  good  net  profit  after  all  of  his  expenses  are  paid. 

groceries  and  hardware. 

Owing  to  the  fact  that  groceries  and  hardware  are  not  affected  by  fashion, 
and  that  a  merchant  does  riot  suffer  much  loss  through  being  compelled  to 
mark  down  and  close  out  out-of-date  styles,  the  average  profit  should  be  lower. 

1079 


Pk. 


American  Bustxess  and  Accounting  Encyclopeidia 


812-813 


SI 4  818        American  Business  and  Accounting  Encyclopedia        Pe.-Pl. 


In  the  grocery  business,  in  view  of  the  fact  that  the  stock  is  turned  very  rapidly, 
and  the  amount  invested  is  small,  in  comparison  with  the  total  volume  of  busi- 
ness, the  gross  profit  should  be  A'ery  low." 


PERCENTAGES  OF  CAPITAL. 

A  corporation  borrowed  $10,000  from  the  bank  and  used  the  amount  as 
working  capital.  The  president  of  the  corjjoration  insisted  that  the  percentage 
of  net  profit  should  be  computed  on  the  corporation's  investments  plus 
amount  borrowed  for  working  caiptal.  less  interest  paid  on  same. 

We  can  liken  this  proposition  to  an  investment  in  real  estate,  for  a  first 
example.  If  a  man  having  $10,000  to  invest  decides  to  buy  a  house  and  realiz- 
ing that  he  can  borrow  money  on  mortgage  for  five  per  cent,  and  on  the  other 
hand  ought  to  make  eight  or  nine  per  cent,  on  real  estate  investment,  should  buy 
two  houses  putting  .$r),0(M)  in  each,  lK>rrowing  $5,000  for  each  on  mortgage, 
would  he  have  $'*0,0(M)  invested — would  his  equity  or  capital  be  $•20,000 — would 
the  percentage  of' earnings  be  on  $*iO.OOO?  The  fact  alone  that  he  had  borrowed 
money  would  not  increase  his  earnings,  but  the  percentage  of  earnings  on 
capital  (in  the  sense  of  '*  present  worth  ")  would  be  materially  increased. 

For  a  second  example  we  will  suppose  a  firm  whose  customers  in  the 
main  require  credit,  perceives  that  its  earnings  may  be  increased  and  its  credit 
firmly  established,  by  discounting  its  bills  (accounts  payable),  decides  to  bor- 
row the  cash  to  put  the  plan  in  operation.  The  amount  borrowed  is  $5,000. 
The  net  earnings  for  the  year  are  $5,000.  Can  a  statement  be  made  up  by  any 
book-keeper  showing  an  increase  in  net  worth  for  the  year  of  $10,000?  The 
experts  tell  us  net  worth  is  the  same  a  .  capital,  and  the  earnings  bear  a  certain 
percentage  to  capital  or  amount  invested. 

Our  own  version  is  that  capital  represents  the  amount  of  money  invested 
in  the  business,  or  the  present  worth  of  the  firm  or  corporation.  Borrowed 
money  does  not  aflfect  the  cai)ital  in  the  least.  It  may  affect  the  working  cash 
fund,  may  in  fact  provide  a  cash  fund,  to  take  the  place  of  working  capital 
which  has  nut  been  provided  for  otherwise  by  original  subscription  to  the 
finn  or  by  a  fund  created  out  of  profits.  We  think  that  the  capital  of  the  firm 
is  not  increased.  Therefore  profits  earned  are  a  certain  percentage  on  the 
net  worth.  To  make  our  idea  plain :  Assume  that  the  gentleman  in  question 
figured  the  percentage  his  way  ( having  borrowed,  say  $5,000)  and  found 
that  the  firm  had  earned  15  per  cent,  and  he  informed  his  partner  (who  had 
a  half  interest  in  the  business)  of  the  factf?)  and  paid  the  partner  15  per 
cent,  on  his  capital,  what  would  he  do  with  the  other  seven  and  one-half  per 
cent?    This  is  on  the  assumption  that  the  capital  was  $5,000  also. — C.  A.  Rox. 


(813)     PERMANENT  ASSETS. 


f| 


Fixed  Assets. 


(814)     PERSONAL  ESTATE. 

A  term  used  to  designate  movable  property.  Any  property  which  does  not 
come  under  the  liead  of  Real  Estate. 

(815)     PETTY  CASH. 

A  record  of  small  incidental  expenditures  always  kept  where  total  receipts 
are  deposited  in  bank  and  all  trade  bills  paid  by  check. 

The  best  system  of  keeping  record  of  petty  cash  is  what  is  called  the 
"  Imprest "  system,  which  may  be  described  as  follows : 

Open  an  account  in  the  general  ledger  with  petty  cash  and  draw  a  check 
for  an  amount  sufficient  to  cover  a  week's  or  month's  expenditures,  charging 
same  to  petty  cash  account  through  the  general  cash  book.  Enter  all  exjHfn- 
ditures  as  made  in  the  petty  cash  book,  and  at  the  end  of  the  week  or  month 
have  such  expenditures  O.  K.'d  by  a  responsible  person.  Debit  representative 
accounts  and  credit  amount  of  such  expenditures  to  petty  cash  account  through 
the  journal,  and  draw  check  to  make  up  petty  cash  to  original  amount. 

It  is  usually  unnecessary  to  keep  a  ledger  account  with  each  class  of  petty 
expenses,  as  similar  classes  may  be  consolidated  and  charged  to  one  ledger 
account.  For  example :  Postage,  stationery,  car  fares,  donations  and  telegrams 
may  be  entered  to  the  debit  of  office  expense  account,  although  kept  separate 
in  the  petty  cash  analysis.  Cash  sales  should  invariably  be  kept  separately, 
and  on  no  account  should  they  be  kept  in  the  same  book  as  the  petty  disburse- 
ments, or  by  the  person  who  makes  the  payments.  This  rule  may.  like  all  rules, 
have  its  exceptions,  but  the  majority  of  accountants  of  wide  experience  unite 
in  recommending  such  a  division  as  preferable  in  many  respects  to  keeping 
both  receipts  and  payments  together. 

(8i:)     PIECE  WORK. 

That  class  of  manufacturing  labor  which  is  paid  for  by  the  job  or  piece 
instead  of  by  the  hour. 

(818)     PLANT. 

A  title  used  to  designate  permanent  assets,  such  as  buildings,  machinery^ 
horses,  wagons  and  accessories  required  for  purposes  of  manufacture. 

In  some  businesses  an  account  is  opened  with  "  Plant,"  which  includes 
all  the  various  items  above  indicated,  but  it  is  more  usual  to  open  a  separate 
account  with  each  kind  of  asset. 

In  some  large  manufacturing  corporations  it  is  the  custom  to  keep  d 
separate  Plant  ledger,  in  which  an  account  is  opened  with  each  item  of  plant, 
to  which  is  charged  first  cost  and  all  costs  of  repairs  and  replacements,  and  to 
which  is  credited  depreciation.  When  the  repairs  are  made  by  the  workmen 
of  the  corporation,  debit  notes  are  issued  showing  cost  of  material,  time  occu- 
pied and  cost  of  same. 

The  total  of  the  debit  balances  of  the  Plant  ledger  are,  of  course,  assem- 
bled in  one  account  in  the  general  ledger  of  the  corporation. 


1080 


1081 


Po.-Pr,        American  Business  and  Accounting  Encyclopedia        819-825 

(819)  POINT. 

A  term  used  on  the  Stock  Exchange  to  indicate  one  per  cent,  of  par 
value  of  stock  or  bonds. 

(820)  POOL. 

A  term  used  on  the  Stock  Exchange  to  indicate  sums  of  money  placed 
in  a  common  fund  by  various  brokers,  or  other  persons,  to  effect  the  profitable 
manipulation  of  certain  investments  the  profits  or  losses  consequent  on  such 
manipulation  afterwards  being  divided  among  the  members  of  the  pool  in 
proportion  to  the  investments. 

(821)     POSTING. 

The  act  of  entering  debits  and  credits  on  a  ledger. 

This  term  is  sometimes  used  to  indicate  the  act  of  transferring  amounts 
from  one  record  to  another. 

An  expeditious  method  of  posting  is  first  to  fill  in  the  ledger  folios  from 
the  index  in  the  folio  column  of  the  book  from  which  postings  are  to  be  made, 
then  post  as  nearly  as  possible  in  consecutive  numerical  order  of  pages,  the 
fact  of  an  item  being  posted  being  indicated  by  a  check-mark  against  the 
page  number  in  the  folio  column. 

(822)  PREFERRED  CREDITORS. 

Those  creditors  who,  in  case  of  bankruptcy  or  assignment,  are  entitled 
to  be  paid  in  full  in  priority  to  distributing  amount  realised  among  the  creditors 
of  the  estate  by  way  of  dividends. 

(823)  PREFERRED  DIVIDENDS. 
Dividends  paid  to  preferred  creditors. 

(824)  PRELIMINARY  EXPENSE. 

See  Organization  Expense. 

(825)     PREMIUM. 

The  amount  paid  over  and  above  par  value  to  purchase  stocks  or  other 
values. 

The  treatment  of  premiums  on  stock  on  books  of  account  is  not  uniform, 
as  while  some  accountants  insist  that  they  should  be  looked  upon  strictly  as 
an  increase  of  capital  not  divisible  by  way  of  dividends  to  stockholders,  other 
authorities  see  no  objection  to  crediting  a  special  premium  account,  and  ulti- 
mately closing  this  account  into  profit  and  loss.  By  the  first  method  it  is  usual 
to  credit  such  premium  to  a  reserve  account.  As  a  matter  of  fact,  however,  it 
rests  with  the  stockholders  themselves  to  decide  as  to  the  disposition  of  this 
class  of  receipts,  and  it  is  quite  usual  to  apply  such  premiums  to  offset 
expenses  of  promotion. 


826-829        American  Business  and  Accounting  Encyclopedia 


Pr, 


(826)  premiums  to  customers. 
In  a  department  store  it  is  frequently  the  custom  to  give  premiums  to 
customers  at  certain  periods  in  order  to  encourage  trade.  When  this  plan 
is  adopted  the  premium  article  should  be  noted  on  the  sales  book,  omitting 
price,  the  amount  of  the  tag  being  the  amount  of  sale  for  which  cash  is  received 
or  to  be  received. 

In  the  purchase  book  a  division  should  be  carried  with  "  Premiums 
Given,"  subdivided  into  departments.  At  the  end  of  each  day  the  premiums 
given  should  be  entered  in  these  columns,  giving  the  cost  price,  of  same ;  this 
is  in  reality  a  reduction  of  the  amount  of  purchases,  and  not  a  sale.  At  the 
end  of  the  month  a  journal  entry  should  be  made  from  the  purchase  book,  thus: 
Purchases  (subdivided) 
Premiums 

Accounts  Payable 
Purchases  (subdivided) 

It  will  be  noticed  that  the  total  amount  of  purchases  made  during  the 
month  will  be  shown  as  well  as  the  amount  of  premiums  given  during  this 
month;  it  is  understood,  of  course,  that  this  credit  to  purchases  is  not  neces- 
sarily a  reduction  of  the  current  month's  purchases,  but  a  reduction  of  the 
stock  on  hand. 

In  the  sales  book  it  will  be  necessary  to  carry  two  divisions,  one  for 
ordinary  sales,  and  another  for  premium  sales  (that  is,  sales  made  on  which 
premiums  were  given),  each  being  subdivided  by  departments.  At  the  end  of 
each  day  the  total  amount  of  each  class  of  sales  should  be  entered  by  depart- 
ments, so  that  a  total  of  each  class  of  sales  can  be  arrived  at  at  the  end  of  the 
month. 

At  the  end  of  the  month  the  premium  account  should  be  prorated  over 
each  of  the  different  departments  according  to  the  amount  of  premium  sales 
made  by  each  during  the  month.  This  being  in  the  nature  of  an  advertising 
expense,  is  therefore  a  proper  charge  to  Sales  Department  Expense.  It  will 
be  noticed  by  following  the  foregoing  method  that  the  premiums  given  are  a 
cost  of  running  the  business,  and  should  not  be  included  with  the  sales. 

(827)     PRESENT  WORTH. 

Net  capital.    The  surplus  of  assets  over  liabilities. 

(828)    PRICING. 

The  determining  of  prices  at  which  articles  manufactured  shall  be  sold 
IS  frequently  arrived  at  by  adding  to  cost  of  production,  (1)  A  percentage  of 
total  expense  for  the  year  based  on  an  average  of  this  expense;  (2)  The 
percentage  of  profit  expected  to  be  realized. 

(829)     PRIME  COST. 
A  term  used  to  designate  cost  of  material  entering  into  manufactured 
products,  also  to  indicate  total  cost  of  production  of  a  manufactured  article. 


1082 


1063 


Tk. 


AmkRICAN  BUSINKSS  AND  ACCOUNTING  ENCYCLOPEDIA      830-831 A 

(830)     PRINCIPAL. 


In  contracts  a  principal  is  one  who,  being  competent  to  do  any  act  for  his 
own  benefit  or  on  his  own  account,  confides  it  to  another  person  to  do  for  him. 

The  general  principle  which  governs  the  liability  of  a  principal  is  that 
the  responsibility  is  measured  by  the  character  and  extent  of  the  authority 
g^ven.  The  powers  of  the  agent  must  be  measured  and  determined  by  the 
application  to  each  particular  case  of  ordinary  business  principles,  and  sound 
judgment  to  be  exercised  by  the  agent  in  executing  his  authority,  and  by  the 
court  which  is  to  deal  with  the  case  in  considering  the  question  of  responsi- 
bility of  the  principal.  Where  a  discretion  has  been  conferred  upon  the  agent 
the  principal  must  abide  the  result  of  its  exercise  and  will  be  held  liable  to  third 
persons  where  it  ha?  l)een  honestly  exercised. 


(831)     PRINTERS'  BUSINESS  ACCOUNTING. 

(831A)       TRINTERS    COST    RECORD. 

Several  years'  study  and  experimenting  has  resulted  in  the  system  described 
in  this  article.  It  is  in  actual  use  and  has  been  found  ver}-  satisfactory  and 
accurate. 

In  the  printing  business  repeat  orders  are  frequent,  and  it  is  often  necessary 


COMPOSITOR'S    DAILY    TIME    REPORT 


TaAccn  MUMaca, 

on  NMtC   Of  JO*. 


-IS- 


M    l»    «t     I     ■!     iP    «» 


t>     P     4<     I     «*     !•    *i 


t     J.    ,»     I     H     l>    *» 


,f    t 


Form    1. 

to  find  the  copy  and  instructions  for  the  former  order.  For  a  tracer  use 
a  heavy,  open  end  manilla  envelope,  51/.  x  13  inches,  printed  with  full  instruc- 
tions on  front  and  back,  and  numbered  consecutively.  When  job  is  finished, 
the  tracer  is  indexed  and  filed  numerically  with  all  copies  inclosed.  On  all 
small  work,  each  person  working  on  the  job  writes  his  name^  and  the  amount 
of  time  consumed,  on  the  tracer  as  well  as  on  his  daily  time  report.  On  big 
jobs  requiring  work  at  different  times,  the  time  is  collected  by  the  foreman  and 
entered  on  the  tracer  when  the  work  in  his  department  is  completed. 

As  a  check  on  the  time,  each  department  has  its  own  time  slips,  which  are 
checked  by  the  foreman  and  sent  to  the  office.    Form  1  shows  the  compositor's 

1084 


831A 


American  Business  and  Accounting  Encyclopedia 


Pr. 


MONOTYPE. 

•aa  at  IbaaaTialMli  MUIT  ka«a« 
aa  raraana^  4mk  aaak  avaalaf. 


KAIIIE, 


DaU 


199^ 


tRAenM. 

NAME  OF  JOB. 

Narrd. 

MN»  or  TTK. 

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WorK 

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pi] 

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FoRst  5. 

daily  time  report  on  which  each  compositor  enters  the  tracer  number  and  the 
name  of  the  job  he  is  working  on,  and  indicates  his  time  by  drawing  a  line  on 
the  report  to  show  the  amount  of  time  consumed,  the  report  being  divided 
into  five-minute  intervals,  and  the  report  is  turned  into  the  foreman  at  the 
end  of  the  day. 

On  small  jobs,  the  compositor  enters  his  time  on  the  tracer  at  the  same 


1085 


Pa. 


American  Business  and  Accounting  Encyclopedia 


831A 


H!lr^e,._ _ Hr. 


Tr<ic«rNo. 


Wt)flt  I)otf)fc 


H. 


M. 


MATERlAH^SEDi 

l.tdll)*r..... 

CUll, 

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bdtft. 


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-30 


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45 


do 


-15 
45/ 


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FOKM   7. 


Form  & 


1086 


'— ,-"  ■ 


831A 


American  Business  and  Accounting  Encyclopedia 


Pr. 


STOCK. 


^•wxfetf 


■^>»>i  i^ 


MhI  II  Im  IM  SMI  M  M  ItM,  M  MM  ■« 

m  it<  IM  pnml  stfikt  II  At  lA  •NPMM 1*. 

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ELECTRO.  AND    STEREO. 


0Ua- ». f'trtrrf       l-iirriii      VififJMl      n-ii      fiiitwi-in 

•M« ,..fi»»M. —»•#<(«•  — ••WfcM  —  lr«>>«l>r>V      raluWaf •>•>>. 

f*i»li>lK*t«-.. .-..- *#».    trvrMly^ar...... — — *««. 

e—itf»nmi.$ — eM<<ri«M«f niu jt—n. 

f^nm  r«r€itM4  — If* 


PRESS    ROOM. 

..Jmtt       (htt IW_    Otrt ,  !#»_ 


INK-fta 

^"MaMWK. .  .  ...... ... 

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rmt»». _— Ji*,3mf. „..A*  •  •. 

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i»«fc     « cofr.». 


Form   U.  . 

time  he  enters  it  on  his  time  report.    The  foreman  compares  the  tracers  with 
the  reports  each  clay,  and  each  workman  must  account  for  all  his  time. 

Form  4  is  used  in  accounting  for  the  time  of  each  workman,  and  is  sent  to 
the  office  each  night,  the  blank  heading  over  each  column  being  used  for  the 
name  of  the  compositor. 

Form  3  is  used  by  the  keyboard  operator  and  casting  machine  operator 
on  the  monotype.    This  is  also  turned  in  to  the  foreman  each  night. 

A  form  is  used  in  the  bindery  for.  keeping  the  total  time  consumed  on  each 
job.  As  bindery  work  constitutes  a  number  of  separate  operations  by  different 
persons,  it  is  often  impracticable  for  each  person  to  enter  the  time  on  the 
tracer,  although  this  is  done  when  the  job  is  small  and  there  is  room  for  it- 

1087 


Il  ' 


ll  ! 


|i  i 


|i  • 


pR. 


American  Business  and  Accounting  Encyclopedia     831  A-832 


Each  bindery  workman  uses  Form  G  as  a  daily  time  report,  which  is  turned 
in  to  the  foreman  each  night,  is  checked  by  the  tracers,  and  the  totals  entered 
on  Form  o.  When  the  job  is  completed,  time  as  shown  by  Form  5  is  entered  on 
the  tracer  by  the  foreman. 

Form  T  is  the  daily  time  report  for  the  pressroom,  and  Form  8  is  sent  to 
the  office  each  day  and  entered  on  our  **  Record  of  Press  Performances,"  which 
shows  the  amount  of  time  consumed  on  each  job  as  well  as  the  number  of 
impressions. 

Form  9  explains  itself,  being  used  in  the  electrotype  foundry,  in  the  same 
manner  as  in  the  other  departments. 

It  has  been  found  that  very  little  time  is  re(|uired  to  keep  up  this  system, 
and  when  used  in  connection  with  stock  records  and  modern  accounting,  any 
printer  can  know  what  it  costs  to  produce  work,  and  when  printers  generally 
have  this  knowledge,  most  of  their  troubles  will  be  over,  and  there  will  be  more 
uniformity  in  prices. 

(832)       PRINTING  JOB  OFFICE. 

It  may  be  as  well  to  state  at  the  beginning  that  the  fomis  described 
below  are  those  used  in  the  office  of  a  daily  newspaper  in  a  small  city.  Proliably 
none  would  fill  the  demands  of  a  metropolitan  daily,  but  for  a  paper  with  a 
circulation  of  o.OOO  to  30,000  the  writer  knows  none  better. 

Our  local  sales  of  papers  are  made  through  newsdealers  and  newsboys  who 
own  their  routes.  They  purchase  checks  for  the  required  number  of  papers 
in  the  office  and  are  served  in  the  pressroom. 

Our  accounts  with  mail  subscribers  are  kept  on  cards  (Form  1)  and 
when  paid  are  credited  on  the  ledger  subscription  account  which  is  made  up 
entirely  of  cash  items.  The  petty  and  transient  advertising  is  also  entered 
on  cards  (Form  'i)  which  are  destroyed  when  paid,  and  the  cash  credited 
to  advertising  account.  A  small  four  drawer  cabinet  occupying  but  little  space 
is  sufficient  for  this  purpose.  The  unpaid  subscription  and  advertising  cards 
are  never  reckoned  in  our  assets  and  form  no  part  of  our  statements,  so  our 
accounts  receivable  are  not  overstated  from  these  two  sources. 


1 

Cliik 

inm«. 

r     .1.^ 

rM 

^;i::::i_ 

i::^:.:;^ 

^^^^^^--^^^ .. 

Form    1. 


Form    2. 


Form  3. 


108S 


832 


American  Business  and  Accounting  Encyclopedia 


Pe. 


GasI? 

Dr. 

Nar?vc 

NLed 

J  Led  AdveKtiJwJiibjtnpJioo  Job  Dept.  lA^U^V^^lj^h  Lc^Tr  |              ^ 

1 

f             ^ ^                        ,«^ 

L^-'-^         ^     ■ 

"^ 

FoKii  3. 


CasI; 

C.r 

Norpe 

Hied  JLedlSoloriej  JExoMjd Equip.  iNewsalRepoinbobOcstlN^u^^U^'Li^'rl            1 

^-^-^""^ 

-LL^      '■'                ^ 

IXli-HJU-iJ- 

FoRU  4. 


Form    5. 

Our  books  consist  of  two  ledgers,  one  each  for  the  newspaper  and  job 
departments  (which  are  run  independently)  ruled  for  ])age.  half  page  and 
quarter  page  accounts  and  are  sectionalized  to  the  extent  that  the  accounts 
receivable  are  entered  in  the  first  pages  of  each  division  and  the  accounts  pay- 
able in  the  last  pages.  In  this  way  the  two  sets  of  accounts  are  not  mixed 
through  the  ledgers  and  checking  a  trial  balance  is  made  easier. 

The  books  of  original  entry  are  four,  journal,  cash  bcx)k,  advertising  record 
and  job  order  book.  Both  the  fomier  as  can  be  seen  from  the  pages  shown 
(Forms  3  and  4)  are  ruled  to  accommodate  the  two  ledgers.  The  jounial  ruling 
shows  when  the  columns  are  footed  at  the  end  of  the  month,  the  credits  and 
debits  of  accounts  receivable  and  accounts  payable,  and  the  totals  of  the  sundrv 
columns  check  the  others.  This  makes  a  trial  balance  possible  in  a  few  minutes 
and  generally  without  error.  After  this  is  obtained  the  balances  are  drawn 
from  the  ledgers  to  check  the  postings  and  if  a  diflference  appears  it  is  not 
a  serious  matter,  as  knowing  the  side  of  the  account  in  error  and  whether 
cash  or  journal  entry,  it  is  not  difficult  to  locate  the  trouble. 


lOSO 


Pr. 


American  Business  and  Accounting  Encyclopedia 


832 


Mak*  Cl*«cka  PayabI*  to 
Tha  Emaraen  Publlahinc  Co. 


ALL     BILLS     PAYABLE     EACH     MONTH. 


M- 
O 


Own^OYiva,  ^orwv., 


.jqo 


Co  Xn3e  Evening  Sentinel  Dr. 


Book  and  Job  Printing 


THE  BMBBSON  PUBLISHINO  CO..  r     H     BrlinHI 
SUPERIOn   AOVCRTISING    MEDIUM. 

IT  COIS  TO  ALL  TliS    MOPt-B    IN    ITS   nSLU. 


nv    At-I.    KIKO« 


rrsATLr  bxbcvtbd. 


eUB^ORIPTION. 
D.n,.  by  mail.       -  .       •j.oe  per  ye.r  ^  tot.i  populatiod. 

I  Orctttatios  is  abovt  mni   outlyiof  town*,  over  30.000  copic*  per  week. 


i 


fvar  J. 


KMEiraON.  Praa. 

OONSTITUBNOY: 


ANIONI*. 

Diaav, 

*MCLTON, 
SITMOUM. 


it.eai 
T.«3e 
s.sra 

3.641 
29,724 


o 


Important  Notice. 


Compare  this  statement  witb  your  £heck 
list  at  noce  and  notify  u  i{  any  differences 
occur. 

I/Oe  Semtimelktu  failed  to  rtaeh  you 

for  amy  of  the  dates  here  checked  write 
far  duplicate  copies  without  delay. 

Silence  for  30  days  will  be  construed  as 
ackoowledfcment  of  accuracy  of  the  above 
bill,  after  which  nn  correction  or  dcdtictioo 
will  be  allowed. 


=5" 


.0* 


1^ 


Form   (5. 


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Our  regular  contract  advertising  is  measured  each  day  and  the  space 
entered  in  the  advertising  record  (Form  5)  which  is  footed  at  the  end  of 
the  month,  extended  and  posted  direct  to  the  ledger  accounts,  the  total  of  these 
amounts  completing  the  double  entry  when  credited  to  advertising  account. 
The  form  of  bills  for  these  accounts  (Form  6)  includes  a  fac-simile  of  the 
record  and  enables  the  advertiser  to  check  his  measurements  with  ours. 

The  job  order  book  (Form  7)  explains  itself  and  items  are  posted  to  the 
ledger  in  a  similar  manner  to  the  advertising  record.  The  job  orders  (Form  8) 
are  made  out  when  the  order  is  entered  and  sent,  with  the  copy,  to  the  foreman. 

1091 


Pr. 


Amkrtcax  Bi'sixEss  Axn  AccorNTixr,  Encyclopedia     832-832 A 


Upon  completion  of  the  work  they  are  returned  to  the  office  with  the  data  of 
time  and  material  entered  and  form  the  basis  of  charges.  We  have  a  form  of 
duplicate  order,  I^orm  i).  for  all  advertising,  one  of  which  is  retained  in  the 
office,  the  other  sent  to  the  foreman,  attached  to  the  copy.  A  discontinuance 
slip  (Form  li» )  also  in  duplicate  is  used,  and  I  might  say  right  here,  that  these 
duplicates   have   many   a  time   saved  or  settled   disputes   when   errors   have 

occurred. 

The  cash  slips  need  no  explanation.  They  are  useful  in  making  up  the 
cash  balances  daily  and  weekly,  and  check  any  error  in  entry  or  footing  in 
the  cash  book.  In  the  form  of  trial  balance  used  special  columns  are  marked 
*'  newspaper,"  "  job  department  "  and  **  profit  and  loss  "  for  monthly  balances, 
and  make  comparisons  easy. 

( S3?A)     PRODUCE  BUSINESS— WHOLESALE— ACCOUNTING 

METHODS  FOR. 

The  svstem  here  described  is  one  used  bv  the  Central  Michigan  Produce 
Co.,  who  have  been  transacting  a  very  successful  business  since  the  beginning 
of  the  year  1902. 

Owing  to  sharp  competition,  branch  purchase  houses  were  established 
in  six  or  seven  diflFerent  cities  and  towns  contiguous  to  the  location  of  the 
main  store.     An  agent  or  buyer  is  stationed  at  each  of  these  branch  houses 


THIS  REPORT   rjUiL />E  RCNDtWEO    PA'LY 

DAILY    REPORT  SHEET 

CENTRAL  MICHIGAN    PRODUCE   COMPANY      _ 

A6ent 

Mt    Pl*<iftflr)t         rbr-ar)cK)         | 

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1092 


832A 


American  Business  and  Accounting  Encyclopedia 


Pr. 


WEEKLY  REPORT   SHEET 

WeeV<   Zryd^ryf           May   2C 

r                           i^o^ 

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and  issues  checks  on  the  treasurer  of  the  company  for  all  produce  bought  of 
his  branch  and  for  all  expenses  incurred  in  buying  and  transporting  produce 
to  the  ware  house  at  main  store. 

At  the  close  of  business  each  day,  each  branch  house  agent  makes  out 
and  mails  to  the  central  office  a  daily  report  sheet,  see  Form  1.  accompanying 
which  is  a  carbon  copy  of  each  check  and  check  stub  which  has  been  issued. 


Mdse.  shipped  by 190... 


Branch  Office. 


SHIPPED  TO 

CENTRAL  MICHIGAN  PRODUCE  CO. 

Wholesale  Butter,  Eggs,  Poultry,  Etc. 

Capital  Stock  f  ioo,cxx>.oo  Alma,  Mich. 

Shipped  via Frt.  charges 


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it 

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COST 


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Date 

Send  to. 


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No 

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Via Freight. 


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.   Bbls...lbs,  Packing  stock  % 

...Cases  eggs... Dozen  (gs 

...Coops,  Bbls...lbs.  poultry  (ai 

...Lbs.  Wool  (& 

...T.  Hay 

...Bu.  Beans  


CENTRAL  MICH.  PRODUCE  CO, 


.190. 


Lot  No. 
Car   


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1()93 


Pr. 


American  Business  and  Accounting  Encyclopedia 
ANALYTICAL  PROFIT  AND  LOSS  STATEMENT. 

JMfECKS    PfRlOO    ENDING 


832A 


.HOUSE 


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832A 


American  Business  and  Accounting  Encyclopedia 


Pr. 


Form  5. 

These  copies  of  each  check  and  stub  enable  the  central  office  to  detect  any 
error  which  might  occur  in  figures,  and  to  prove  the  correctness  of  the  report. 

When  these  daily  report  sheets  from  each  of  the  branch  house  agents 
reach  the  central  office,  they  are  checked  over  and  the  total  amount  paid  for 
produce  plus  the  expenses  in  buying  and  delivering  to  warehouse  is  entered  on 
the  journal  charging  each  branch  house  from  which  it  came  with  same,  and 
crediting  the  Purchase  Check  account.  These  sheets  are  then  filed  in  a 
loose-leaf  binder  and  kept  for  future  reference. 

At  the  close  of  each  week  each  branch  house  agent  makes  out  and  mails 
to  the  central  office  a  weekly  report  sheet,  see  Form  2,  which  shows  the  total 

1094 


amount  of  checks  issued  each  day,  for  what  issued,  and  the  amount  paid  for 
each  of  the  different  articles.  This  report  also  shows  the  total  expenses  for 
the  week,  which  is  pro-rated  at  the  central  office  and  a  journal  entry  made, 
charging  each  of  the  different  produce  accounts  with  its  share  and  crediting 
the  branch  house  incurring  the  expense  with  the  total  amount.  Accompanying 
this  report  are  the  freight  receipts  and  expense  bills  which  have  been  paid  and 
charged  to  expense. 

The  produce  bought  by  each  agent  is  shipped  to  the  warehouse  at  Alma, 
and  for  each  shipment  the  agent  sends  in  a  shipping  bill,  see  Form  3,  which 
shows  the  quantity  and  the  cost  of  each  kind  of  produce  included  in  the  ship- 
ment; also  the  cost  of  transp>ortation.  When  each  of  these  shipments  reach 
the  warehouse,  the  shipping  clerk  makes  a  merchandise  in-slip  which  shows 
the  date,  the  quantity  of  each  article  and  the  general  condition  of  the  ship- 
ment. This  slip  is  pinned  to  the  agent's  shipping  bill  and  a  journal  entry  made 
charging  each  produce  account  with  the  cost  of  same  and  crediting  the  total 
amount  to  the  branch  house  from  which  it  was  received. 

When  the  purchase  checks  reach  the  bank  at  Alma,  upon  which  they  are 
drawn,  instead  of  charging  them  to  the  company's  regular  bank  account,  the 
bank  lists  these  checks  separately  and  the  company  issues  a  check  on  the 
regular  bank  account  for  the  total  amount  of  the  purchase  checks  paid  each 
day.  The  cash  book  entry  shows  a  charge  of  this  amount  to  the  Purchase 
Check  account  and  a  credit  to  the  bank  account.  The  book-keeper  sorts  these 
checks  and  compares  them  with  the  agent's  daily  report  sheets  to  see  that  they 
were  paid  for  the  same  amount  as  that  for  which  his  branch  house  was  charged 
when  the  check  was  issued. 

By  using  a  carbon  paper  each  agent  makes  a  duplicate  of  each  of  his . 
reports  and  shipping  bills,  the  copy  of  which  he  retains  in  his  book  as  the 
records  of  his  branch. 

By  using  this  system  of  cost  accounting  it  is  a  very  easy  matter  for  the 
book-keeper  to  make  a  statement  each  month  or  as  often  as  required,  showing 
just  what  each  branch  house  is  doing,  the  amount  of  produce  bought  and 
the  cost  of  the  same  up  to  the  time  it  reaches  the  warehouse. 

The  company  has  a  cold  storage  plant  in  connection  with  their  warehouse, 
in  which  their  eggs,  butter  and  dressed  poultry  are  stored  until  sold.  The 
cost  of  operating  this  plant,  of  sorting  and  candling  eggs,  of  dressing  and 
packing  poultry,  of  repacking  butter  and  the  cost  of  egg  cases,  butter-tubs  and 
all  other  packages  used  must  all  be  figured  in  with  the  cost  of  the  produce.  The 
expense  accounts  are  closed  up  each  month,  pro-rated  and  charged  to  the 
produce  accounts. 

The  books  used  in  the  central  office  are  a  general  ledger,  a  sales  book, 
an  eight  column  cash  book  and  an  eight  column  journal,  from  each  of  which 
most  of  the  posting  is  done  in  totals  at  the  end  of  each  month. 

When  an  order  for  produce  is  received  at  the  office  an  order  blank,  see 
Form  4,  is  made  out  and  signed  by  the  clerk  taking  the  order.  This  is  handed 
to  the  shipping  clerk  who  sees  that  the  produce  is  properly  put  up  and  shipped 

1095 


Pr. 


American  Rusixkss  and  Accounting  Encyclopedia     8B2A-833 


as  directed  by  the  order,  which  he  then  dates,  signs  and  returns  to  the  office 
as  a  merchandise  out-sHp. 

From  these  merchandise  out-shps,  invoices  are  made,  the  duplicates  of 
which  are  retained  in  the  invoice  book  which  is  also  the  sales  book.  From 
this  sales  book  a  charge  of  each  shipment  is  posted  direct  to  the  ledger,  charging 
each  jobber  or  commission  house  to  whom  the  produce  is  sold  and  at  the  end 
of  each  month  a  journal  entry  is  made,  crediting  each  of  the  produce  accounts 
with  tlie  amount  received  for  what  has  been  sold,  and  making  a  corresponding 
charge  in  red  ink  of  the  total  amount.  This  amount  is  not  posted  to  the  ledger, 
inasmuch  as  it  has  already  been  charged  directly  from  the  sales  book. 

At  the  end  of  each  month  a  profit  and  loss  statement,  see  Form  5.  is  made 
which  shows  the  inventory  of  produce  on  hand  on  the  first  of  the  month  and 
the  cost  of  the  total  purchases  of  each  kind  of  produce;  the  quantity  and 
selling  price  of  all  produce  sold :  and  the  inventory  of  produce  and  its  cost 
which  is  still  on  hand  at  the  close  of  the  month.  This  statement  also  shows 
the  total  expenses  of  the  month  pro-rated  to  the  different  produce  accounts. 

By  using  this  simple  system  of  accounting  a  vast  amount  of  work  can 
be  accomplished  and  a  complete  record  of  each  transaction  kept  by  a  compara- 
tivelv  small  office  force. — C.  H.  ll'ashbiini. 


(833)     PROFIT. 

The  excess  of  amount  received  by  selling  over  cost  of  articles  sold. 

Pecuniary  gain. 

The  question  of  what  are  profits  available  for  distribution  was  considered 
uncfer  the  headings  *'  Dividend  "  and  **  Depreciation,"  to  which  this  subject 
is  closely  related.  The  main  point  to  be  considered,  however,  in  determining 
profits  has  been  summed  up  as  follows: 

1.  That  sales  are  not  increased  by  fictitious  entries  representing  trans- 
actions that  have  never  been  made. 

'I.     That  sales  are  absolute,  and  not  on  approval  and  therefore  returnable. 

3.  That  stock  nas  been  taken  at  cost  price,  or  at  a  lower  rate  if  depre- 
ciated in  value  subsequent  to  purchase. 

4.  That  purchases  entering  into  the  manufacturing  or  trading  of  the 
business  are  fully  entered  into  the  revenue  account. 

5.  Thai  full  depreciation  of  assets  have  been  charged  to  profit  and  loss 
account,  and  that  a  lessening  of  value  in  leasehold  property  has  likewise  been 
provided  for. 

6.  That  any  change  in  the  average  sales  for  the  period  have  been  exam- 
ined and  the  reasons  for  same  explained. 

7.  That  extraordinary  profits  in  exceptional  sales  are  specially  noted. 

8.  That  assets  (real  or  personal)  are  not  inflated,  but  debits  for  repairs 
and  other  items  of  maintenance  are  charged  to  Profit  and  Loss  account. 

1096 


834-835        American  Business  and  Accounting  Encyclopedia 


Pr. 


(834)       PROFITS    UNDISTRIISUTED. 

These  should  not  be  allowed  to  remain  in  the  current  Profit  and  Loss 
account,  but  should  be  transferred  to  Undistributed  Profits  account,  or  Sur- 
plus account,  if  a  new  Profit  and  Loss  account  is  not  opened  each  year. 

(835)       GROSS   PROFITS. 

The  General  Averages. 

The  following  table  shows  what  the  gross  profit  will  average  on  the  general 
dry  goods  lines  in  the  majority  of  stores  throughout  the  country: 

Dry   Goods    25  to  50  per  cent. 

Silks     -'5  to  75  per  cent. 

Linens     25  to  50  per  cent. 

White  Goods   25  to  50  per  cent. 

Wash   Goods    25  to  50  per  cent. 

Staple  Cottons   20  to  X\  per  cent. 

Novelty  and  Fancy  Goods   33  to  100  per  cent. 

Laces  and  Embroideries    25  to  50  per  cent. 

Ribbons    20  to  50  per  cent. 

Gloves    25  to  50  per  cent. 

Men's  Furnishing  Goods   25  to  50  per  cent. 

Clothing    30  to  60  per  cent. 

Women's  Garments    30  to  60  per  cent. 

Millinery    50  to  100  per  cent. 

Millinery  Sundries   50  to  any  old  per  cent. 

Muslin   Underwear   25  to  50  per  cent. 

Men's  Hats    30  to  60  per  cent. 

Shoes    25  to  50  per  cent. 

Hosiery    25  to  50  per  cent. 

Knit  Underwear  25  to  50  per  cent. 

Of  course,  there  are  cases  where  the  percentages  will  go  either  above  or 
below  the  figures  we  have  indicated,  but  these  \\'\\\  show  the  general  averages. 

PROFITS    IN    BUSINESS. 

Where  is  the  Danger  Line  in  Business  Profits  or  Where  do 
Profits  in  Business  Cease  and  Losses  Begin? 
A  complete  answer  is  contained  in  the  following  statistics  obtained  from 
the  books  of  a  manufacturing  business. 

Sales  for  year  1907 $252,000.00 

Net  profits   20,000.00 

MAXUFACTURIXt;   COST  OF   SALES. 

Materials    $84,000.00 

Labor,  producing 66.000.00 

Labor,  non-producing   12.000.00 

Factory  expense    :{0,000.00 

$192,000.00 

General   expense    18,000.00 

Selling  expense    22,000.00 

The  foregoing  give  the  monthly  sales  at $21,000.00 

Labor  and  material  costs  at 12,500.00 


1097 


Pr 


American  Business  and  Accounting  Encyclopedia        835-837 


EXPENSES. 

Labor,  non-producing  $12,000.00 

Factory  expense    30,000.00 

General   expense    18,000.00 

Selling  expense    22,000.00 

$82,000.00 
Or  monthly   $6,833.33 

For  this  purpose  it  is  assumed  that  the  expenses  are  not  decreased  with 
a  proportionate  decrease  in  sales,  but  are  increased  10  per  cent,  on  each  $1,000 
of  sales  above  normal,  namely  $21,000. 

MONTHLY  TABLE  OF  COSTS/ EXPENSE,  PROFITS  AND  SALES. 

Material  and  Net 

Labor  Costs.  Expenses.  Profit.                          Sales. 

$10,119.04  $6,833.33  $      47.63  $17,000.00 

10,714.28  6,833.33  452.39  18,000.00 

11,309.52  6,833.33  857.15  19,000.00 

11,904.76  6,833.33  1,261.91  20,000.00 

12,500.00  6,833.33  1,666.67  21,000.00 

13,095.24  6,933.33  1,971.43  22,000.00 

•     13,690.48  7,033.33  2,276.19  23,000.00 

14,285.72  7,133.33  2,580.95  24,000.00 

14,880.96  .     7,233.33  2,885.71  25,000.00 

15,476.20  7,333.33  3,190.47  26,000.00 

16,071.44  7,433.33  3,495.23  27,000.00 

16,666.68  7,533.33  3,799.99  28,000.00 

17,261.92  7,633.33  4,104.75  29,000.00 

17,857.16  7,733.33  4,409.51  30,000.00 

Making  the  necessary  computations  it  will  be  seen  that  the  cost  of  materials 
and  labor  per  $1,000  sales  are  $595.34,  therefore  the  profits  are  reduced  or 
increased  by  $404.76,  less  $100  for  increased  expenses  over  $21,000.  The 
danger-line  is  at  $17,000  monthly  sales,  as  the  profit  shown  at  that  point  is 
only  $47.63. 

Any  manufacturer  can  compute  his  danger-line,  if  his  books  will  give 
him  the  necessary  facts,  which  will  put  him  in  position  to  at  all  times  know  if 
he  is  making  or  losing  money. 

(836)     PROOF. 

A  verification.  Thus,  the  check  figure  is  sometimes  designated  a  proof 
figure. 

(837)     PROOF  BOOK. 

A  title  given  to  a  book  in  which  the  totals  of  ledger  accounts  are  recapitu- 
lated for  the  purpose  of  obtaining  the  grand  total  for  comparison  with  the 
balance  of  the  Adjustment  or  Controlling  account  with  the  ledger,  the  work 
on  which  is  being  proved. 

1098 


838-842        American  Business  and  Accounting  Encyclopedia 

(838)     PURCHASE. 


PiF, 


tt 


u 


That  which  is  obtained  for  a  price  in  money  or  its  equivalent" 
The  act  of  seeking  and  acquiring  property." 


(839)  purchase  account. 
An  account  with  creditors. 

(840)  purchase  journal. 

A  journal  devoted  to  entries  relating  to  Accounts  Payable. 

(841)  purchase  ledger. 

A  creditor's  ledger. 

An  Accounts  Payable  ledger. 

(842)  PURCHASE  record. 

Synonymous  with  Purchase  Journal  or  Accounts  Payable  Register. 

A  bought  invoice  record. 

A  record  of  invoices  received. 

See  Voucher  Record. 


.INVOICE  NO.                                              FROM 

1 

TERMS                                                                                                   PLACE 

DATING                                                                                 WHEN   DUE 

DEPARTMENT  DISTRIBUTION                             AS                            BS                            C$                            DS                            Et                             FS 

FREIGHT  $                                                                    $                               S                               S                              S                               S                               S 

EXPENSES  $                                                                 $                               S                               S                              $                               S                               S 

WHEN  PAlO 

CMtCK  HO 

AMOUNT 

BcoucnoMt 

mx 

OVERCMAROC 

SHOHTAOC 

UOit.MTO. 

UttMiHI 

C*.  MCMO. 

WaCOONT 

/-' 

t—— 

0 

DEPARTMENT    STORE. 


1099 


Qu.-Ra.      American  Business  and  Accounting  Encyclopedia        842-845 


«'6 

MFC.  NO 

FROM                                 TERMS                       *£«•**»« 

•ATC       |V." 

ooz. 

OeSCRIPTION 

Cal]' 

WMm 

ouc 

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»ICB 

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2_ 

_3_ 

4 

s  'e 

7 

s 

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f^- 

' 

1 

_ 

_ 

_ 

,^_ 

^ 

RETAIL    SHOES. 


(843)     QUOTATION  RECORD. 

A  record  of  prices  of  articles  or  material  required ;  either  received  from 
vendors  or  furnished  to  customers. 


TOWN 

COUNTY 

STATE 

MAUC 

fiTtlPPt    AnnRF^!^ 

RIIYFR 

aniiTiMn  via                                                                                 ,                                                                                                                                                    1 

FRT.  RATE  FULL 

MTS. 

USES  PER  ANNUM 

LBS.  n*. 

LBS.  Sfs 

Us. 

Ms. 

RATING 
OUN 

BRA3. 

PftlVATt 

i 

REMARKS 

f  ^ 

COMPLAINTS 

\       I 

^     r^                                                                       I 

(844)     RAILROAD  ACCOUNTING. 

See  Steam  Railroads. 
See  Street  Railroads. 

(84.5)     RAW  MATERIAL. 

^laterial  used  in  process  of  manufacture  while  in  its  original  condition. 

1100 


846-847        American  Business  and  Accounting  Encyclopedia  Re. 

(846)     REAL  ESTATE. 

A  term  used  to  designate  immovable  property;  usually  confined  to  land 
and  buildings  erected  thereon. 


(847)     REAL  estate  systems. 

In  explaining  the  system  presented,  the  lease  is  first  in  importance;  then 
the  details  of  this  lease  are  spread  on  the  Rent  Ledger. 

The  bill  is  sent  out  on  the  last  day  of  the  preceding  month  and  when 
remittance  is  sent  in  with  the  bill  the  stub  is  retained  and  attached  to  the 
check,  for  the  guidance  of  the  cashier.  The  next  entry  is  the  Cash  Book, 
which  you  will  observe  is  cash  book,  journal  and  ledger,  all  in  one  book.  The 
rents  are  posted  from  this  cash  book  to  the  rent  ledger.  Any  number  of 
accounts  can  be  carried  in  this  way.  At  the  end  of  each  month  the  commissions 
and  net  balances  are  journalized  and  transferred  to  the  General  Account,  the 
balance  in  this  account  being  remitted  by  draft  to  the  client,  as  shown  in  the 


LEDGER. 

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847 


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1 —                     '                                                                          1 

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General  Statement.  The  net  balance  of  each  building  appears  on  this  statement 
and  the  draft  balances  the  account. 

To  show  in  detail  the  receipts  and  expense  of  each  property,  Shop  Sum- 
mary and  General  Summary  explains  to  the  client  how  all  the  money  is  handled. 
The  Expense  and  Receipts  classifies  all  the  different  items.  Taxes  and  insur- 
ance may  be  divided  into  13  instalments,  if  preferred. 

The  ledger  is  closed  and  balanced  each  month.  The  arrears  on  the  first 
of  the  month,  added  to  the  charge  for  the  current  month,  with  the  payment 


J2 
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RtQt  of   Roo.'N  No.  6t<,r,'^l4ht>-3'^St.       tiM  Sa^f  Roil^in{) 
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V  $ 

4.  Extrdi $ 


2  Amors  $, 


4i.fo, 


1102. 


847 


American  Business  and  Accounting  Encyclopedia 


Rb. 


made  during  the  month,  leaves  the  balance  in  arrears  which  is  carried  forward^ 
to  the  next  month  in  red.  Each  page  proves  itself  and  errors  are  impossible  if 
the  postings  are  correct. 

A  shop  is  maintained  by  the  agent  where  carpenters,  plumbers,  electricians, 
painters,  steamfitters,  etc.,  are  employed,  and  the  work  is  supplied  to  the 
building  at  cost  with  a  small  per  cent,  added  for  clerical  work,  shop  quarters, 
etc. 

The  agent  keeps  a  book  in  which  he  notes  the  dates  rooms  are  calcimined. 
The  chief  janitor  can  tell  at  a  glance  when  each  room  is  scrubbed.  This  is 
of  value  in  many  ways,  particularly  when  leases  are  being  renewed  and  all 
manner  of  com]^laints  are  made  in  order  to  offset  any  arguments  in  favor  of 
an  advanced  rental. 

Vouchers  for  each  item  appearing  on  the  General  Summa  y  are  inclosed 
with  the  statement  to  client,  checked  by  the  book-keeper  and  approved  by  the 
agent.    Voucher  and  check  numbers  are  always  the  same. 

Each  building  is  in  charge  of  a  special  man  known  as  a  renting  agent 
whose  duty  is  to  collect  the  rents  and  look  after  the  interests  of  the  tenants  of 
the  building  in  general. 

The  chief  janitor  and  engineer  are  under  the  superintendent  of  buildings, 
who  recommends  repairs,  changes  in  the  building  and  improvement  of  service 
in  janitor  and  engineering  departments. 

1103 


Re. 


American-  Business  and  Accounting  Encyclopedia     847-847A 


MONTHLY   STAimtNT 

5^fe 

5uilc)i9^       FreJencK  Bowep.  IpAcco 

,^^+^,/.fk     Cb^rle5l)u99.W- 

1 -            '                                                                                                1 

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iSooe 

The  Rent  Roll  llook  is  kept  from  year  to  year  showing  rentals  per  square 
foot  and  increases  over  previous  years. — J.  Schncnlaiib. 

(SITA)       REAL  EST.\TE  INSTALMENTS. 

Herewith  is  submitted  a  method  for  arriving  at  the  amount  of  interest 
to  be  paid,  and  the  number  of  payments  necessary,  where  property  is  purchased 
upon  the  instalment  plan. 

Take  a  case  where  the  purchaser  is  required  to  pay  down  a  certain  per- 
centage (say  10  per  cent. )  of  the  purchase  price,  and  thereafter  make  certain 
payments  per  month  (say,  $1  per  $100  of  the  purchase  price)  the  interest  at 
the  close  of  each  year  being  calculated  upon  the  balance  of  jnirchase  price 
due  at  the  beginning  of  that  year,  and  the  difference  between  such  interest 
figured  at  the  stipulated  rate  (say  six  per  cent.)  and  the  total  amount  paid 
during  the  course  of  the  year  by  instalments  is  applied  to  reducing  the  principal. 


ILLUSTRATION. 

House  and  lot  worth  $4,500:  cash  payment  down.  $450;  balance  (•$4,0.")0) 
payable  $45  per  month;  total  payment  for  year  $540;  interest  on  $4,050  at  six 

1104 


847A 


American  Business  and  Accounting  Encyclopedia 


Re. 


Mr    freJcnck   Bov\/e9 

To  CtiARLD  Dunn  agent,  Dr. 

Account     Re0<nir>.                   vo\e  Jopu^ry.           \^of.                Buildio^     5<nfe. 

1 

fNiiture  oj  Work               iocfltior? 

Order 

Uborw 

ftii^tro 

'rj 

rifctr.- 

ciop> 

PU>l»rciJ 

tiO* 

[If'fltor 

M.utl- 

Totfl) 

Voon  locks   etc- 

All  F/oor^Cei^^ 

rJ 

3  2J 

3.25 

Clo>ff>,  urinfll>,j<iutet>,  sipkxetc- 

M               #•                         • 

a. 50 

250 

Circuits,  >otketi,»»»tcj»,^A'fr>,  etcr 

.75 

.75 

R«|Mirii^tf  «Min(/o«v),  S<I5^  flpdrC^lflC- 

'Pf  j'l<'i5;Toutl>ii>rfu^rt^T«pisJ)i»;rf 
«««odw«pk  It;  jjriwte  ojJicC;- 

6t|,  floor 

657 

Jt-    50 

Z.50 

7.00 

Re|>lfltipd  clo>et  kowlnpd  repa.r- 
19^  j-flucet,- 

7t>  Floor 

8^6 

kl5 

if. 75 

C\Mr  11^  jf  urti^h  ot^J  repflinp^ 

le<ikir;cf  »i)pf>ly  |>if>e),p4tc|>ii7d 
pifljfer  after  blun\be«*; 

1-3-5- F|r5 

920 

2  25 

/  00 

52S 

RrfMirintf "Jocketj, «pJ  rt^u-yd  W(.k<^  2^dT{ oor 

bko 

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lle|»<»tripj>  fire   flrcj>,- 

r-2if-(,'-. 
&oJer 

boU 

210 

275 

2  00 

2  15 

7.15 

Z50 

9.50 

Z5o 

3  75 

2  00 

ZS.oo 

T*juj>|»lie^  for 

(Tatfit'or. 

2  50 
/    30 

To  iUffUes  for  iu,\J,nt  rtf^r) 

MlJC 

^.00 

580 

IIS 

Z.50 

9.50 

2  SO 

3.75 

2  00 

5^0 

3380 

per  cent,  is  $"^43 ;  amount  applied  on  reduction  of  principal,  ^'i\K  ;  interest 
for  second  year  to  be  paid  on  $3,753. 

To  arrive  at  a  short  method  for  solving  such  problems  arithmetically 
it  is  necessary  to  resort  to  tables  of  compound  interest  and  annuities,  and  any 
persons  or  company  doing  much  of  this  instalment  business  should  provide 
themselves  with  such  tables,  which  can  be  found  in  some  of  the  higher  arith- 
metics or  in  some  insurance  manuals.  For  the  purpose  of  illustrating  the  rule 
given  below,  I  have  copied  oft'  a  portion  of  such  tables,  "A"  showing  the 
*'  Present  Worth  "  of  an  annuity  of  $1  per  year,  payable  at  the  end  of  each 
year,  and  figuring  interest  at  six  per  cent,  per  annum,  compounded  annually, 
for  a  period  ranging  from  one  to  15  years.  "  B  "  shows  what  $1  will  amount 
to  at  the  end  of  from  one  to  15  years,  with  compound  interest  at  six  per  cent, 
per  annum  compounded  annually.  (Care  must  be  taken  to  see  that  the  tables 
secured  are  compounded  annuall}-,  and  not  semi-annually,  as  the  latter  could 
not  be  used  in  the  rules  given  below,  without  some  modification.) 

In  giving  the  different  sections  of  the  rule  for  determining  the  desired 
result,  I  will  at  the  same  time  illustrate  same  by  working  out  the  illustration 
given  above. 


1105 


Rb. 


American  Business  and  Accounting  Encyclopedia 


847A 


Receipts  and  Expenditures  of 


For  month  of 


......  Building 

19a 


receipts 


Rents  Received 

Rents  Due  but  Not  Collected 


EXPENDITURES 


Taxes 

Insurance 


WACS^— 


Janitor   Service 
Elevator    Men 
Engineer    and    Firemen 
Superintendent    and    Watchman 


TUEL,    LIGHT 
AND     WATEB— 


Coal    and    Carting   Ashes 

Gas 

Electric    Light 

Water   Rates 


•DPPLIES— 


MACHINERY 
BEPAIRS— 


BUILDING 
REPAIRS-* 


Janitor 
Engineer 


Heating    Apparatus 

Elevators 

Inspection 


Carpentry   and    Painting 

Plumbing 

Glazing 

Gas   and    Electric    Fitting 

Calc. 

Hardware    and    Woodwork 

Plastering 

Miscellaneous 


MISCELLANEOUS 
EXPENSES 


Advertising  and   Printing 

Legal 

Cartage 

Miscellaneous 


MANAGEMENT 
ALTERATIONS 

NET    RUNNING    EXPENSES 
RENTS     RECEIVED 
NET    RECEIPTS 


Note. — ^The   items   of  Taxes   and   Insurance    may    be 
divided  into  12  equal  parts  and  charged  monthly,  if  pre 
ferred.     This  is  perhaps  the  better  way. 


EXPKNDI- 
TURES 


Receipts 


Net 
Receipts 


Form  7 

1106 


847A 


American  Business  and  Accounting  Encyclopedia 


Rb. 


Md309                     Rii.lJ.orf 

R»r,tR„iir„ — t.Jt«   M^yi^^ 

l9olf 

fVemije^ 

Tenants 

Area 

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per 

Power 

SpecMl 
Stttirn 

<jro--L    l^**^-**— »* 

"•pt      JScfi^i 

Zr,^ 

3tove 

Browtj  C\)en\ica\  Co. 

1237 

Igoo 

1^ 

120 

1^20  llM 

i9o(> 

ist.jloor 

ped.     .. 

yr6.       u 

U*>-    " 

1 

RULE. 

To  find  the  number  of  equal  monthly  instalments  necessan'  to  liquidate 
a  certain  principal,  interest  at  the  close  of  each  year  to  be  calculated  at  a  given 
rate  upon  the  balance  of  principal  due  at  the  beginning  of  that  year,  and  the 
difference  between  such  interest  and  the  total  amount  paid  during  the  course 
of  the  year  by  said  instalments  to  be  applied  to  reducing  the  principal. 

(a)  Divide  the  principal  by  the  amount  of  twelve  monthly  pa}'ments. 

$4,050  ^  5-10  =  7.500  'OOO 

(b)  Refer  to  table  of  present  worth  of  annuities  ("A")  of  $1  at  given 
rate  and  find  the  number  of  years  for  which  the  present  worth  is  nearest  and 
lower  than  the  result  of  (a).  This  will  be  the  number  of  years  such  instal- 
ments will  have  to  be  paid. 

10  years  7.360  087 

(c)  Subtract  the  "  present  worth  "  for  the  number  of  years  determined 
by  (b)  from  the  result  of  (a) 

7.500  000 

7.:)()3  0/7 


.130  913 


(d)     Multiply  the  remainder  by  the  amount   C Table  "  P>  ")  of  $1  com- 
pounded annually  at  given  rate  for  the  number  of  years  determined  by  (b) 


.139  913  X  1.709  848  =  .250584 


(e)  Multiply  the  result  by  the  amount  of  the  yearly  installment  (1'3 
monthly  installments)  and  the  result  will  be  the  balance  of  principal  due  at 
the  expiration  of  the  number  of  years  as  determined  by  (b). 


.250584  X  540  =  $135.32 


1107 


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'  ''1 

i, 


From  which  it  will  be  seen  that  in  the  illustration  given  it  will  require 
!(►  years  and  3  months,  with  a  fraction  over,  to  liquidate  the  debt  upon  terms 
stated. 

Where  sales  are  all  made  on  same  basis  as  above,  viz,,  10  per  cent,  of 
purchase  price  cash,  balance  $1  per  month  for  each  $100  of  purchase  price,  it 
would  not  be  necessary  in  each  case  to  v/ork  it  out  as  above,  but  simply  multiply 
the  amount  of  monthly  installment  by  3.0072  (135.32  -i-  45)  which  would  rep- 
resent the  amount  of  principal  due  at  expiration  of  ten  years. 

In  some  cases  of  these  installment  agreements,  interest  is  credited  upon 
each  installment  as  paid;  thus  in  the  illustration  cited  above — ^balance,  $4,050; 
interest  on  same,  one  month  at  six  per  cent,  per  annum,  $20.25 ;  monthly  pay- 
ment, $45 ;  $4.5 — $20.25  equals  $24.75,  applied  on  reduction  of  principal ;  next 
month,  interest  at  six  per  cent,  on  $4,025.25  for  one  month  equals  $20.13; 
$45- — $20.13  equals  $24.87,  applied  on  reduction  of  principal,  etc. 

This  plan  is  more  equitable  for  the  purchaser,  as  he  gets  full  benefit  of 
interest  upon  his  monthly  installments  as  paid,  and  it  will  be  seen  from  the  illus- 
tration given  in  connection  with  the  following  rule  that  this  interest  on 
monthly  payments  effects  a  saving  to  the  purchaser  of  about  3l^  monthly 
installments,  or  $144. 

It,  however,  is  impracticable  to  arrive  at  a  short  solution  arithmetically 
of  a  problem  of  this  character,  as  it  would  necessitate  the  use  of  tables  similar 
to  "  A "  and  ''  B  "  in  the  previous  problem,  but  figured  at  interest  com- 
f>ounded  monthly  and  carried  out  to  125  or  130  months. 


PRESEXT  WORTH 

of  an 

annuity  of  $1.00 

payable  at  the  end  of  each  year  at 

6  per  cent,  compounded  annually 

Years.                        Amount. 

"  B  " 

AMOUNT  OF 

$1.00 

compounded 

annually 

at  6  per  cent,  per  annum. 

Amount.                         Years 

1 

$0,943 

396 

$1,060  000 

1 

2 

1.833 

393 

1.123  600 

2 

3 

•  2.673 

012 

1.191  016 

3 

4 

3.465 

106 

1.262  477 

4 

S 

4.312 

364 

1.338  226 

S 

6 

4.917 

324 

1.418  519 

e 

7 

5.582 

381 

1.503  030 

7 

8 

6.209 

744 

1.593  848 

S 

9 

6.801 

692 

1.689  479 

9 

10 

7.360 

087 

1.790  848 

10 

11 

7.886 

875 

1.898  299 

11 

13 

8.383 

844 

2.012   197 

12 

13 

8.852 

683 

2.132  928 

13 

14 

9.294 

984 

2.260  904 

14 

IS 

9.712 

249 

2.396  558 

15 

I  question  whether  such  tables  are  published,  and  if  they  would  have  to 
be  worked  out  for  each  different  rate  of  interest  required,  it  would  entail 
an  enormous  amount  of  labor.  Such  problems,  however,  are  very  easily 
solved  by  the  use  of  logarithms,  the  following  rule  being  applicable: 

1106 


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lU'Li:. 


To  find  the  number  of  equal  installments,  payable  at  the  close  of  stated 
regular  intervals,  required  to  liquidate  a  certain  principal,  interest  at  the 
cloi^  of  each  interval  to  be  calculated  at  a  given  rate  upon  the  balance  of  prin- 
ci])al  due  at  the  beginning  of  that  interval,  and  the  difference  between  such 
interest  and  the  amount  of  the  regular  installment  to  be  applied  to  reducing  the 
irincipal;  interest  for  the  following  interval  to  be  calculated  upon  such  re- 
duced principal. 

(a)  Calculate  the  interest  at  the  given  rate  for  the  period  of  one  interval 
upon  the  original  amount  of  the  principal. 

(b)  Subtract  such  interest  from  the  amount  of  one  of  the  equal  instal- 
ments. 

(c)  Consult  a  table  of  logarithms  and  ascertain  the  logarithm  of  the 
difference  resulting  from  (b)  and  subtract  same  from  the  logarithm  of  one 
instalment,  and  divide  the  result  by  the  logarithm  of  the  amount  of  $1  at  the 
given  rate  of  interest  for  the  period  of  one  interval. 

The  result  will  be  the  number  of  instalments  required. 
For  example — taking  the  illustration  cited  above : 

(a)  The  interest  upon  $4,050  for  one  month  at  six  per 
cent,  per  annum   is  $20.25. 

(b)  $45.00  less  $20.25  equals  $24.75. 

(c)  Logarithm  of  $45.00  is 1.053  213 

Logarithm  of  $24.75  is 1.393  575 


.259  638 


Logarithm  of  1.005  (amount  of  $1  with  interest  at  six  per  cent,  per  annum  for 
one  month)  is  .002  1()().  .259  ()38  divided  by  .002  KJlJ  is  119.87.  It  will 
therefore  take  119.87  monthly  instalments  of  $45  each  to  liquidate  the  debt  of 
$4,050  upon  terms  stated. — A.  J.  Conen. 

(848)       FL.\T   HUILDINGS. 

The  accompanying  forms  are  devised  for  owners  of  one  or  more  flat  build- 
ings or  apartment  houses,  for  the  purpose  of  keeping  accurate  and  necessary 
information  regarding  their  holdings. 

In  the  individual  flat  records,  kept  on  cards  (orte  for  each  tenant),  an 
owner  can  keep  accurately  posted  as  to  the  desirability  of  the  tenant,  the 
repairs  to  each  flat  being  a  good  index  to  the  tenant's  carelessness  or  carefulness, 
as  the  case  may  be. 

Three  classes  of  income-producing  property  are  treated  here: 

First — The  building  of  six  flats  of  from  three  to  five  rooms  each. 

Second — The  apartment  house  of  from  ten  to  thirty,  three  or  four-room 
flats,  where  hall  lights,  janitor  service  (for  exteriors)  and  garbage  removal  serv- 
ice is  furnished :  and. 

Third — The  apartment  house  of  the  same  number  of  flats  built  'n  a  more 

1109 


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Individual.     Fuat 

Recor  O 

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pretentious  manner,  where  tenants  are  furnished  all  the  necessary  adjuncts  to 
housekeeping,  such  as  light,  heat,  hot  and  cold  water,  garbage  and  janitor  service 
and  elevator  service. 

For  all  these  properties  there  are  similar  fixed  charges,  viz.,  taxes,  insurance 
and  water. 

The  monthly  charges  against  the  property  vary  according  to  the  character 
of  the  structure.  The  rent  collecting  is  usually  attended  to  by  a  real  estate 
firm,  as  is  also  the  matter  of  repairs,  but  it  is  customary  for  the  agents  to  confer 
with  the  owner  before  expending  any  considerable  amount  for  repairs.  From 
the  agent's  monthly  remittance  sheet  the  owner  can  get  all  the  necessary  in  for- 


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848 


American  Business  and  Accounting  Encyclopedia 


Rb. 


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American  Business  and  Accounting  Encyclopedia 


848 


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mation  as  to  names  of  tenants,  when  paying,  and  amounts  of  repairs,  to  transfer 
to  his  cards  or  books. 

The  accounts  of  taxes  and  insurance  should  both  be  credited  with  the 
amount  of  unexpired  terms,  as  insurance  pohcies  are  very  often  written  for 
three  years.  This  gives  the  actual  amount  of  taxes  or  insurance  for  any  speci- 
fied time. 

The  repairing  account  is  kept  in  detailed  form  on  the  cards  in  addition 
to  the  ledger  account.  The  repairs  being  one  of  the  undeterminable  features  of 
a  building  where  the  owner  must  keep  the  place  in  order,  an  accurate  and 
comparative  account  is  of  great  value  and  guidance  for  determining  the  class 
of  buildings  paying  the  best  rate  of  interest. 

Here  follows  a  description  of  the  cards  and  ledger  accounts  and  the  cash 
book  svstem : 


STYLE   I. 

Class  of  Building — Flats.     Six. — 5  rooms  each. 

■c"      1    /-I  fXa.xcs. 

Fixed   Charges    J 

t  Insurance. 

Rent  Collecting. 
Water. 
Hall  Light. 
Janitor  (Hall). 

Indefinite    Repairs  or  Renewals. 


Monthly  Charges  ^ 


848 


American  P)Usixess  and  AccouNxiNti  ExcvcLorEDLV 


Re. 


STYLE   II. 

Class  of  Buildings — Apartment  Flats.     27. — ^  rooms  each. 

r  Taxes. 

Mnsurance. 

1112 


Fixed   Charges 


Monthly  Charges 


Rent  Collecting. 
Hall  Lights. 
Janitor  Service. 
^  Water. 

Superintendent. 
Garbage  Removal. 

Indefinite   Repairs  or  Renewals. 


STYLE   III. 

Same  class  as  Style  II,  with  addition  of  elevator  service  and  heating  n 
moi'thly  charges. 

LElXiER   ACCOUNTS. 

Real  Estate  Account — Cost  of  lot  and  improvements. 
Real  Estate  Income  Account — Rents  collected   (credit). 
Repairs  Account — Repair  charges. 
Insurance  Account. 
Taxes  Account. 

Monthly  charges,  such  as  light,  water  and  rent  collecting,  together  with 
janitor  or  superintendent  services,  heating  and  garbage  removal,  are  made 
through  the  cash  book  to  the  debit  of  "  Real  Estate  Income  "  account. 

In  the  apartment  flats  the  superintendent  is  usually  compensated  to  the 
amount  of  free  rental  in  place  of  salary,  depending  of  course  on  the  size  of 
the  apartments. 

The  cash  book  being  used  but  monthly,  all  information  as  to  collections 
and  repairs  coming  from  the  agent's  collection  sheet,  needs  to  be  of  the 
simplest  form. 

The  individual  flat  record  is  made  out  for  each  new  tenant  and  is  kept 
in  use  while  that  tenant  retains  possession.  It  contains  such  information  as  is 
useful  for  giving  an  index  as  to  the  tenant's  desirability,  or  the  cost  of  repairing 
individual  flats. 

The  repairs  record  is  a  monthly  record  of  the  cost  of  the  various  classes 
of  repair  work.  These  cards  can  be  made  out  for  two  or  three  years  on  a  card 
also. 

The  owner's  rent  record  is  ma<le  up  from  the  agent's  remittance  sheet,  and 
"■ives  him  a  record  of  how  his  rent  is  coming  in  or  how  manv  vacancies  exist. 

The  aecnts'  remittance  sheet  is  a  detailed  monthlv  statement  from  the 
agents,  giving  the  names  of  the  tenants,  the  amount  paid  and  from  what  date 
the  rcjDairs,  if  any,  deducting  their  commission  of  fifty  cents  per  flat  for  rent 
C(>llccting.    This  net  amount  is  covered  by  their  check. 

The  recapitulation  card  for  monthly  income  and  expenditure  for  all  prop- 
erty is  designed  to  show  at  a  glance  the  income  and  expenditure  accounts  of  all 
the  property  for  which  accounts  are  being  kept.  The  information  is  taken  from 
the  agents'  remittance  sheets  and  cash  book  entries,  and  when  ])laced  on  the 
card  shows  the  necessary  details  of  the  earnings  of  the  property  in  the  most 
condensed  form. 

On  the  summary  card  for  the  yearly  record  at  the  end  of  each  year  of 
the  property's  existence  is  worked  out  the  general  and  specific  results  of  the 

1118 


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American  Business  and  Accounting  Encyclopedia 


848-849 


year's  income  and  expenditures,  so  that  the  owner  can  tell  accurately  what  his 
net  income  is.  After  the  first  year  an  annual  amount,  determined  both  by  usage 
and  the  character  of  the  buildings  (whether  of  brick  or  wood),  should  be 
charged  off  for  depreciation,  although  very  few  owners  of  property  think  of 
doing  so. — (L.  Joseph.) 

(849)     residence  property  record. 


849-849A      American  Business  and  Accounting  Encyclopedia 


Re. 


interesting  illustrations: 


\ 


FOR  RENT 

LOCATION 

Mo. 

Side  of  Street 

St. 
Ave. 

RESIDENCE  PROPERTY                       ^^^ 

DESCRIPTION  &  IMPROVEMENTS                      VALUE,  TERMS,  CONDITIONS^ 

Rooms  Rental                   no.                   jt. 

Bed  Rooms. Bath  Rooms 

Near  Street 

Rms.  Finished  in  Attk                                               Lease  for                                                    Vrs 

Car  line 

Lavatories „ ^. MISCELLANEOUS  INFORMATION 

Wall  Decorations 

School   „ 

LAND  DESCRIPTION 

LotiM*.                          Sub-Lot        .      . 

Ft.  Front FL  Deep 

Sidewalks Walks 

— V. 

Wood  Finish  .                Down 

"        "     „ Up        .  . 

Floois _ Down._.  .._ ^ _.   .  . 

" Up 

Gas                                 Electricity 
Heated  by L'dry  Tubs     ^ 

Paving                             Curbing  ..   _. 

Ins.  H.  W.  Heater 

Screens ..      Awatngs 

Stable 

Present  Condition 

Children 

BUILDING  DESCRIPTION 
Stone      Brick Fmne 

Af« 

Cellar.„ Foundation 

Remarks _ 

Owner   , 

Address ._ „ 

Telephone .._ BeU 



Vacant  , „ _       _ _ 

Water  Rent                     ^  Fd.  by 

GENERAL  INFORMATION 

Com. 

.  „  Cny      .  ._.    „ Esclusive 

_ Sign PlMcd... Removed,. ._ 

_ Keys 

ObUined  by 

Registered  by .  _ 

Date 

Expiration   cont. „ 

Forms  1  and  2  illustrate  the  front  and  back  of  a  card  devised  for  the  keep- 
ing of  accounts  with  tenants.  It  will  be  noted  that  the  rental  account  is  carried 
on  the  front  and  the  disbursement  account  on  the  back. 

Form  3 — Real  Estate  Office  Record  of  properties  for  sale,  or  to  rent,  etc 
The  tab  in  the  middle  of  the  card  is  intended  to  represent  approximate  value. 

Forms  4  and  5  are  also  devised  for  the  real  estate  office  business. 


FOR  SAL£. 


Form  4. 


Form  S. 


1114 


FORU 


OWMtR 

AOORE&S 

CUe 

FbiJ  0«t  For 

A.^*^ 

D.t» 

r^  OOt-For 

^•V^ 

J«. 

\b 

R.p»r.«* 

b? 

W«>w»-»it>ty^ 

6 

7T 

— 

Form  2. 


(849A)     real  estate  business — organization  and  working  system. 


RENTAL   DEPARTMENT. 

In  considering  the  establishment  of  a  large  real  estate  concern  there  is  no 
doubt  that  the  Rental  Department  should  come  in  for  a  fair  amount  of  discus- 
sion. It  is  true,  indeed,  that  it  is  often  considered,  by  the  one  who  does 
not  know,  as  a  mere  accessory — a  convenience,  or  perhaps  a  necessary  evil — 
but  results  in  solid  cash  on  the  right  side  of  the  ledger,  when  well  conducted, 
no  doubt  will  give  the  department  a  high  value  in  the  adjusting  of  credits. 


Form  3. 


1115 


Rs. 


American  Business  and  Accounting  Encyclopedia 


849A 


One  of  the  largest  sources  of  income  for  the  reahy  dealer  lies  with  the  rent 
man,  for  it  is  this  department  which  makes  possible  the  successful  handling 
of  rent  estates,  of  controlling  apartment  and  business  places,  and  maintaining 
a  collection  department.  In  fact,  that  man  is  short-sighted  indeed  who  tries 
to  curb  the  growth  of  the  rent  business,  because  it  threatens  to  overshadow 
one  of  the  other  departments,  or  because  his  specialty  having  been  devoted 
to  salesmanship  he  could  not  realize  the  necessities  of  a  rapidly-growing  rental 
department. 

One  of  the  main  values,  beyond  that  above  stated,  of  placing  tenants  in 
desirable  houses  at  a  reasonable  commission,  or  in  placing  tenants  in  houses 
belonging  to  estates  handled  by  the  firm,  is  that  of  a  drawing  card  to  the 
institution.  A  well-conducted  Rental  Department  is  one  of  the  very  best 
advertisements  that  a  real  estate  firm  can  well  have,  and  this  value  is  entirely 
disproportionate  with  the  amount  of  its  probable  returns.  The  department 
could  be  run  at  an  absolute  loss,  financially,  yet  if  conducted  on  the  right  plan, 
would  be  a  paying  part  of  the  institution.  It  acts  as  a  valuable  feed  to  the 
sales  department — a  fact  some  real  estate  men,  and  even  rent  managers,  are  apt 
to  forget.  Every  renter  is  a  potential  buyer  of  a  home.  The  material  is  at 
hand.  A  judicious  suggestion  or  terse  argument,  or  even  a  bit  of  printed  matter 
given  to  the  tenant  will  get  him  into  the  mood  for  buying.  The  rest  is  easy. 
If  the  department  has  been  successful,  and  the  man  of  the  right  kind,  and  also, 
which  sometimes  is  not  the  case,  if  the  salesmen  of  the  institution  have  put 


City  and  Sabofban  Homes  Co.  Ltd. 

detroit,  mich. 

Rental  Department. 

Date 1 90 . . 

Rem  Price 

Bui'ding F. R S 

No St 

Between 

Paved  with Walk 

No.  of  Stories Rooms 

Sleeping Bath 

Light Heat Bam 

Cellar Laundry 

Lot Water  Tat  paid  by 

Lease Possession 

Key 


Listed  by . 


1  hereby  agree  to  pay  the  above  Company  the  usual 
commissions,  if  this  property  is  rented  through  theirefforts, 
or  information  obtained  from  them  leads  to  the  rental 

thereof. 

Owner  (Signed) 

Address 

Phone  

Rented  to Date 

Term  of  lease By 


Form  No.  I— Rental  Form. 


RENTAL  DEPARTMENT. 
City  and  Suburban  Homes  Company,  Ltd. 

DETROIT.  MICH. 

Beloiu  find  description  of  my  property,  which 
you  are  hereby  authorized  to  list  on  your  booits  for  rent. 

No  St 

What  Side  of  Street 

Between  what  Streets 

Street  Paved  with 

House Flat Terrace Store 

Kind— Brick Stone Frame 

No.  of  Stories Rooms 

Bedrooms Bath 

Light Heat Barn 

Cellar Laundry 

Water  Tax  Paid  by 

Price When  Paid 

Possession 

•  ••••■•..>•••■■■>>■**■■■■■■■........,.,,,,,, ,^ 

Will  I^ase Term 

Key  at 

Owner  (Signed> 

Address 


Form  No.  II — Mail  Order  Rental  Form. 


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aside  their  jealousies  and  have  the  sense  to  co-operate  with  the  rent  man,  then  a 
sale  is  easily  made,  for  the  name  is  registered,  the  prospect  returns  to  the 
office  for  further  particulars— and  becomes  a  property  owner. 

The  Rental  Department  is  divided  into  several  branches,  each  one  separate, 
yet  all  essential  to  the  good  working  thereof.  These  divisions  may  be  given  as 
the  "  General  Rental  Section,"  which  consists  of  securing  vacant  houses  from 
landlords,  and  renting  them  on  a  commission  basis  to  the  tenants,  and  '*  The 
Estate,"  or  "  Listed  Property  Section,"  where  a  tenant  is  placed  in  houses 


Price 


No. 


Sldt 


Street 


Between 

Paved 

House 

Flat 

Terrace 

Store 

Kind-Rrick 

S»one 

Frame 

No.  of  StO'iet 

*'o  of  Rcms 

Bed  Rooms 

Bath 

Light 

Heat 

Collar 

Laundry 

B-o-n 

Size  of  Lawn 

Lease 

Term 

Po'!  "session 

Key  at 


Our  Collections 


Placed  with  other  Agency 


Will  Sell 


Amount 


Owner 


Address 


Form  No.  Ill — Form  For  Rental  Card  Index. 


City  and  Suburban  Homes  Company,  Ltd 

35.37  Ste.te  Street.     DETROIT.  MICH. 

PHONE  MAIN  5206. 

RENTAL  DEPARTMENT. 


Dear  ^'" 


Madam  * 


Having  received    information    that    you    desire    to    rent    a 

,  we  would  be  pleased  to  have  you  call  at  our  offices  in  regard 

thereto.  Upon  consulting  our  files  we  find  that  we  have  several  places  w^hich 
will  interest  you  and  meet  your  requirements.  We  make  a  specialty  of 
renting;  places,  secure  the  best  terms,  and  have  the  best  places  listed  here. 
Since  the  most  desirable  places  are  always  taken  up  very  quickly,  it  will  be 
advisable  to  register  your  name,  and  secure  our  list  as  soon  as  possible. 

Awaiting  an  early  response,  and  assuring  you  of  prompt  attention,   we 
beg  to  remain, 

Very  truly  yours, 

CITY  AND  SUBURBAN  HOMES  CO..  LTD. 
Offices  on  Ground  Floor.  Per 


Form  No.  IV— Postal  Card  to  Rental  Prospect. 


Ill' 


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or  apartments  which  are  handled  by  the  firm  exclusively,  even  to  the  repairs 
and  collection  of  the  rents.  This  last  section  involves  the  re-subdivision  of 
the  work  into  (a)  the  collection  department,  where  an  employe  collects  all 
rents  when  due,  and  (b)  the  repair  department,  which  is  in  the  hands  of 
a  person  well  versed  in  the  needs  of  rented  places,  the  amount  of  repairs  neces- 
sary, and — which  is  very  important — how  such  repairs  may  be  made  at  the 
utmost  minimum  of  cost.  The  collections  sometimes  are  made  by  the  legal 
department  of  the  concern,  while  it  is  often  that  the  repairs  may  be  delegated 
to  the  building  department,  but  both  repairs  and  collections  remain  under  the 
general  oversight  of  the  rental  manager,  who  is  responsible  for  results. 

The  General  Rental  Department  is  handled  by  the  rental  manager,  who  is 
considered  the  *'  inside  man,"  while  he  has  one  "  outside  man  "  with  several 
assistants  if  the  amount  of  business  will  warrant  it.  The  "inside  man  "  should 
have  an  assistant  who  will  copy  the  lists  when  desired,  and  attend  to  the 
inside  work  when  the  manager  is  called  upon  to  conduct  good  prospects 
through  some  especially  desirable  building.  Too  much  stress  cannot  be  laid 
upon  the  value  of  accompanying  the  highest  type  of  prospective  renter  to  a 
fine  house,  for  very  often  the  most  desirable  points  are  overlooked  unless 
the  rent  man  is  there  to  point  them  out,  and  argue  down  defects,  and  the 
general  manager  is  short-sighted  indeed  if  he  expects  or  insists  upon  his  rent 
man  being  always  behind  his  desk.  Also,  it  is  to  be  noted  that  the  rental  man- 
ager  should  know  the  good  points  of  all  his  listings  by  heart,  should  know  the 
streets,  the  neighborhood,  and  the  house.  He  should  see  the  house  if  possible, 
making  a  tour  of  inspection  at  least  once  per  week,  to  become  familiar  with  new 
listings,  and  also  know  the  value  of  such  places.  If  the  rent  price  is  more  than 
it  should  be  he  should  know  it  so  as  to  get  it  down.  If  less,  he  should  be  able  to 
get  more  than  thaj:  asked,  and  thereby  win  the  everlasting  gratitude  of  the 
owner.  The  rent  man  should  never  forget  that  he  is  the  agent  of  the  landlord, 
and  if  any  concession  is  to  be  made  the  landlord  should  be  considered,  for 
when  the  departn.ent  has  once  convinced  the  owner  that  it  can  do  the  work 
better  than  the  landlord  can  himself,  such  rental  property  will  always  again  be 
placed  in  the  firm's  hand  whenever  vacant,  thereby  saving  a  considerable 
item  in  expense — that  of  securing  places,  besides  eliminating  the  element  of 
worry  concurrent  with  the  manager's  inability  to  secure  enough  places  for  rent. 

In  general,  it  is  not  so  hard  to  secure  the  tenant  as  it  is  to  secure  the  house 
for  that  tenant.  The  renter  has  long  ago  discovered  that  it  did  not  pay  to 
'  house  hunt  "  on  his  own  account  when  the  large  real  estate  companies  would 
io  this  very  thing  for  him  without  charge,  and  be  glad  of  the  opportunity. 
But  some  property  owners  have  yet  to  learn  that  50  people  consult  "the  Rental 
Department  for  a  place  where  one  would  come  to  the  owner  in  response  to 
an  advertisement  in  the  want  column. 

The  commission  charged  the  property  owner  for  placing  a  tenant  for 
one  year  is  three  per  cent,  of  the  annual  rent,  which  rate  is  controlled  by  the 
Real  Estate  Board,  ^^'hen  the  period  of  lease  is  more  than  one  year  a  three 
per  cent,  commission  is  charged  on  the  full  period  up  to  three  years,  and  one 


ms 


» 


849A  American  Business  and  Accounting  Encyclopedia  Rk 

LIST  FVOM  THB 

Rental  Departttieut 
&  SpburhAn  Homes  C2i»  Ltd. 

35-37  State  Street.  Detroit,  Mich. 


A 


Please  notify  us  if/ou  take  one  of  these  houses.     Pay  the  first  month's  rent  at  our  office. 


iiame^^jL^^ 


5)o^.. 


/■ 


Date jQAXy     i 


^^ 


OM 


Address  ...I.?..?/ %i>!udtJUllXAd:^.P^ 


NO. 


NAME  OF  STREET 


PRICE 


I  received  my  first  information  on  above  houses  from  this  firm 


*^-^ -"^04n^ 


All  Houses  Retited  sia^ect  to  owner's  approval. 

Form    No.    V — List   to    Prospective    Renters. 

per  cent,  for  each  year  afterwards.  This  applies  to  residence  places.  Store 
property  or  factories  command  a  commission  of  five  percent  on  the  same  basis^. 
However,  as  only  a  small  per  cent,  of  the  real  estate  dealers  belong  to  the 
Board  of  Commerce  or  subscribe  to  the  Realty  Board,  the  price  is  often  cut, 
under  one  pretext  or  other,  to  one-quarter  of  the  first  month's  rent. 

The  prices  charged  for  handling  collections  of  rent  and  repairs  is  usually 
five  per  cent,  of  the  gross  receipts  and  two  per  cent,  of  expenditures  for 
repairs,  being  also  controlled  by  board  rates. 

Upon  the  outside  man  devolves  the  duty  of  keeping  the  lists  full  of 
rentable  houses — an  arduous  task  at  times.  He  must  be  a  man  of  ability,  one 
who  can  meet  the  bigoted  or  prejudiced  landlords  or  ladies  with  argument  and 
convince  them  that  the  firm  can  handle  and  rent  the  place  more  quickly  than 
they  can.  In  fact,  he  must  show  that  the  saving  effect  will  more  than  pay  the 
commission  charged.  He  is  assisted  by  other  men  who  patrol  certain  assigned 
sections  of  the  city  and  keep  alert  tab  on  all  vacancies  which  occur  in  his 
territory.  To  the  eflFective  patrolling  of  streets  and  following  up  of  the  news- 
paper ads.  does  the  department  owe  much  of  its  success.  The  outside  man 
trains  his  assistants  and  gives  them  their  directions  each  day,  such  as  he 
has  received  from  the  rent  manager.  They  report  each  morning  on  the  work 
of  the  previous  day,  and  turn  in  the  listing  cards  filled.  They  also  take  out 
signs  for  the  houses  not  supplied,  for  that  is  an  item  no  rental  man  should 
neglect. 

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a.  H.  ORINOIEV,  Cm4im»mii  Alio  Oewt  Man.  r.  g.  lambrccht.  Secy  ano  Treas. 

r!ity  and  ^ubuffcan  Homes  (Company 

Limited 

Gener«k.l  DeaLler*  In  Real  EstaLte 
Insuratfice 

orncis,  ts  and  it  State  STRtiT 

Detroit,  Mich., : t go- 
Received  of 


Dollars 


MB  SS^  ^ubu^ai^  H*^SSS  QsSS^^ 


Per- 


form No.  VI— Rental  Receipt. 


Date 

Name 

House 

Owner 

Rents  For 

Term  of 
Lease 

Amt.  Paid 

Commis- 
sions 

Credit   to 
Whom 

/an.  7.  '04 

John  Doe 

2J4  Norton 

H.  Ziegen 

4i)0.oo  Mo. 

/  Year 

$JOjLXi 

j",  Ann'ly 

Zeigen  vo"o 

Mene/ee  so". 

Firm  40?, 

Form  No.  VII — Day  Book  and  Commission  Entry. 


The  places  for  rent  are  secured  by  the  above  method  primarily,  but  the 
newspaper  ads.  in  the  want  column  are  very  important  if  followed  up.  and 
the  rent  manager  usually  looks  over  each  day's  paper  and  checks  off  in  blue 
pencil  the  addresses  of  new  places  for  rent.  Return  postal  cards  are  also  sent 
to  the  landlords  at  intervals,  and  when  the  name  is  not  given  or  impossible  to 
obtain  a  personal  interview  is  demanded. 

When  a  place  is  noticed  for  rent,  the  solicitor  goes  to  the  owner  and  gets 
permission  to  list  same,  and  makes  out  a  card  (Form  1).  which  he  insists 
upon  having  the  owner  sign,  otherwise  no  evidence  for  listing  is  furnished 
the  department. 

If  the  landlord  is  approached  first  by  the  return  postal  method  the  card 
(Form  *^)  is  sent  him.  and  he  is  expected  to  fill  out  the  attached  card  and 
return  it.  If  not.  a  follow-up  system  is  employed,  and  a  man  is  sent  out  to 
personally  interview  him  and  get  his  listing. 

As  above  stated  these  cards  are  turned  in  each  morning  to  the  rental 
manager,  who  looks  them  over,  sorts  them  into  grades,  and  enters  them  on 
cards  for  the  filing  cases,  as  in  Form  3. 

A  good  outside  man  (assistant)  can  bring  in  from  four  to  ten  listed  prop- 
erties per  day  in  fair  season — such  man  usually  having  a  wheel,  and  is  merely 
learning  the  business  of  real  estate  without  the  expectation  of  a  high  renum- 
eration. 


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The  listing  cards  are  then  filed  alphabetically  for  future  reference,  and  if 
at  any  time  this  house  becomes  vacant  a  full  record  is  always  on  hand  for  use, 
and  it  merely  needs  a  phone  call  to  have  it  placed  on  the  rent  list  again.  The 
case-cards  are  separated  into  grades  according  to  their  values  and  kind  of 
property.  In  general  the  flats  and  apartments  are  kept  separate,  and  the 
houses  are  graded  together.  Houses  from  $5  to  $15  per  month  being  put  in 
one  case,  from  »$15  to  $30  in  another,  and  above  that  in  another,  arranged 
according  to  streets. 

It  is  always  essential  to  get  the  keys  for  places  listed,  and  to  obtain  sole 
control  if  possible.  The  keys  are  tagged  and  placed  on  a  rack  alphabetically, 
for  that  purpose. 

Prospects  for  these  places  are  obtained  in  various  manners,  but  the  pro- 
verbial expression  is  true — that  of  "  keeping  everlastingly  at  it."  There  is  no 
sleep  for  the  department,  for  the  clientele  is  easily  attracted  elsewhere,  although 
a  patron  when  once  satisfied  will  always  return.  But  if  this  patron  actually 
has  been  satisfied  he  wouldn't  come  back  for  several  years,  for  it  should  be 
the  aim  of  the  rent  manager  to  secure  as  long  leases  of  property  as  possible, 
and  place  good  non-movers  therein. 

Advertising  in  the  right  way,  with  specific  advertisements  in  the  daily 
and  Sunday  papers  count  the  most.  General  ads.  are  valueless,  but  to  select 
some  good  bargains  as  leaders  in  all  classes  of  property  and  pound  on  them, 
will  bring  hosts  of  inquiries.  Often  in  the  "  House  Wanted  "  column  will  be 
seen  ads.  making  inquiries  for  a  certain  kind  of  place.  To  these  a  postal  is 
mailed  inviting  them  to  the  office,  which  rarely  fails  of  service. 

Usually  in  the  morning  as  soon  as  the  rent  man  can  find  time,  he  goes 
over  the  various  listed  places  and  makes  out  a  type-list  of  different  prices 
and  locations,  which  he  places  before  him  for  reference  during  the  day.  This 
saves  him  many  minutes  later  on  during  the  rush  of  inquiry.  After  ascertain- 
ing the  desired  location,  and  general  price  of  the  house-hunter  a  list  similar 
to  Form  5  is  made  out,  and  handed  to  him,  and  if  possible  the  signature  of 
receival  is  obtained.  A  carbon  duplicate  of  this  list  is  retained  and  placed  on 
file  for  future  reference.  In  case  such  party  rents  a  place  on  that  list  without 
returning  to  the  department  so  that  due  credit  may  be  given,  the  duplicate  is 
taken  in  evidence  of  duty  performed. 

One  advantage  of  keeping  this  duplicate  is  that  the  name  and  address 
are  kept  on  file,  and  a  few  words  may  make  such  person  an  excellent  sales 
prospect.  One  firm  claims  to  receive  fully  one-third  of  its  sales-prospects 
from  this  source,  and  the  method  is  surely  to  be  approved. 

If  the  person  receiving  the  list  does  not  report  in  a  few  days  a  follow-up 
system  is  again  employed.  Either  a  letter  is  dispatched  to  the  party,  making 
inquiry  whether  he  has  been  suited,  or  if  it  related  to  a  high-priced  house, 
added  lists  are  sent  to  the  party  and  he  is  asked  to  call  again.  Never  let  a 
prospect  "  die  "  without  knowing  why,  and  use  your  best  endeavors  to  "  place  " 
him,  or  someone  else  will. 

When  the  parties  decide  upon  a  house  get  a  payment  at  once,  issuing 
a  duplicate  receipt  therefor.     This  is  important,  as  they  often  change  their 

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mind.  Always  insert  "  subject  to  owner's  approval,"  for  your  own  protec- 
tion, and  be  sure  that  the  parties  are  responsible  and  reliable.  If  not,  look 
up  their  record  and  references.  A  poor  tenant  in  a  place  ruins  the  reputation 
of  a  rental  agency  more  quickly  than  almostany  other  cause. 

A  full  month's  rent  should  always  be  obtained  on  first  payment  if  possible, 
as  the  tenant  is  less  liable  to  back  out  then,  and  all  agreements  should  be 
definitely  understood,  all  details  of  repair  gone,  over,  etc.,  so  there  will  be  no 
chance  for  a  misundertsanding  or  evasion.  Have  the  leases,  in  duplicate,  drawn 
up  as  soon  as  possible,  and  also  have  the  landlord  notified  posthaste  so  he  will 
have  no  opportunity  to  unknowingly  rent  to  another,  thereby  causing  confusion. 

The  amount  taken  in  is  then  entered  in  the  departmental  day  book  (Form 
7),  and  a  credit  slip  made  out  which,  together  with  the  amount  given,  is 
handed  to  the  private  secretary  of  the  secretary-treasurer  for  entering  in  the 
commission  book. 

City  &  Suburban  Homes  Company 


LIMITED 


CASHIER'S  TICKET 


Date 


Jan.  7,  X)4. 


CREDIT 


Rented  To 


John  Doe. 


House  at  214  Horton  Ave. 


Rent  price— 130.00  mo. 


3000 


Lease  1  year. 

Owner,  H.  Zer«ren,  214  Horton. 

Commissions,  3  per  cent,  of  annaal  rent. 

Amount  $10.80. 

Rented  by  Z.,  40  per  cent. 

Territory  M.,  20  per  cent. 
CLOSE    AT  ONOB. 


(Form  8.)    Report  slip  of  rental. 


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We  see  that  this  entry  is  similar  to  tbat  of  the  sales,  and  is  entered  here 
ncrely  to  verify  checks  and  vouchers  given  for  commissions,  for  be  it  known 
that  most  realty  transactions  are  conducted  on  a  commission  basis. 

After  entry  here,  it  is  taken  back  to  the  regular  book-keeping  department 
where  the  procedure  does  not  materially  differ  from  that  used  in  any  large 
concern. 

As  soon  thereafter  as  possible  a  check  is  sent  the  landlord,  covering  the 
first  month's  rent  less  the  commission  which  had  been  agreed  upon.  An 
accounting  is  made  once  per  month,  and  collections  credited  to  the  first. 

Remuneration. 

The  system  of  paying  the  various  people  employed  varies  in  the 
different  offices.  Some  firms  make  their  rental  manager  a  partner  in  the  con- 
cern, and  after  deducting  all  expenses,  such  as  advertising,  heb,  etc..  and 
allowing  a  reasonable  salary  to  the  rent  man,  cause  an  equitable  division  of 
profits  to  be  made.  Other  firms  pay  a  straight  salary  to  all  employed  in  the 
department,  the  salary  depending  upon  position  and  amount  of  business  annually 
shown  by  the  department.  Such  salary  usually  averages  from  $15  to  $25 
per  week  for  the  manager,  and  $12  to  $15  per  week  for  the  outside  man. 
Another  method,  however,  consists  of  a  system  of  commissions  which  seem  *o 
work  fairly  satisfactorily  although  not  entirely  so,  because  they  have  not  gone 
far  enough.  This  latter  system  allows  the  rent  manager  a  guarantee  of  from 
$60  to  $80  per  month,  which  is  based  upon  40  per  cent,  of  the  gross  commis- 
sions of  the  department.  A  step  further  is  sometimes  gone  atid  the  rental 
manager  is  allowed  25  per  cent,  of  the  commissions  received  on  all  sales  pros- 
pects turned  over  from  the  Rental  Department.  This  last  commission  is  to 
be  approved  as  it  tends  to  cause  the  Rental  and  Sales  Departments  to  co-ope- 
rate, one  being  the  legitimate  feeder  for  the  other.  On  the  commission  plan 
the  outside  man  receives  30  per  cent,  of  all  houses  rented  from  which  a  com- 
mission is  obtained,  except  such  houses  as  are  turned  in  by  his  assistants  when 
the  head  outside  man  receives  10  per  cent,  of  the  commissions,  and  the  assist- 
ants each  receive  20  per  cent,  of  whatever  places  are  rented  of  which  they 
have  secured  the  listing.  The  head  outside  man  usually  receives  a  guarantee 
of  from  $10  to  $12  per  week,  based  upon  these  commissions. 

The  salary  basis  has  been  discovered  to  be  much  more  satisfactor>'  in 
the  Rental  Department,  as  usually  there  are  so  many  apartments,  flats,  stores 
and  houses  belonging  to  the  firm,  upon  which,  of  course,  no  commission  can 
be  charged,  that  it  makes  it  easier  to  adjust  the  work  on  a  salary  basis. 
Besides  the  prospective  renter  would  be  handled  much  more  readily  by  the 
salesman  as  a  good  prospective  buyer,  knowing  that  he  would  not  have  to 
divide  his  commissions  with  the  rent  man. 

The  collector  receives  a  straight  salary,  and  it  is  often  that  he  is  also 
appointed  the  general  overseer  and  repairman  of  houses.  Whenever  he  makes 
a  collection,  all  his  collection  cards  having  been  arranged  according  to  the 
dates  when  the  rent  is  due,  it  is  reported  to  the  department  and  entered 

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in  regular  debit  and  credit  manner  by  the  book-keeper.    It  is  also  entered  in  the 
fihng  cabinet  of  the  department  as  in  Form  9. 


214  Horton 

Tenant 

Commission  for  Collector 


Owner 


Lease 


Rent  ... 
Rented 


Our  repairs. 


Date  Due 


Amt. 


Januar'  7  i  $30.00 

February  7 30.00 

March  7  

April? 


Date  Paid 


Amt. 


Date  Due 


January  7  $30  00 

Februarys 30.00' 

30.00    March  7 30.00 

30.00 


Amt. 


Date  Paid 


Amt. 


Form  No.  9— Agrenta'  Account. 


If  a  tenant  does  not  pay  promptly  he  is  warned  and  after  seven  days,  if 
no  good  cause  is  shown  why  the  time  should  be  extended  a  seven  day  removal 
notice  is  given.  If  no  payment  is  made  after  that,  and  the  tenant  does  not 
move,  an  order  from  the  Circuit  Court  Commissioner  is  obtained  and  the  tenant 
evicted.  A  corporation  can  attend  to  this  matter  exceptionally  well,  as  it  is 
proverbial  that  it  has  no  heart,  therefore  it  produces  results  of  a  high  per 
cent,  net  profit  at  the  end  of  the  year. 

Repairs  and  necessary  alterations  are  always  reported  in  to  the  rental 
manager,  who  refers  same  to  the  repair  man  for  detailed  report  and  estimate. 
He  then  gives  him  a  written  order  to  proceed  with  same,  to  hire  the  necessary 
workmen,  and  buy  material,  and  then  O.  K.'s  all  bills  for  labor  and  material 
involved.  A  voucher  is  issued  in  his  favor  by  the  secretary  who  charges 
same  to  the  owner  of  the  'property  repaired,  and  has  all  costs  and  expenditures 
deducted  from  the  commissions  before  forwarding  same  each  month  to  the 
landlord. 

A  regular  monthly  report  is  issued  to  the  Rental  Department,  similar  to 
the  monthly  sales  report,  and  often  a  comparison  is  drawn,  or  improvement 
suggested. 

ARCHITECTURAL  AND  BUILDING  DEPARTMENT. 

The  Building  Department  is  becoming  a  more  and  more  important  feature 
in  large  realty  concerns  as  the  years  pass  by.  This  department  is  a  great 
saving  to  the  firm,  a  valuable  source  of  income,  and  a  last  resort  in  case  of 
sale.    It  is  also  a  defense  against  encroachment. 

Builders  and  contractors  are  entering  the  realty  field  to  a  greater  extent 
each  year.  Notice  in  any  city  and  you  will  find  that  carpenters  enter  into 
agreement  to  put  up  a  house  for  a  share  of  the  profits,  when  lots  are  furnished. 
Next  they  buy  the  lots  and  put  up  the  houses  to  sell  to  realty  customers.  Soon 
the\-  handle  subdivision  property,  erecting  a  series  of  homes  thereon  for  sale. 

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From  this  it  is  but  a  step  to  opening  a  regular  realty  commission  department 
in  connection  with  the  other  work. 

Realty  men  retaliate  by  ])utting  in  a  Building  Department,  to  their  great 
advantage.  The  method  of  conducting  such  department  is  comparatively 
simple  after  once  organized  as  it  is  nothing  more  than  the  repetition  of  common 
contract  forms  and  work.  lUit  the  starting  of  such  a  department  may  rc(|uire 
considerable  engineering  and  knowledge. 

As  a  fundamental  ])roposition  it  is  necessary  to  know  '*  why  "  you  start 
the  department.  To  realize  that  it  is  a  *'  good  thing  "  and  might  pay  well,  is 
not  all  that  is  necessary.  You  must  recognize  the  relation  of  the  Building 
Department  to  the  other  departments,  and  the  necessities  of  such  inter-relation 
and  dependence  before  you  take  a  step.  The  lUiilding  De])artnient  is  related  t<> 
the  Li.sted  Property  Department  inasmuch  as  it  may  be  a  last  resort.  Many 
people  are  desirous  of  purchasing  a  house,  and  will  pay  for  it  on  time  or  cash, 
but  after  looking  at  dozens  of  places,  all  more  or  less  desirable,  they  become 
discouraged.  Nothing  just  suits.  They  turn  away.  None  of  the  i)laces 
shown  them  have  exactly  met  with  their  ideas  of  a  home.  Unless  something 
is  found  at  once  they  are  lost,  for  ])robably  another  firm  will  be  able  to 
satisfy  them.  Then  is  the  time  to  present  a  few  styles  of  newly  built  houses, 
or  a  book  of  architecture.  Get  their  ideas,  and  then  show  them  the  plans 
of  just  such  a  place.     Quote  them  a  ])rice,  and  sell  them  a  lot  to  build  on. 

The  subdivision  department  becomes  many  times  more  active  when  the 
firm  can  say  to  the  prospective  customer:  "  Here,  my  friend,  on  such  and 
such  a  lot  we  can  build  you  a  house  for  so  much.  You  can  ])ay  10  per  cent, 
down,  and  when  *?()  or  2.5  per  cent,  of  the  full  value  of  the  house  and  lot  is 
paid  in  we  will  build  you  a  house  according  to  plans  of  your  own  selection,  you 
can  move  into  it  when  finished,  and  pay  us  the  balance  the  same  as  rent." 

That  argument  is  effective.  It  is  convincing.  They  can  get  everything 
right  there,  get  the  house  of  their  choice  at  their  own  price  and  on  terms  to  suit. 

One  of  the  essentials  in  running  a  successful  Architectural  and  Building 
Department  is  the  ready  use  of  large  funds.  If  the  capital  is  limited  to  small 
amounts  it  is  worse  than  useless  to  try  to  add  this  department.  One  false 
step  will  plunge  the  concern  into  bankruptcy,  since  it  means  the  tying  up  of 
thousands  of  dollars  in  building  operations.  It  is  also  to  be  noted  that  few 
houses  are  built  for  ready  customers,  or  are  sold  for  cash.  Often  it  is  necessarv 
to  wait  six  months  for  a  buyer,  and  then  it  is  bought  on  a  payment  of  from 
$100  to  $300  down,  with  the  balance  the  same  as  rent,  taking  ten  years  to 
pay  for  it.  This  method  is  to  be  preferred  if  the  firm  has  the  backing,  for  if 
payments  default  it  is  all  gain,  and  if  not,  an  income  of  six  per  cent,  is  assured. 
Banks,  according  to  state  law,  are  allowed  to  advance  only  one-half  of  the 
taxed  value  of  a  property  if  a  loan  thereon  is  to  be  desired.  But  this  is  to  be 
noted.  Banks  often  will  take  one  of  their  lots,  put  up  a  cottage  for  sale, 
and  will  accept  $100  or  less  down,  in  order  to  keep  their  funds  in  circulation, 
or  in  order  to  get  rid  of  an  otherwise  slow  moving  piece  of  realty.    Therefore 


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if  the  firm  contemplating  the  establishment  of  this  department  has  not  a 
sufficient  financial  backing,  it  should  endeavor  to  enter  into  contract  with  such 
a  bank,  or  a  loan  association. 

They  can  then  build  on  these  lots  held  by  the  bank,  get  the  material  and 
labor  necessary  upon  the  order  of  the  cashier,  and  after  completing  the  cottages 
add  such  an  amount  to  the  cost  thereof  as  will  handsomely  reimburse  them 
for  the  time  spent.  The  profits  may  then  be  divided  between  the  two  institu- 
tions, and  after  the  house  is  sold  on  contract,  at  six  per  cent,  per  annum,  the 
contract  is  turned  over  to  the  bank,  the  firm  merely  receiving  its  share  of  tht 
first  or  subsequent  payments. 

One  of  the  most  desirable  methods  of  securing  funds,  of  course,  is 
that  pursued  by  several  institutions  in  the  city,  viz.,  to  incorporate  for  several 
hundred  thousand  dollars  and  use  the  money  secured  by  sale  of  stock,  in  its 
building  operations.  Every  dollar  thus  received  necessarily  enriches  the  com- 
pany, making  it  doubly  valuable  as  a  money  getter.  Furthermore,  the  money 
used  in  this  manner  brings  better  returns  than  in  other  ways,  as  it  earns  several 
different  commissions  in  the  one  operation.  To  the  uninitiated  it  might  be 
mentioned  right  here  that  the  commissions  referred  to  are  the  architect's 
two  per  cent.,  the  contractor's  three  per  cent.,  the  lender's  two  per  cent.,  the 
subdivision  man's  20  per  cent,  of  cost  of  lot,  and  the  salesman's  three  per 
cent,  of  sale  price,  beside  the  necessary  "  profit  "  added  to  the  building  after 
completion  which  last  is  measured  by  the  probable  rapidity  of  sale,  location, 
and  good  looks  of  the  place.  It  averages  from  10  to  20  per  cent,  of  the  net 
cost  of  the  place — and  sometimes  more.  This  profit  also  depends  to  some 
extent  upon  the  terms  which  are  made  to  the  purchaser,  and  his  likelihood 
of  carrying  out  the  contract,  as  better  terms  are  made  to  the  party  with  the  cash. 

The  Architectural  and  Building  Department  may  build  upon  lots  owned 
by  the  firm,  with  money  belonging  to  the  firm.  In  this  case  the  firm  makes 
all  the  various  commissions  and  profits. 

Again,  the  department  may  build  upon  one  of  its  own  lots,  and  obtain 
sufficient  funds  from  the  bank  to  carry  on  the  operations.  The  bank  rarely 
advances  more  than  50  per  cent,  of  the  taxed  valuation  of  the  improved 
property.  Sometimes  the  department  may  build  upon  the  lots  belonging  to 
the  bank  or  other  large  corporation,  advancing  its  own  funds  to  build,  but 
not  paying  for  the  lot  until  the  place  is  sold. 

Also  the  department  is  often  called  upon  to  build  upon  other  people's 
property,  such  person  or  corporation  furnishing  all  funds,  the  firm  merely 
taking  charge  of  the  work,  and  when  the  place  is  sold  the  profits  are  divided. 

Other  combinations  may  be  entered  into,  more  or  less  advantageous  to 
the  firm,  but  it  is  to  be  impressed  that  the  more  building  it  can  do  in  any  one 
season  the  greater  the  profits  on  each  building,  as  the  supplies  and  contract 
work,  being  uniform,  are  much  lower  when  bought  in  quantities. 

The  selection  of  a  good  architect  and  contractor  is  an  important  feature, 
as  the  work  and  reputation  of  the  firm  is  quickly  marred  by  an  indifferent 
person  in  this  position.  He  must  be  a  man  who  can  grasp  large  possibilities. 
He  must  think  in  big  numbers,  for  if  the  firm  is  doing  an  extensive  business 

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at  all,  the  head  of  this  department  is  superintending  the  construction  of 
dozens  of  places  at  the  same  time.  His  assistant,  draughtsman,  local  foreman, 
and  laborers  are  engaged  in  the  same  manner  as  those  in  the  architect's  office 
elsewhere,  or  those  at  work  on  the  houses,  the  only  thing  to  notice  being  that 
the  manager  of  the  department  has  charge  of  the  draughting  and  artistic 
work,  as  well  as  the  constructive  or  mechanical  work.  He  must  be  a  builder 
as  well  as  an  architect. 

The  buying  for  the  department  is  an  important  item.  !Much  of  the  profit 
depends  upon  this,  and  a  knowledge  of  the  prices  and  lowest  market  quotations 
in  hardware,  lumber,  paints,  etc.,  is  essential.  Lumber  being  such  an  enor- 
mous item  in  a  year's  transaction  is  often  obtained  from  their  own  yards, 
which  are  established  as  a  branch  of  the  firm  in  some  large  cities.  The  same 
may  be  said  of  other  building  materials,  some  realty  firms  handling  these  at 
wholesale,  sell  to  other  contractors,  thereby  saving  the  jobber's  commissions 
for  themselves.  Every  commission  saved  in  this  manner  adds  just  so  much 
to  the  revenue  of  the  concern,  and  in  a  season's  operations  of  from  20  to 
40  houses,  this  will  amount  to  several  thousands  of  dollars  clear  profit,  an  item 
not  to  be  overlooked. 

Of  course  the  neighborhood  will  to  a  certain  extent  govern  the  kind 
of  a  house  to  be  built.  Usually  it  can  be  accepted  that  the  lower  priced  places 
will  sell  the  more  rapidly.  Places  to  sell  from  $1,600  to  $3,000  rarely  wait  long 
for  purchasers.  It  is  very  important  indeed,  however,  to  select  desirable  loca- 
tions. One  firm  recently  built  $4,000  houses  in  a  $2,000  neighborhood  and  won- 
dered why  the  places  did  not  sell.  The  houses  are  still  for  sale.  Another  firm 
built  $3,200  places  in  a  $7,000  neighborhood  and  sold  everyone  of  them  within 
a  week  at  prices  ranging  from  .<fi4,500  to  $5,500.  A  mistake  of  judgment  in  this 
matter  is  pretty  expensive  business. 

vSometimes  the  firm  finds  it  necessary  to  sublet  the  contracts  on  the 
various  houses  to  be  built.  In  this  case  bids  are  taken  on  the  specifications 
from  various  contractors  much  in  the  same  manner  as  for  any  single  building 
and  the  lowest  bidder  receives  the  contract.  This  method  is  much  more  eco- 
nomical at  times  as  the  superintendent  of  construction  then  can  give  his  entire 
attention  to  detail  work.  Some  firms  handle  their  building  operations  entirely 
on  this  basis,  never  giving  any  thought  to  having  a  force  of  their  own  at  the 
work. 

When  a  contract  is  assigned,  be  it  to  one  of  the  firm's  regular  employes 
or  to  an  outside  contractor,  a  contract  is  drawn  up  and  signed  agreeing  to  build 
according  to  specifications  and  directions,  such  labor  and  material  not  to 
exceed  a  certain  price.  These  contracts  are  type-forms  such  as  are  used  in 
all  building  transactions  and  may  be  obtained  wherever  office  stationery  is  for 
sale,  therefore  we  will  omit  same  here.  In  fact  all  of  the  clerical  forms  used 
are  those  common  to  all  contractors  and  are  obtainable  from  any  of  the  large 
office  supply  houses,  no  special  blanks  having  been  thought  necessary. 

When  a  contractor  has  reached  a  certain  stage  in  completing  the  building 
he  may  draw  on  the  firm  for  money  to  pay  his  men  or  to  buy  material    A 


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statement  is  brought  to  the  superintendent  who  takes  it  to  the  manager  of 
the  department.  He  O.  K.'s  same.  It  is  then  presented  to  the  cashier  of  the 
firm,  who  charges  this  amount  against  the  account  of  that  particular  place,  be  it 
property  of  the  firm  or  an  outside  holding,  and  a  voucher  or  check  is  given. 

As  shown  before,  when  the  house  is  completed  according  to  contract  it  is 
inspected  by  the  general  manager  and  after  figuring  up  the  total  cost,  a 
profit  is  added  thereto  which  amounts  to  from  10  to  20  per  cent,  of  cost,  and 
terms  of  sale  are  agreed  upon.  Then  the  Building  Department  is  given  a 
release,  the  house  is  placed  in  the  hands  of  the  Sales  Department  and  adver- 
tised. 


•.  M  MiiNaiSy.  mmMm. 


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OwNtns  or  Amo  oiAitm  m  deal  estat£  ano 

ntAx.  ESTATC  stcumrtti 
•uiil>cit»  or  nootnN  nonE5  Mio  factomxs 

LOANS  AND  mMMAHCr 
••Am*.  <««>w<  »*«•«>«  ««•  ir  AtAtt  •wMv 


DtTAMT.  Mich. 


Capital  Stack.  t*oo,OOQ 


Qat^^  J  UtPr,  —  (^<^ /ooosx 


d. 


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(Form  10.) 

When  a  person  who  buys  a  lot,  or  is  the  owner  of  one.  desires  to  have  » 
house  built  thereon,  much  of  the  profit  is  saved,  ;.  he  merely  pays  the  two 
per  cent,  architect's  fee  for  drawing  up  plans,  and  then  the  contractor's  fee  of 

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three  i)er  cent,  for  superintending  the  construction.  The  final  profits  are 
saved  since  he  is  a  ready  purchaser  of  his  own  building. 

The  profits  and  commissions  in  the  Architectural  and  Building  Depart- 
ment may  be  summari/Ted  briefly  as  follows : 

Architect's  fee  for  drawing  plans,  2  per  cent. 

Contractor's  fee  for  superintending,  3  per  cent. 

Fee  for  obtaining  loan  (if  loaned  money),  'I  per  cent. 

Saving  eflfected  in  buying  in  cjuantity,  10  per  cent. 

Profit  added  after  building  completed,  10  to  20  per  cent. 

To  this  is  added  the  fee  for  negotiating  a  sale  of  the  contract  if  such 
sale  is  desired  by  the  person  building,  and  from  this  is  deducted  the  five  per 
cent,  commission  given  to  the  salesman  making  the  sale. 

The  running  expenses  of  the  department,  advertising  and  salaries  are  also 
to  be  deducted  in  figuring  the  net  profits  of  the  transaction.  However,  in 
general  it  may  be  considered  from  10  to  25  per  cent,  of  the  sale  price  of  the 
building,  depending  on  the  boldness  of  the  firm. 

Another  element  enters  into  the  calculation  of  the  large  real  estate  concem. 
This  is  the  element  of  lapse.  Like  life  insurance  companies,  the  realty  con- 
cerns have  figured  this  item  down  to  a  definite  per  cent.  Each  lapse  formerly 
meant  the  gain  to  the  firm  of  all  money  previously  paid,  but  now  the  courts 
have  held  that  a  payment  on  a  property  secures  an  equity  in  such  property, 
which  equity  must  be  formally  foreclo.sed  according  to  the  mortgage  clauses  in 
the  statutes.  This  gives  the  purchaser  a  decidedly  unfair  advantage,  making  the 
possible  losses  much  greater  to  the  firm,  and  therefore  necessitating  a  reason- 
able first  payment. 

When  the  house  is  sold  to  a  person  a  land  contract  is  drawn  up  and 
signed  by  both  parties.  The  contract  binds  the  owner  to  deliver  a  good  and 
perfect  title  and  deed  to  purchaser  upon  payment  in  full,  and  the  purchaser 
binds  himself  to  make  regular  payments  as  per  contract,  on  pain  of  forfei- 
ture of  all  amounts  paid.  All  such  contracts  are  similar  in  print,  being 
obtained  in  quantities  at  the  stationer,  by  all  firms  alike.  Each  payment  is 
entered  upon  the  back  of  the  contract. 

It  is  to  be  mentioned  that  the  especial  value  of  the  contract  lies  in  the 
fact  that  it  has  the  force  of  a  mortgage,  but  not  being  in  the  fomi  of  a  mortgage 
is  therefore  non-taxable.  This  evasion  of  the  law  was  one  of  the  coups  of  the 
real  estate  world  some  years  ago.  A\'hen  the  sale  is  made  it  is  entered  u|>on 
the  books  and  files  in  the  .same  manner  as  illustrated  in  Part  1  of  these  articles, 
the  only  difference  being  that  it  is  an  open  account  and  therefore  payments 
credited  each  month. 

The  repairs  and  alterations  required  by  the  Rental  Department  are  per- 
formed under  the  direction  of  the  Building  Department  but  no  special  fomis 
are  used  in  the  matter. — F.  11.  Zicgcii. 

(849B)     office  building — management  of. 
Every  tenant  of  an  office  building  in  the  bygone  days  recalls  without 
much  strain  on  his  memory  how  he  used,  when  things  did  not  go  right  in 


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his  part  of  the  building,  to  wend  his  way  to  the  cellar,  where  he  could  find 
the  representative  of  the  landlord  in  the  person  of  the  janitor,  and  then  and 
there  enter  his  complaint  and  return  to  the  upper  floors  somewhat  reheved  in 
mind  because  he  had  "  had  his  say,"  and  felt  sure  that  the  man  who  received 
his  rent  would  get  it  straight  from  the  "  hired  man." 

Some  of  those  same  tenants  are  still  renting  offices,  and  in  the  course  of 
natural  progression  they  have  found  quarters  in  some  one  of  the  modern 
skyscrapers  which  have  relegated  the  old-time  office  buildings  to  the  tenement 
house  division,  and  they,  at  least,  will  welcome  the  difference. 

It  is  no  longer  necessary  for  the  tenant  to  sweep  out  his  own  office,  or 
wipe  off  the  windows  when  he  wants  to  look  out  into  the  street  upon  which 
his  office  fronts. 

Times  have  changed.  Office  buildings  worthy  of  the  name  have  been 
erected  and  are  being  managed  like  any  other  great  business.  In  fact,  some 
of  these  modem  structures  are  so  massive  as  to  house,  during  the  business 
hours,  almost  as  many  souls  as  some  cities— and  more  than  some  towns. 

The  writer  has  in  mind,  particularly,  the  magnificent  monument  of  enter- 
prise belonging  to  the  Ellicott  Square  Company  of  Buffalo,  N.  Y.,  in  which 
a  man— provided  sleeping  accommodations  were  added— could  spend  his  entire 
lifetime  so  far  as  obtaining  the  necessities  are  concerned,  even  to  the  requi- 
site amount  of  exercise  in  the  spacious  rotunda  and  halls.  Yes,  and  he  may 
sit  in  his  office  and  have  his  luncheon  served  from  the  well-appointed  cafe 
on  the  ground  floor,  and  may  also,  if  he  so  wills,  obtain  any  article  of  gentle- 
men's wear,  or  his  cigars  and  newspapers  and  periodicals  from  any  quarter 
of  the  globe,  from  some  one  of  the  various  stores  with  entrances  and  tempt- 
ing show  windows  opening  into  the  same  rotunda. 

As  near  as  it  is  possible  for  such  a  place  to  be,  the  Ellicott  Square  building 
is  a  municipality  in  itself,  and  its  management  is  not  unlike  that  of  any  well 
governed  town.  In  order  to  do  this  there  is  a  suite  of  offices  at  the  disposal  of 
the  management  on  the  sixth  floor  of  the  building  where  a  large  force  of  clerks 
is  engaged  in  carrying  out  the  system  which  some  wise  one  has  installed  for 
conducting  the  business  of  the  company  with  its  tenants. 

On  a  recent  visit  to  Buffalo  the  writer  had  occasion  to  visit  one  of  the 
tenants  and  the  methods  for  the  management  of  the  building  were  so  mani- 
festly prominent  that  he  decided  to  make  an  investigation.  More  than  half 
way  the  officials  met  him,  and  he  was  taken  in  hand  by  the  assistant  who 
aflforded  every  facility  for  studying  the  methods,  and  for  iUustrating  them  in 
this  article  as  well. 

In  the  first  place  every  soul  on  the  pay  roll  of  this  city  \vithin  four  walls 
has  his  or  her  work  cut  out  for  them,  and  Hke  the  crew  of  an  ocean  steamer 
every  soul  has  a  given  place  to  be  at  a  given  time— and  he  or  she  can  always 
be  found  there.  If  Superintendent  Hill  has  occasion  to  interview  Jones,  one  of 
the  coal  passers  in  the  engine  room,  he  knows  at  a  glance  whether  Jones  is  at 
work^  that  minute  or  enjoying  his  "swing  time,"  and  as  it  is  with  Jones, 
so  it  is  with  every  one  of  the  army  under  him.    So  it  don't  much  matter  who 

1130 


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Re. 


ELLICOTT  SQUARE 


Clear)! i)(  Wor^o>)»  Report"  jor  24  Howi  Ci)iii)«  7AM. 


-190- 


RE MARKS. 


-R>r»Us 


Form  1. 


1 

h\)ers  R. 

port  ier 

1 4  Hours 

ELLICOTT  SQi>ARE 

'             -1                            •      /* 

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1181 


Re. 


American  F.usixkss  and  Accounting  Encyclopedia 


84(b 


ELLICOTTSQiiARE 

»9o 

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1132 


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Rk. 


• 

ELLICOTT  6Qi>ARE  COMPANV  OF  (SDFFALO 

boiLER    ROOM   REPORT 
For  2-^  Hour*.  Er)Ji«)^a A.M.^ '^O 

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Form  5. 


installed  the  sy.stem  so  long  as  it  is  a  good  one,  and  is  carried  out  to  the 
letter  every  minute  of  the  24  hours. 

Of  course  such  transactions  as  the  leasing  of  offices  and  the  collection  of 
rents  are  so  commonplace  that  nothing  of  interest  can  be  said  concerning 
the  methods  which  do  not  differ  from  those  of  other  buildings  of  the  same  kind. 

The  chief  interest  in  the  system  of  such  a  building  is  in  the  methods  used 
to  know  that  the  work  required  of  so  many  employes  is  actually  done,  and 
done  at  the  proper  time :  and.  again,  it  is  always  well  to  be  able  to  tell  just 
how  much  cheaper  in  the  way  of  material  and  supplies  one  employe  is 
doing  a  certain  work  than  some  other  employe  is  doing  that  same  work  in  the 
same  i>eriod  of  time,  and  under  the   same  general  conditions. 


1133 


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American  Business  and  Accounting  Encyclopedia 


849B 


ELLiCOTT  SQDARE  COMPANY  OF  BDFFALO 

ENGINE    OYNAnO  AND  MOTOR  REPORT 
F«rl4ll»M  Elite*  tA^Mi                                              i^a 

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1134 


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American  Business  and  Accounting  Encyclopedia 


Rk. 


ELLICOTT  5Q2?ARE  COMPANY  OF  ByFPALO 

P^MP   ROOM     REPORT 
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All  this  is  what  the  system  to  be  described  and  ilkistrated  brings  daily 
to  the  desk  of  the  superintendent  and  is  in  turn  by  tlie  superintendent 
reported  to  the  higher  officials  and  by  their  immediate  assistants  the  cost 
of  maintaining  the  building  is  easily  obtained. 


1135 


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Supplies  needed  in  the  different  departments  are  of  course  issued  on 
requisition  from  the  head  of  that  department  and  approved  by  the  super- 
intendent's office. 

Not  the  least  important  of  the  daily  reports  to  reach  the  superintendent 
each  morning  is  that  of  the  woman  in  charge  of  the  cleaning  women  for  the 
preceding  24:  hours,  as  each  cleaner  is  required  to  make  out  a  report  (Form 


Re. 


American  Business  and  Accounting  Encyclopedia 


849B 


li 


Report"  ot    Su 

ELLiCOTT    5Q2;aRE. 

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NIGHT    STAFF 

A»st.    5^pPrint;n<)eoT'                                                    \ 

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1136 


1),  which  is  signed  by  the  forewoman  who  inspects  the  work  of  the  crew  of 
which  she  is  in  charge,  and  the  superintendent's  familiarity  with  the  property 
tells  him  at  once  where  and  when  that  kind  of  work  is  being  done  or  has 
just  been  completed. 

There  are  sixteen  elevators,  eight  being  at  one  entrance  of  the  building 
and  eight  at  the  other,  four  being  on  each  side  of  the  hall.  Each  group  of 
eight  is  in  charge  of  an  usher  whose  duty  it  is  to  manage  their  running,  and 
who  also  gives  the  number  of  hours  each  car  is  in  commission  during  hi> 
tour  of  duty.  This  report  of  the  usher  (Form  2),  also  tells  when  the  lights 
on  the  main  and  second  floors  of  the  building  are  turned  on  and  off,  and  under 
the  head  of  "  remarks  "  he  must  also  include  a  written  report  on  the  condi- 
tion of  the  cars  and  such  other  data  as  will  aid  the  superintendent  in  keeping 
in  close  touch  with  the  affairs  of  that  department. 

The  Ellicott  Square  is  policed  in  a  most  thorough  manner,  and  such  a  plan 
is  necessary  where  a  large  office  building  is  "open  during  the  entire  twenty- 
four  hours  for  the  convenience  of  tenants,  and  their  interests  must  be  guarded 
as  well  as  the  safety  of  the  property  looked  after. 

The  watchmen  have  regular  hours  of  patrol  and  in  their  reports  CFomi  3), 
they  are  compelled  to  make  note  of  all  doors  found  open  and  in  all  cases 
where  careless  tenants  or  cleaners  have  left  the  lights  going  this  fact  must  be 
included  in  the  report.  Of  course  the  doors  are  all  examined  b}-  each  watch- 
man as  he  goes  on  duty  and  although  those  found  open  are  secured  the  fact 
must  be  reported  in  order  to  aid  in  any  investigation  which  might  be  found 
necessary  growing  out  of  any  report  of  loss.  The  watchman  must  also  report 
on  the  condition  of  all  lights  which  do  not  come  under  the  supervision  of 
the  ushers. 

There  are  three  shifts  in  most  of  the  departments  and  crews  are  on  duty 
the  entire  time  during  the  twenty-four  hours.  In  the  refrigerating  room 
each  of  the  shifts  is  in  charge  of  an  assistant  engineer  whose  report  (Form 
4),  shows  the  run  of  each  of  the  three  machines  together  with  the  amount 
of  ice   (in  pounds)   drawn,  and  the  material  used  during  his  tour  of  dutv. 

Perhaps  the  most  important  of  the  forms  used  in  the  system  is  the  one 
for  the  boiler  room  report  (Form  5),  as  it  deals  with  one  of  the  heaviest 
expenditures  in  connection  with  the  maintenance  of  the  building.  As  in  the 
refrigerating  room  there  are  three  shifts  here  and  these  reports  must  tell 
accurately  what  kind  of  coal  and  how  much  is  used  in  a  given  tour  of  dutv; 
the  same  with  the  supply  of  boiler  compound,  the  water  consumed  on  the 
house  and  the  water  register  of  the  current  as  well  as  the  preceding  day.  Also 
in  the  report  must  be  shown  the  number  of  cans  of  ashes  taken  from  the 
room  during  the  time  as  these  figures  tend  to  show  just  what  results  each 
crew  is  getting  from  the  supplies  and  materials  used. 

The  engine,  dynamo  and  motor  report  (Form  fi),  gives  concise  informa- 
tion showing  the  running  time  of  each  motor  and  dynamo,  the  steam  pressure, 
volts,  and  amperes  and  all  being  recorded  half  hourly  by  the  assistant  engi- 
neer in  charge.     Although  the  character  of  the  report  differs,  the  one  used 


1137 


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American  Business  and  Accounting  Encyclopedia 


Pk. 


ELLICOTT  SQUARE 

R«fw1"8|-  Clyef  Ei^yyer  far  M  \jnn  €!)*»){  8  AM . 


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REMARKS 


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Tom 


OaHons 


ELECTRIC    LIGHT  PLANT 


849B-852      American  Business  and  Accounting  Encyclopedia 


Rx. 


by  the  employes  of  the  ptimproom  (Form  7),  is  of  equal  importance  in 
the  system  and  the  records  are  taken  every  half  hour. 

Many  other  blanks,  such  as  those  used  by  the  crews  of  carpenters  and 
painters  are  not  shown  in  the  article  but  they  form  their  part  of  the  system 
and  aid  in  the  make-up  of  the  superintendent's  report. 

Duplicates  of  such  reports  as  are  necessary  for  his  information  go  to  the 
chief  engineer  of  the  building  who  in  turn  files  his  daily  report  (Form  8), 
which  covers  in  a  tabloid  form  the  j-eports  of  the  others.  This  report  gives 
the  information  of  the  others  generalized  and  answers  every  purpose  unless 
the  officers  want  facts  concerning  the  work  and  expense  of  any  one  of  the 
several  crews. 

The  report  to  the  president  is  made  out  by  the  superintendent  (Form  9), 
and  is  intended  to  supply  the  former  official  with  such  information  as  he 
would  naturally  want  at  his  desk  for  reference  should  occasion  require. 

The  reports  with  the  exception  of  that  of  the  superintendent  all  invite 
suggestions  from  employes  concerning  the  general  welfare  of  the  company's 
interests  in  so  far  as  those  employes  may  be  in  a  position  to  do  so.  These 
suggestions  are  always  given  the  most  careful  consideration  by  the  officials 
of  the  company  and  everything  considered  worthy  of  serious  thought  is  given 
a  thorough  trial.  In  that  way  the  interest  of  employes  is  always  "  keyed 
up  "  and  everyone  is  continually  on  the  alert  for  something  that  will  work 
out  to  the  advantage  of  the  company  and  of  course  result  in  mutual  benefit 
of  both. — B.  Henshaw. 

(850)     REBATE. 

An  allowance  or  discount  from  the  amount  of  purchase  at  nominal  or  par 
value. 

(851)     RECAPITULATION. 

A  summary  made  for  the  purpose  of  obtaining  totals  and  statistics. 

(852)     recapitulating  postings. 

For  the  purpose  of  checking  the  accuracy  of  postings  the  following  method 
has  been  found  very  efficient: 

Sort  the  charge  bills,  in  alphabetical  order,  or  as  the  Accounts  Receivable 
ledgers  are  arranged. 

As  the  charge  bills  are  posted  withdraw  loose  leaves,  or  cards,  from  the 
ledger  and  lay  them  down  in  regular  order  as  posted.  After  completing  posting 
to  any  particular  ledger,  or  section  of  ledger,  recapitulate  on  an  adding 
machine — 1st,  total  amount  of  invoices  posted ;  2nd,  total  postings. 

A  comparison  will  immediately  show  if  any  error  has  been  made. 

If  a  bound  ledger  is  used  insert  slips  of  paper  where  amounts  are  posted, 
and  recapitulate  from  the  guidance  of  these  slips.  This  is  not  so  satisfactory, 
however,  as  the  bookkeeper  is  liable  to  forget  to  insert  the  slip  between  the 
pages. 


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(853)     RECEIPT. 

An  acknowledgnient  for  value  received. 
A  discharge  for  money  paid. 

The  endorsement  of  a  check  is  considered  by  many  business  houses  as  an 
ample  receipt  for  the  payment  of  an  account. 

VV)r  combined  receipt  and  voucher,  see  \^oucher  System. 

(854)     RECEIPTS  AND  PAYMENTS  ACCOUNT. 

See  paragraph  8*?. 


(855)     RECEIVERS*  ACCOUNTS. 

The  forms  and  methods  of  accounting  required  of  a  receiver,  appointed 
imder  State  law,  are  prescribed  by  the  State  in  which  the  receiver  is  appointed, 
but  the  general  rule  is  that  the  receiver  must  keep  an  account  of  receipts  and 
payments  during  his  term  of  office,  charging  himself  with  all  receipts,  and 
giving  details  thereof  and  crediting  himself  with  all  expenditures,  giving  details 
and  vouchers.  A  record  must  also  be  furnished  of  all  claims  presented  to 
the  receiver  for  allowance,  showing  particulars  of  claims  allowed  and  dis- 
allowed. From  this  account  of  receipts  and  expenditures  a  summary  is  made 
showing  amount  of  balance  in  receiver's  hands  at  date  of  last  account, 
amount  of  receipts  to  present  date,  amount  of  payments  and  allowances  from 
last  accoimt  to  present  date,  amount  of  receiver's  remuneration  or  costs,  balance 
now  in  receiver's  hands. 


(S5n)     RECONCILIATION  OF  BANK  ACCOUNT. 

See  paragraph  3(>8. 

(857)     RECORD  BOOK  OR  BLANK. 

An  account  book  used  chiefly  for  the  compilation  of  statistical  information, 

(858)     REDEMPTION  FUND. 

An  amount  invested  at  regular  intervals  from  profits  which  will  be  suffi- 
cient to  discharge  an  obligation  at  maturity. 
See  Reserve  and  Sinking  Funds. 

(859)     REDUCTION  OF  CAPITAL. 

An  expedient  sometimes  resorted  to  by  corporations  for  the  purpose  o^ 
Hriping  out  a  large  deficit  arising  from  losses  sustained  in  the  course  of  business 

1140 


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(860)  REMITTANCE  SHEET. 

A  blank  filled  out  to  accompany  check  remitted  in  payment  of  accounts. 
These  blanks  are  frequently  made  a  part  of  the  check,  stating  the  particular  bills 
paid  and  the  deductions  made,  this,  together  with  the  check,  constituting  a 
satisfactory  voucher  on  the  return  of  the  paid  check  from  the  bank.  (See 
Voucher  Check.) 

(861)  RENT  ACCRUED  DUE. 

When  the  fiscal  year  closes,  say,  on  December  1st,  and  rent  is  payable 
quarterly,  the  next  payment  falling  due  January  1  st,  there  will  be  a  liability  for 
two  months*  rent  to  p'-ovide  for  in  the  schedule  of  assets  and  liabilities.  This 
can  be  done  by  opening  a  temporary  account,  or  by  including  the  item  in  the 
balance  sheet  without  carrying  it  through  the  books  of  account,  or  by  treating 
it  as  an  inventory.  In  the  latter  case,  which  is  probably  the  most  satisfactory 
method,  rent  account  would  show  as  follows: 

Debits.     1908.  Credits. 

April    1 $  300.00  Nov.  30.     P.  &  L. $1,100.00 

July     1 300.00 

Oct.     1 300.00 

Nov.   30.     Rent   accrued 

due  for  two  months..  200.00 

.$1,100.00  .$1,100.00 

Balance  brought  down  $   200.00 

This  $'^00,  therefore,  shows  as  a  liability  on  rent  account.  On  January 
1st  $300  would  be  paid  for  rent  and  charged  to  rent  account,  which  will  then 
show  a  balance  on  the  debit  side  of  $100,  the  proportion  of  rent  payable  for 
that  portion  of  the  new  fiscal  year  just  completed. 

(862)     REPAIRS,  RENEWALS  AND  REPLACEMENTS 

(NOT  IMPROVEMENTS). 

Expenditures  of  this  nature  should  be  charged  to  revenue  or  deducted 
from  the  face  value  of  the  assets.  The  amount  paid  for  repairs  merely  serves 
to  maintain  the  value  of  the  original  investment,  and  does  not  increase  it. 

In  some  businesses  it  is  the  practice  to  establish  a  repairs  and  renewals 
fund  by  setting  aside  a  certain  pro]:)ortion  of  the  profit  annually  with  which 
to  provide  for  the  cost  of  repairs  and  renewals  necessary,  or  for  anticipated 
expenditures  in  this  direction. 

(863)     RESERVE. 

RESERVE  ACCOUNT. 

A  credit  balance  representing  either  a  reser\'ation  of  profits  to  cover 

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the  depreciation  of  wasting  assets  included  in  the  Balance  Sheet  at  cost  value, 
or  an  appropriation  from  Surplus  account  to  provide  against  some  anticipated 
loss,  such  as  bad  debts. 

Some  authorities  have  defined  the  term  "  Reserve  "  as  the  excess  of  assets 
over  paid  up  capital  and  liabilities.  This  excess,  however,  is  now  usually 
entitled  "  Surplus." 

The  orovision  against  depreciation  in  the  shape  of  a  Reserve  account 
instead  of  being  deducted  from  the  amount  of  the  asset  involved,  is  recom- 
mended because  it  frequently  happens  that  depreciation  is  over  estimated  or 
excessive.  If  this  is  found  to  be  the  case  after  the  establishment  of  the  reserve 
for  many  years,  this  method  makes  it  a  simple  matter  to  retransfer  the  excess 
from  Reserve  to  Surplus  account,  when  it  becomes  available  for  distribution  by 
way  of  dividend. 

The  actual  existence  of  a  reserve  necessarily  depends  upon  the  mainten- 
ance of  a  surplus  of  assets  over  liabihties. 

The  nature  of  reserves  may  be  described  as  follows: 

A  Reserve  against  depreciation  of  specified  assets  or  against  contingencies. 

A  Reserve  for  the  purpose  of  providing  for  repairs,  renewals  and  replace- 
ments. 

A  Reser\'e  established  to  provide  working  capital,  the  authorized  capital 
being  considered  insufficient. 

A  Reserve  established  to  equalize  dividends. 

(S64)     reserve  fund. 

(865)     redemption  fund. 

(866)     sinking  fund. 

The  variation  of  accounting  nomenclature  in  connection  with  Reserve 
account  and  Reserve  and  Sinking  funds  is  confusing  and  makes  the  subject 
somewhat  difficult  for  students  to  readily  understand.  A  clear  definition, 
however,  is  that  a  "  fund  "  refers  necessarily  to  an  investment  outside  of  the 
business,  while  an  "  account "  is  merely  a  transfer  of  profits  from  Surplus,  or 
Profit  and  Loss  account,  to  an  account  established  to  meet  anticipated  depre- 
ciation or  liabilities. 

The  three  denominations,  viz.— Reserve  Fund,  Redemption  Fund  and  Sink- 
ing Fund  are,  therefore,  synonymous.  These  funds  are  usually  established  for 
the  redemption  of  bonds,  debentures,  funded  debts,  etc. 

(867)     redemption  of  bonds. 

\\'hile  the  redemption  of  bonds,  etc.,  is  eflfected  by  means  of  an  accumula- 
tive reserve  taken  annually  from  the  surplus  or  net  profit  of  each  year,  it 
must  be  remembered  that  the  amount  realized  from  the  sale  of  the  bonds  is 


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actually  in  the  business  and  being  used  as  working  capital.  When,  therefore, 
the  bonds  have  been  redeemed  and  the  Reserve  Fund  is  extinguished,  the 
Reserve  account  on  the  books  still  remains  open  and  is  usually  closed,  as  above 
indicated,  by  a  retransfer  to  Surplus  account. 

(868)     secret  reserves. 

This  is  a  hidden  surplus  established  by  an  excessive  provision  against 
depreciation,  or  a  manipulation  of  inventories,  so  that  they  do  not  represent 
the  full  value  of  the  assets  inventoried ;  or  ignoring  the  increase  in  value  of 
such  assets  as  real  estate,  buildings  and  financial  investments.  This  practice 
is  severely  censured  by  reputable  accountants  as  being  dishonest,  and  a  rank 
injustice  to  ordinary  stockholders  which  should  be  prohibited  by  law. 

In  some  cases  bank  officials  have  written  down  the  value  of  the  bank 
premises,  and  other  banks  have  established  secret  reserves  in  the  form  of 
insurance  funds  against  loss  of  bad  loans  or  embezzlement. 

The  establishment  of  a  secret  reserve  should  be  condemned  because  it 
involves  an  inaccurate  Revenue  account  and  an  inaccurate  Balance  Sheet. 

(869)     surplus. 

The  excess  of  assets  over  liabilities. 

The  credit  balance  of  a  Profit  and  Loss  account. 

That  which  remains  when  use  or  need  is  satisfied,  or  when  a  limit  is 
reached:  excess:  overplus.  (Webster.)  This  definition  clearly  indicates  the 
relationship  of  the  term  "  Surplus  "  to  that  of  the  term  "  Reserve." 


(870) 
The  assets  of  a  business. 


RESOURCES. 


(871)     RETAIL  BUSINESS  ACCOUNTING. 

The  retail  store  keeper  usually  has  a  number  of  petty  accounts,  and 
welcomes  any  system  which  will  relieve  him  from  the  necessity  of  keeping 
ledger  accounts  in  the  ordinary  style  with  his  customers.  A  great  many 
systems  have  accordingly  been  devised  for  his  benefit. 

(872)     envelope  statement  system. 

Have  large  sized  envelopes  made  with  statement  form  printed  ^n  fronts 
debit  and  credit  columns.  Enclose  duplicate  bills  in  envelopes  and  post  totals  on 
statement.  LTse  cash  book  with  separate  columns  for  cash  sales  and  receipts 
from  customers  applying  on  account.     Post  from  cash  book  to  statements. 

File  statements  in  convenient  card-index  file  alphabetically  arranged. 

Enter  amounts  of  charge  sales  each  day  on  "  recapitulation  "  sheet. 


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IS 


Use  different  colored  sheets  for  merchandise  credits,  or  allowances,  and 
jjost  direct  to  statements,  making  recapitulation  as  in  case  of  charge  sales. 

In  small  general  ledger  keep  creditor's  accounts,  expense  accounts,  etc., 
also  representative  account  entitled  "  Customers'  Account."  To  this  account 
charge  total  sales,  credit  total  merchandise  returns  and  allowances  and  total 
of  special  column  provided  in  cash  book  for  receipts.  The  balance  of  this 
account  will  then  equal  the  aggregate  of  the  balance  shown  on  the  statements 
and  so  prove  the  accuracy  of  the  work. 

(873)       PASS-BOOK    SYSTEM. 

"For  each  of  our  city  customers  I  have  a  'pass  book.'  The  name  of 
each  customer  is  written  or  printed  on  the  '  back  '  of  his  book  and  the  books 
are  placed  in  piles  of  ten  or  fifteen  just  in  front  of  me  on  my  desk;  at  the 
close  of  each  day's  business  each  purchaser  is  entered  in  the  proper  book 
direct  from  the  sales  book  (or  counter  blotter). 

In  making  these  entries  I  use  a  carbon  sheet  in  each  book  and  the 
original  page  or  slip,  after  all  the  purchases  have  been  entered  and  the  total 
amount  footed,  is  torn  out  (the  pages  being  perforated  for  that  purpose)  and 
delivered  to  the  customer  the  next  morning  by  our  city  solicitor  when  he 
calls  to  take  the  day's  order,  the  carbon  or  duplicate  copy  remaining  in  the 
book  as  our  record  of  the  transaction. 

I  now  revise  my  books  and  bring  the  total  amount  of  the  day's  pur- 
chases forward  to  the  new  slip.  I  continue  thus  from  day  to  day  and  at  the 
end  of  the  month  the  last  slip  shows  the  total  amount  of  the  monthly  pur- 
chase, and  if  the  customer  keeps  the  slips  (which  he  is  instructed  to  do)  they 
will  show  a  complete,  itemized  statement  of  his  account. 

At  the  close  of  the  month's  business  I  enter  the  total  amount  of  each 
customer's  purchase  in  the  journal,  posting  to  the  ledger  in  the  usual  way, 
the  total  amount  of  all  purchases  being  carried  in  one  entry  to  the  credit 
of  '  mdse.  sales.'  " 


(874:)       PASS-BOOKS — vs. — STATEMENTS. 

Our  store  is  a  modem  grocery  with  about  3,000  accounts.  A  greater  part 
of  these  customers  formerly  used  pass  books  and  we  found  that  with  our 
growing  business  we  had  to  make  a  change  from  that  system. 

Every  book-keeper  knows  the  disadvantage  of  using  pass  books  especially 
if  there  are  any  great  number.  All  orders  taken  must  be  copied  into  the  pass 
books  each  time,  and  all  purchases  are  supposed  to  be  entered  in  the  pass 
book  by  the  clerk  making  the  sale.  Then  on  the  first  of  each  month  all  pass 
books  are  supposed  to  be  sent  to  the  store  to  be  compared  with  our  ledger. 

One  of  our  greatest  troubles  was  having  customers  bring  in  their  pass 
books  and  expect  to  pay  just  what  their  book  called  for,  when  it  had  not  been 
to  the  office  at  all  during  the  month  for  the  purpose  of  balancing. 

In  making  this  change  from  pass  book  to  statements,  we  inauguratf^d 

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the  duplicate  order  book  both  for  our  order  men  and  clerks  in  the  store.  Xow, 
with  every  purchase,  the  customer  receives  a  duplicate  slip.  We  furnished  all 
our  customers  with  a  metal  clip  to  hold  their  slips.  Then  on  the  first  of  each 
month  we  send  out  our  statements  calling  for  dates  and  amounts  which  should 
correspond  with  all  duplicate  slips  held  by  the  customer. 

Where  this  system  proved  to  be  the  greatest  time  saver,  was  with  the  order 
men.  With  the  old  system  we  had  to  copy  every  order  into  the  pass  books 
before  the  goods  could  be  delivered  and  then  we  had  to  wait  for  the  order 
books  to  be  returned  before  we  could  do  our  posting.  With  the  present  system 
we  have  just  to  add  up  the  orders  and  then  separate  the  original  from  the 
duplicate.  The  duplicates  are  given  to  the  deliveryman  to  deliver  his  goods  by, 
and  on  delivering  same  he  hangs  the  duplicate  order  on  the  clip  thus  answerinjj 
the  same  purpose  as  the  pass  book. 

We  keep  the  original  order  in  the  office  and  while  the  goods  are  being 
delivered  we  can  continue  our  posting.  Since  using  this  system  we  have  Ix^en 
able  to  do  our  work  with  two  less  book-keepers  and  still  keep  up-to-date. — • 
W.  A.  Chadzi'ick.    . 


(875)       SYNTHETIC    SYSTEM. 

What  is  called  by  some,  the  Synthetic  Account  System,  is  suitable  for  a 
large  number  of  retail  stores,  where  the  nominal  accounts  are  very  few  and 
practically  one  merchandise  account  is  all  that  is  needed.  By  this  system  a  cash 
journal  is  used,  one  column  being  provided,  debit  and  credit,  for  each  nominal 
account,  one  pair  of  columns  for  customers  accounts,  and  one  pair  of  columns 
for  creditor's  accounts.  This  book  then  becomes  the  trial  balance  of  the 
business,  and  is  always  in  balance,  while  the  nominal  or  general  ledger  is 
dispensed  with. 

This  system  does  not  avoid  the  necessity  of  accounts  with  customers  and 
creditors,  which  should,  however,  be  taken  care  of  in  some  simple  wav  as 
above  suggested  or  described. 

(876)     ledgerette  system. 

Ledgerettes,  or  petty  ledgers,  have  also  been  devised,  which  are  simply 
indexes  devised  to  contain  the  carbon  copies  of  statements,  these  statements, 
as  above  shown,  constituting  the  ledger  accounts  with  customers. 

(See  Department  Stores.) 

(877)     retail  tailoring  business  accounting. 

The  very  nature  of  the  business  demands  that  the  accounting  system  of  a 
retail  tailoring  establishment  be  of  the  very  simplest  nature  consistent  with 
the  correct  recording  of  the  transactions.  The  forms  presented  herewith  are 
designed  for  the  purpose  of  furnishing  quickly  all  details  peculiar  to  this 
business  with  a  minimum  expenditure  of  time  and  labor. 

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PURCHASE    RECORD. 


Form  1  shows  a  suitable  purchase  record.  After  the  goods  are  received 
and  the  invoice  is  O.  K.  'd  the  discounts  are  figured.  The  gross  amount  of  the 
mvoice  IS  entered  in  the  "  Amount  "  column  and  the  discount  in  the  "  Discount  " 
column,  the  net  amount  being  carried  to  the  accounts  payable.  On  account  of 
dating,  it  is  desirable  to  enter  the  year  in  which  the  invoice  is  payable,  par- 
ticularly  if  the  due  date  extends  into  the  next  year.  The  discount  date,'  May 
10th,  is  entered  in  the  maturity  record  as  shown  in  the  illustration.  At  the 
end  of  the  month  the  columns  are  totaled  and  the  following  journal  entry  is 
made: 

Purchase  Account    «iti«^rt 

T,      T-.-  $516.40 

lO     Discount      tfocie 

~,       .  ^  9  00.15 

lo  Accounts  Payable  480 25 

COMBINATION    SALES    BOOK    AND    MEASURE    RECORD. 

No  explanation  is  required  as  to  the  method  of  filling  out  this  form. 
These  orders  are  made  up  in  books  of  50  and  numbered  in  triplicate,  the 
original,  duplicate  and  triplicate  being  made  at  the  same  operation  by  the 
use  of  carbon  paper.  The  original  is  handed  in  at  the  office  with  the  payment, 
the  duplicate  is  handed  to  the  customer,  and  the  triplicate  is  retained  in  the 
book  from  which  is  made  the  card  of  instructions  for  the  cutter.  The  orders 
in  this  book  are  indexed  by  the  name  of  the  customer  and  the  order  number 
is  also  entered  in  the  index  so  that  these  transactions  can  be  readily  referred  to. 

SALES  RECAPITULATION. 

Form  3  can  be  drawn  on  a  sheet  of  paper  of  suitable  size  and  such  other 
columns  added  as  are  necessary  to  present  the  proper  statistics.  At  the 
end  of  each  day  the  sales  are  entered  from  the  sales  book  and  the  totals  footed 
in  pencil.  Should  it  be  desirable,  to  know  the  sales  for  any  particular  day,  the 
difference  between  the  pencil  footings  would  give  this  information.  A  record 
of  this  nature  is  of  great  value  for  comparative  purposes  in  future  years.  The 
total  sales  for  the  month  (including  both  cash  and  credit)  as  shown  by  the 
sales  record  is  entered  on  the  ledger  by  means  of  a  journal  entry : 
Customers'  Accounts  Receivable. 

To  Sales  Account. 
It  is  considered  advisable  to  charge  all  sales  to  the  customer's  account 
whether  they  are  spot  cash  or  instalments  as  the  customers'  accounts  form 
valuable  records  for  circularizing  and  for  future  references  as  to  their  method 
of  settlement. 

The  cash  journal  submitted  in  Form  4  will  be  found  a  very  convenient 
record.  The  entries  made  will  explain  the  operations  of  this  book.  The 
columns  on  the  left  hand  side  of  the  "  Particulars  "  space  represent  charges 
to  the  respective  accounts,  and  those  on  the  right  hand  side  of  the  "  Particu- 

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COMBINATION  &ALE&  6001^  AND  MEA6URE  S€:oRD 


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lars"  column  represent  credits.  The  bank  columns  are  memoranda  only. 
The  total  deposit  for  the  day  is  entered  in  the  "  Bank  Deposit "  column  and 
the  total  amount  of  checks,  issued  for  each  day  is  entered  in  the  "  With- 
drawal "  column.  The  difference  between  the  two  columns  will  show  the 
bank  balance. 

customer's   ledger. 

A  card  system  will  be  found  a  very  convenient  means  for  keeping  track 
of  the  customer's  accounts.  The  cards  are  filed  alphabetically  regardless  of 
the  date  on  which  the  account  was  created.  The  particulars  are  entered  on 
these  cards  directly  from  the  sales  book.    Only  one  debit  column  is  necessary 


1147 


II 


I  ■ 

I! 


Re. 


American  Business  and  Accounting  Encv 


CLOl'EDIA 


877 


on  the  cards,  it  being  preferable  to  have  a  separate  card  for  each  contract 
Several  credit  cohimns  are  necessary  to  accommodate  the  instahiient  payments 
The  debits  from  the  sales  book  and  the  credits  from  the  cash  journal  are 
posted  daily  to  the  ledger  card.  The  balance  due  from  the  customers  should  be 
drawn  from  the  cards  once  a  month  in  order  to  ascertain  whether  the  amount 
aggregates  the  balance  as  shown  in  the  customers'  accounts  receivable  con- 
trolling accounts. 

Collection  cards  are  provided  similar  in  stvle  to  the  ledger  card  The 
customer  has  a  copy  on  which  the  collector  gives  his  receipt.  For  the  protec- 
tion of  the  concern  the  office  copy  should  be  marked  original  and  the  cus- 
tomer s  copy  duplicate.  Every  other  month  the  office  manager  should  insist 
that  the  collector  leave  the  original  card  with  the  customer  and  take  up  the 
duplicate  and  bring  it  to  the  office   for  inspection.     This   will   prevent   the 

to  ht;?n  te'  "'  '^'"""'^  '^^  '  '"^  ''''  ^"'  appropriating'the  money 

Another    method    is    to    change    collectors    very    frequently.      Contract 

umpers  must  be  promptly  reported  to  the  office  so  that  the  matter  can  be 

taken  up  without  dela^^     Entries  by  the  collector  on  the  instalment  cards  mu  t 

be  made  in  ink  or  with  an  indelible  pencil. 

.U     u  i?'l7.'^'f  'l'"  collections  may  not  be  overlooked  the  instalment  card 

should  be  filed  ahead  to  the  date  on  which  collections  are  to  be  made.     Eve  v 

wo  or  three  months  the  instalment  cards  should  be  checked   up  with  the 

edger  accounts  and  a  notation  made  on  the  ledger  card  as  to  the  da  e  on  which 

the  instalment  record  was  last  inspected. 

GENERAL    LEDGER. 

Accounts  in  the  general  ledger  are  opened  with  cash,  accounts  receivable 
inventory,  funuture,  fixtures  and  machines,  to  which  are  charged  the  value 
of  the  respective  assets.     Accounts  are  opened  with  accounts  pavable    bilk 
payable    accrued  accounts  and  any  other  liabilities.     The  excess'  of  ass 
over  labilities  is  credited  to  the  partners'  respective  capital  account.    Accoui 
are  also  opened  with  wages,  expenses,  commission,  discount,  insurance    light 


1148 


877-878        American  Business  and  Accounting  Encyclopedia 


Re. 


The  plan  outlined  has  been  found  to  be  very  satisfactory  and  can  be 
recommended  to  any  concern  desiring  a  simple  and  efi:'ective  system  for 
keeping  in  touch  with  the  details  of  the  business. — C.  B.  Sinccton. 

(878)     retail  inventories. 

While  it  is  a  comparatively  easy  matter  to  maintain  accurate  stores 
records  in  a  manufacturing  or  wholesale  house,  the  difficult  problems  are 
presented  by  retail  stores.  While  it  would  be  possible  to  maintain  an  accurate 
inventory  system  for  any  retail  store,  the  labor  involved  in  most  lines  would  be 
greater  than  is  warranted  by  the  results.  In  such  lines  as  these,  which  include 
groceries,  drugs  and  kindred  lines,  in  which  goods  are  purchased  in  bulk  and 
retailed  in  small  quantities,  it  is  best  to  confine  the  stock  record  system  to 
the  reserve  stock,  leaving  only  the  goods  on  the  shelves  to  be  counted  when 
the  annual  inventory  is  taken. 

But  even  in  such  lines,  it  will  very  much  easier  to  keep  a  close  check 
on  the  stock  by  properly  arranging  the  goods  on  the  shelves.  One  large 
grocery  store  with  which  the  writer  is  familiar  has  installed  special  shelving, 
divided  into  bins.  These  bins  are  of  the  right  size  to  hold  a  given  number 
of  articles.  Now  that  so  large  a  proportion  of  grocery  stock  is  sold  in 
original  packages,  such  an  arrangement  is  quite  easily  maintained.  In  any 
section  of  the  stock,  a  certain  number  of  packages  of  each  kind  of  goods 
can  be  specified  and  not  more  than  this  number  placed  on  the  shelves  at  one 
time.  If  there  is  only  space  for  two  dozen  cans  of  corn,  it  will  be  the  work 
of  but  a  moment  to  count  that  stock  at  anv  time. 


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The  reserve  stock  and  stock  record  should  be  placed  in  charge  of  some 
one  man,  and  when  goods  are  required  to  replenish  the  stock  on  the  shelves, 
a  receipt  or  order  should  be  signed  the  same  as  is  done  in  a  manufacturing 
concern.  In  those  concerns  whose  business  will  not  w^arrant  the  employment 
of  a  stock  clerk,  provision  should  be  made  for  the  proper  records  by  placino^ 
at  a  convenient  point  in  the  storeroom,  requisition  slips,  which  must  be 
filled  out  and  signed  by  the  clerk  taking  the  goods.  It  is  also  a  very  good  plan 
w^hen  goods  are  brought  from  the  storeroom  to  require  an  O.K.  by  the 
manager  of  the  store. 

1149 


r 


Re. 


American  Business  and  Accounting  Encyclopedia        879-886 


(879)     RETURNS. 

A  title  applied  to  goods  returned  on  account  of  defect  in  quality  or 
other  objection, 

A  negative  to  sales  or  purchases. 


See  Income. 


(880)     REVENUE. 


(881)     revenue  expenditures. 


Any  expenditure  made  in  connection  with  the  nmning  expenses  of  the 
legitimate  business  of  the  firm  or  corporation  concerned  is  revenue  expendi- 
ture, because  it  reduces  the  profits  of  the  business  by  the  amount  involved. 
When  revenue  expenditures  exceed  revenue  receipts,  the  actual  capital  invested 
is  reduced  by  the  amount  of  the  difference. 

(882)     revenue  items. 

Those  debits  which  are  not  expected  to  yield  any  returns  are  losses, 
and  therefore  revenue  items. 

Those  credits  which  will  not  have  to  be  paid  out  are  gains,  and  therefore 
revenue  items. 

(883)     revenue  receipts. 

Revenue  receipts  are  distinguished  from  capital  receipts  by  being  exclu- 
sively derived  from  the  sale  or  exchange  of  the  commodities  which  the  com- 
pany was  organized  to  buy  and  sell,  the  excess  of  receipts  over  expenditures 
constituting  net  profit,  or  added  actual  capital. 


(884)     REVERSE  POSTING  SYSTEM. 

See  Checking  Systems. 


(885)     ROYALTY. 

A  duty  payable  to  the  owner  of  a  mine,  or  copyright,  based  upon  the 
number  of  tons  of  ore  mined  or  books  sold. 


(886)     SAFE  DEPOSIT  COMPANY  ACCOUNTING. 

This  is  the  simple  way  to  keep  the  accounts  of  a  safe  deposit  department 
in  a  bank.  Here  are  shown  three  cards  namely:  individual  renter  card; 
co-renters  card;  deputy  card  (blue).  These  cards  explain  themselves,  but 
to  make  things  more  explicit  we  shall  further  describe  them. 

1150 


I 


886 


American  Business  and  Accounting  Encyclopedia        Re.-Sa. 


The  individual  renter  answers  the  questions  suggested  by  the  blank 
spaces  as  to  his  age,  complexion,  etc.,  and  also  suggests  a  pass-word.  He  is 
then  given  a  receipt  for  his  rent  and  also  for  the  deposit  which  we  invariably 
require  on  the  keys,  and  which  is  refunded  upon  their  safe  return.     His 


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1151 


ir 


Sa. 


American  Business  and  Accounting  Encyclopedia 


886 


Jol^n      Hdl.f'ni 

SAFE.  MO. 

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signature  is  then  taken  to  the  contract  on  the  reverse  side  of  the  card;  notice 
that  this  card  also  serves  as  our  ledger. 

The  co-renter's  contract,  description,  and  ledger  card  differs  from  the 
individual  renter's  card  just  described  chiefly  in  this,  that  the  co-renter's  con- 
tract is  a  joint  and  several  one,  and  permits  either  to  have  access  to  the  box 
after  the  death  of  the  other. 

The  power  vested  in  the  deputy  as  evidenced  by  the  deputy  card  here 
shown  ceases  with  the  death  of  the  renter. 

It  is  in  this  one  respect  that  a  deputy's  authority  differs  from  a  co- 
renter's.  Note  also  that  provision  is  made  for  the  revocation  of  the  deputy's 
power  at  any  time  by  the  original  renter. 

Of  course  the  cards  have  tabs  on  them  and  guide  cards  are  used  which 
throw  out  the  tens  and  hundreds  into  bold  relief  so  that  the  moment  a  key  is 
presented  one  glance  at  your  card  tray  and  you  have  a  complete  description  of 
your  party  also  his  ledger  account  and  the  pass-word,  everything  that  you 
could  wish  to  know  about  him. 

Xote  that  the  deputy  card  has  no  tab  on  it  as  it  reposes  immediately 
behind  the  card  whose  deputy  it  describes,  thus  one  individual  renter's  card 
may  have  several  deputy  cards  behind  it. 

The  deputy  cards  are  also  printed  upon  an  entirely  different  colored 
card  from  the  others. 

^        Upon  our  expiration  card  we  note  the  name,  address,  number  of  box.  and 
price  per  year  and  when  due. 

We  stack  these  cards  in  a  two-tray  card  case,  the  trays  being  labeled 
respectively,  say  1907  and  1908. 

The  guide  cards  for  these  trays  read  January.  February,  March,  etc.,  i.  e. 
the  months  of  the  year,  so  that  when  a  man  whose  rent  expired  on  Nov.  14, 
1907,  pays  his  rent,  simply  make  ditto  marks  on  your  expiration  card  under 
the  month  and  day  thereof,  write  down  *0S  under  the  '07  above  and  transfer 
your  card  from  the  1907  tray  over  to  the  1908  tray,  post  your  ledger  card, 
and  your  work  is  finished. 

We  keep  a  regular  account  on  the  bank-sheet  called  Deposit  Vaults,  into 
this  goes  our  regular  deposit  of  rent  received  every  day  and  against  it  we 
draw  all  checks  for  the  rebate  on  keys  returned  when  boxes  are  surrendered. 

It  is  when  we  come  to  send  out  our  monthly  statements  that  the  beauty 
of  this  system  is  most  apparent.     For  instance,  it  is  the  last  of  Januarv; 

1152 


880-889 


American  Business  and  Accounting  Encvci.oi'edia 


Sa. 


simply  take  out  all  the  cards  lying  behind  your  January  guide-card,  copy  the 
name,  amount  due.  and  date  due  upon  your  statement  blanks,  and  they're  off. 

It  may  be  found  useful  to  also  index  yoi.r  accounts  in  an  ordinary  name 
index,  so  that  when  a  man  simply  gives  you  his  name,  without  asking  to  see 
the  number  on  his  key  you  can  tell  him  when  his  rent  will  be  due,  etc. 

I  have  now  detailed  a  system  combining  the  following  striking  advan- 
tages : 

1.  Only  live  accounts  to  be  dealt  with. 

2.  Everything  you  could  wish  to  know  is  before  you  at  a  glance. 

3.  Accounts  kept  and  statements  sent  out  with  incredible  ease  and 
accuracy. — IV.  McCormick. 


(887)     SALES  BOOKS. 


(888)     SALES  records,  slips,  or  tickets. 

See  Order  Blanks,  Cash  Sales.  Credit  Sales.  Card  System,  Customers* 
Records,  etc. 


(889)     salesmen's  commissions. 

If  a  straight  commission  of  a  certain  per  cent,  is  allowed  on  all  sales 
the  problem  is  much  easier  to  handle,  but  if  the  sales  are  classified  and  each 
class  takes  a  different  rate  of  commission  it  becomes  more  complex  and  entails 
more  labor  to  take  care  of  it.  The  system  here  outlined  is  based  on  the  latter 
assumption  with  modifications  to  fit  the  former  as  well. 

A  commission  account  is  opened  with  each  salesman ;  to  this  is  debited 
all  moneys  or  other  advances  made  against  the  salesman.  Credit  with  all 
commissions  earned  on  sales  and  the  latter  debited  to  "  selling  expense " 
account. 

All  sales  should  lie  made  on  loose  sheets  specially  ruled,  showing  name 
of  salesman.  After  these  orders  are  executed,  posted  and  filed  in  the  sales 
binder,  they  are  turned  over  to  someone  whose  duty  it  is  to  classify  the  sales. 
This  is  done  by  setting  opposite  each  item  a  letter  denoting  the  class;  for 
instance,  take  the  dry  goods  business,  shirtings,  sheetings  and  similar  goods,  A. 
Piece  goods  and  like  kinds,  B.  Dress  goods  and  like  kinds,  C.  Notions, 
hosiery,  etc.,  D.,  and  so  on,  the  letter  denoting  the  classification.  These 
sheets  are  then  posted  to  a  specially  ruled  loose-leaf  Salesman's  Commission 
Book  (see  illustration),  which  gives  the  amount  of  each  class  sold  and  rate  of 
commission  on  same,  each  salesman  having  a  separate  account  on  this  book  also, 
to  which  the  details  of  his  sales  are  posted.  At  the  end  of  each  month  the 
total  for  each  salesman,  by  classes,  is  ascertained.  All  goods  returned  and 
rebates  made  against  sales  are  taken  care  of  on  a  special  form  of  credit  memo., 
which  gives  name  of  salesman  and  original  sales  sheet  affected  bv  the  memo. 
Items  on  these  credit  memos,  are  also  classified  and  the  totals  for  each  salesman 

1153 


11 


Sa.-Se.        American  Business  and  Accounting  Encyclopedi. 


889-893 


entered  on  the  salesman's  commission  book  at  the  end  of  the  month,  same  being 
deducted  from  his  sales  and  commissions  figured  on  the  balance  and  the 
amount  due  each  salesman  placed  to  his  credit.  To  obviate  the  postings  of 
each  item  on  each  sales  sheet,  the  total  of  each  class  only  is  entered  on  the 
commission  book  and  notation  made  on  the  sales  sheet  of  this  summary,  which 
can  readily  be  obtained  with  an  adding  machine. 

Where  the  commission  is  based  on  a  straight  per  cent,  on  all  sales  it  is 
only  necessary  to  add  each  man's  sales  for  the  month  and  figure  the  commis- 
sion due  on  the  total.  If  it  is  desirable  to  know  the  daily  sales  of  each  sales- 
man the  total  for  each  day  can  be  entered  and  commissions  figured  on  the 
monthly  total.  An  ordinary  journal  ruled  account  book  will  answer  for 
entering  these  records  in.—S.  S.  Burch. 


, OFFICE                                                                       CAiccMAM 

Ent'd  Service 

Left  Service 

Salary 

Commission 

Wk.  or  Mo. 

Month             Cash  Sales 

Time  Sales 

Total  Sales  |        Total  Cost 

Net  Result 

Avr.  P.  M 

No.SoftJ 

^^ 

■M 

_ 

_ 

ll 

" 

See  Reserve. 


(890)     SECRET  RESERVES. 


(891)     SECTIONALIZATION. 


The  process  of  classifying  or  grouping  accounts,  or  subdivisions  of 
accounts. 

(892)     SECURITY. 

Value  deposited  or  pledged  to  guarantee  the  fulfilment  of  an  obligation, 
requirements  of  loan,  etc 


(893)     SELLING  EXPENSE. 

That  portion  of  expense  of  a  business  which  consists  of  commissions, 

1154 


893-894        American  Business  and  Accounting  Encyclopedia 


Sb. 


salaries  of  salesmen,  and  other  expenditures  which  can  be  allocated  to  the 
cost  of  selling  goods. 

(894)       AVERAGE    COST   OF   SELLING. 

Question. — We  have  several  travelers  on  the  road,  and  have  been  endeavor- 
ing to  get  at  the  actual  cost  of  selling  our  goods.  We  have  been  figuring  this 
cost  by  the  month  and  then  taking  the  results  by  the  month  for  one  year  and 
trying  to  arrive  at  the  average  cost.  We  are  surprised  to  find  that  when 
figuring  by  the  month  we  do  not  arrive  at  the  same  result  as  when  figuring 
the  totals  for  the  year. 

Here  follow  the  figures  for  twelve  months: 

Amount  of  Orders.  Cost  to  Sell. 

$    772.94    $80-5 

474.21    -031 

917.56 ;!!!!;;!!!;;;;!;;!;;  niei 

815.01 117  65 

1'954.51  126.56 

1,276.88  iig  12 

1'219.86  .'.'.'.".'.*.".'.'  76.10 

1,221.05  147.20 

2»512.85  114.00 

W0.59  1.4^55 

1.805.11  127.05 

354.81  , 94  80 

The  result  of  the  above  figures  by  the  month  is  11.5.  The  totals  figure 
out  as  follows :  $15,135.38  cost  $1,331.71  giving  a  result  of  8.8.  Why  is  not 
the  result  the  same  figuring  any  way? 

Answer. — ^The  explanation  is  that  the  method  is  incorrect  for  a  yearly 
average  since,  by  dividing  by  twelve,  he  attaches  equal  importance  to  a 
monthly  average  based  on  small  sales  and  one  based  on  large  sales.  In  the 
instance  quoted  it  will  be  shown  that  the  yearly  figure  will  be  lower  than  the 
average  monthly  figure  because  the  months  of  biggest  sales,  May,  June,  July, 
September,  October  and  November  have  been  those  with  the  lowest  monthly 
average  selling  cost  and  these  should,  of  course,  aflfect  the  result  more  than 
the  small  sales  months  of  February  and  December. 

Here  is  a  simpler  instance: 

Sales.                   Cost.  Ratio. 

2                          2  100% 

10                          1  io%_the   average 

—  of    100    and 

12                           3  10    is    55%. 

But  rearrange  the  above  by  splitting  the  $10  sales  into  five  equal  parts,  as 
follows : 


1155 


i^ 


III 


Sb.-St. 


American  Business  and  Accounting  Encyclopedia        894-898 


Sales. 

Cost. 

Ratio. 

2 

$2.00 

100% 

2 

.20 

10% 

2 

.20 

10% 

2 

.20 

10% 

2 

.20 

10% 

2 

.30 

10% 

12 


$3.00 


150% 


and  divide  the  total  (150)  by  0  and  you  have  25  per  cent.,  the  correct  average, 
^lonthly  sales  average  must  not  be  added  and  divided  by  12  to  find  the 
yearly  average  except  the  sales  for  each  month  are  equal.— C.  Thompson. 


(895)     SHIP  ACCOUNTING. 


See  Navigation. 


(SOfi)     SHIPPING  RECORDS. 

The  following  explanation  of  abbreviations  may  be  found  of  use  to 
exporters : 

(a)  f.  o.  b.  factory  U.  S.— Free  on  board  factory.  The  buyer  paying 
charges  for  transportation  of  goods  to  the  customer's  warehouse. 

(b)  f.o.b.  steamer  sailing  port  in  the  U.  S.— Free  on  board  steamer 
at  saih'ng  port  of  U.  S.  After  the  goods  have  been  placed  on  board  the  steamer 
or  sailing  vessel  the  customer  assumes  all  risk. 

(c)  f.  a.  s.  steamer  sailing  port  in  the  U.  S.— Free  alongside  steamer  at 
sailing  port.  Under  this  contract  the  seller  simply  obligates  himself  to  place 
the  goods  on  the  dock  along  side  of  the  vessel  which  will  transport  them  to 
their  destination. 

(d)  f.o.b.  destination.— Free  on  board  destination.  Delivered  to  cus- 
tomer at  his  warehouse,  wherever  that  may  be. 

(c)  c.  i.  f.— In  quoting  prices  vendor  includes  cost,  insurance  and 
freight  until  the  goods  arrive  at  destination. 

(/)  c.  f.  or  c.  a.  f.— In  cjuoting  prices,  vendor  includes  cost  and  freight 
until  goods  arrive  at  destination. 


(89:) 

See  Dormant  Partner. 


SLEEPING  PARTNER. 


(898)     STATEMENT. 
A  summary  of  bills  to  customers,  usually  made  once  a  month. 


899-9(X)        American  Business  and  Accounting  Encyclopedia 

(899)     STATEMENT  OF  AFFAIRS. 


5Vr. 


A  summary  of  assets  and  liabilities.     See  Balance  Sheet.  :\ronthlv  State- 
ment, Financial  Statement,  etc. 

Also  used  to  designate  the  schedule  of  assets  and  liabilities  filed  by  an 
insolvent  debtor. 


r900)     STATISTICAL  RECORDS. 

Those  records  which  are  compiled  to  show  periodically  quantities  and 
amounts  for  purposes  of  comparison  or  analysis. ' 


Ge^ef?AL^L£D6ei^.fittO_DAti.r_SrAT£M£tiT 


1158 


1157 


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American  Business  and  Accounting  Encyclopedia 


900 


Chart  or  BooK'3  Ashland  Bottling  Works^ 


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American  Business  and  Accounting  Encyclopedia 


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Name                                                                                    address 

LOCATION  OF  D'L'D'G.                                                                                           ARCHITECT 

DATE  OF  ESTIMATE                                                                                          AMT.  OF  ORIGINAL  EST. 

"        "    REVISED  EST.                                                                                       "      "     REVISED       " 

COMPETITORS  ALSO 
ESTIMATING 

DATE  CALLED 

REPORTS 

REMARKS 

■ 

r^ 

(    ) 

>  / 

1159 


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Americax  Rusin'ess  and  Accounting  Encyclopedia 
(901)     STEAM  RAILROAD  ACCOUNTING. 


901 


The  accounting  for  a  large  railroad  is  necessarily  a  vast  and  compli- 
cated undertaking,  involving  large  expenditures  and  a  multitude  of  details. 
A  book  of  600  pages  has  been  written  on  this  subject,  so  that  it  is  evident  it 
would  be  impossible  in  this  text-book  to  attempt  to  consider  railroad  accountir- 
in  detail,  and  it  is  therefore  proposed  to  indicate  as  closely  as  possible  the  prin- 
ciples on  which  it  is  organized  and  the  way  in  which  the  principal  records  are 
kept. 

Railroad  accounting  may  be  divided  into  sections  as  follows : 
1.     Acquisition  of  right  of  way  and  construction  of  roadbed,  telegraph 
lines,  depot  or  station  buildings. 

'i.     The  equipment  of  rolling  stock  and  capital  expenditures  generally. 

3.  Revenue  from   freight  and  express  traffic. 

4.  Revenue  from  passenger  traffic. 

5.  Revenue  from  other  sources,  such  as  rent,  restaurant,  newstand,  etc. 
Many   railroad   enterprises  of  the   present   time  are   first  brought   into 

existence  through  the  medium  of  a  construction  company,  which  has  seemed 
almost  a  necessity  to  the  successful  prosecution  at  least  of  the  initial  stages 
of  the  enterprise.  The  construction  company  is  started  primarily  with  a 
view  to  some  particular  railroad  or  system  of  railroad  building,  and  its  main 
purpose  is  to  float  the  bonds  and  stock  of  the  railroad  or  railroads  to  be 
built  and  operated.  The  construction  company  having  a  nominal  or  actual 
capital— nominal  to  a  large  extent,  and  actual  according  to  the  necessities  of 
the  case  as  they  present  themselves— is  chartered  with  the  rights  and  privileges 
belonging  to  a  construction  company,  that  is  to  say,  to  construct,  to  build, 
equip  and  operate,  up  to  a  certain  point,  any  railroad  or  railroads  in  a  certain 
given  state  or  territory. 

Having  proceeded  so  far,  the  next  step  is  to  lay  the  foundation  for  the 
commencement  of  the  railroad  company,  and  this  prior  to  any  work  done 
on  the  railroad  itself.     The  component  parts  of  the  railroad  company  in  its 
first    inception    are    mainly    those    composing   the    construction    company    or 
those   affiliated   with   them   in   the   purposes   contemplated.     The   charter   is 
obtained,  plans  and  specifications  are  prepared  and  the  ground  work  gone  over 
fully  by  engineers.    Rights  of  way  are  secured  and  the  assistance  and  co-opera- 
tion is  sought  of  the  "  powers  that  be  "—political  and  monetary— in  the  states 
or  counties  through  which  it  is  to  run.    Preparations  are  made  for  the  issue  of 
all  railroad  bonds  and  agreements  are  entered  into  as  between  the  railroad 
and  construction  companies,  by  which  the  latter  agrees  to  perform  the  neces- 
sary work  fand  take  its  pay  in  bonds  and  stock  of  the  railroad  company).  With 
the  cash  which  they  have  realized  for  their  authorized  capital  stock  and  sub- 
sequently   the    proceeds    of    railroad    securities,    they   commence    operations. 
When  ground  has  been  broken  and  contracts  made  for  the  building  of  the 
road,  the  furnishing  of  rails,  building  of  cars  and  the  providing  of  the  nece<J- 
sary  supplies,  there  has  been  started  a  foundation  on  which  to  predicate  a 
marketable  value  for  the  stock  and  bonds  of  the  railroad  company.     Leaving 

1160 


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out  of  view  any  of  the  accounting  of  the  construction  company,  the  railroad 
company  is  now  prepared  to  start  its  books.  By  showing  first,  its  contract 
with  the  construction  company,  to  be  recited  in  due  form,  giving  the  full 
details  connected  therewith;  if  it  has  obtained  any  cash  from  any  parties  inter- 
ested for  its  capital  stock,  that  of  course  would  appear  regularly  in  the  cash 
book  under  its  proper  headings ;  frequently  the  contributions  to  capital  stock 
are  in  instalments  and  the  cash  entries  are:  Instalment  Xo.  1,  Capital  Stock — 
credited  in  the  cash  book — By  Amt.  Rec'd — from  separate  contributors,  etc. 
The  charter  of  the  railroad  company,  showing  the  purposes  of  the  railroati 
company,  the  points  between  which  it  is  to  run,  the  amount  and  kinds  of  its 
proposed  capital  stock,  and  the  nature  and  character  of  the  bonds  it  is  entitled 
to  issue.  In  accordance  with  the  terms  of  the  agreement  as  between  it  and 
the  construction  company,  it  then  passes  over  to  the  construction  company 
the  amount  of  stock  and  bonds  sufficient  to  provide  for  the  building  and  equip- 
ping of  the  road — that  is  to  say,  the  construction  company  agrees  to  build 
so  many  miles  of  road  at  so  much  per  mile,  the  estimates  for  which  are  based 
upon  the  difficulties  to  be  overcome  in  its  construction,  that  is,  how  many 
mountains  there  are  to  cross,  or  to  tunnel,  how  many  bridges  there  are  to  l3e 
built,  how  much  filling  up  there  is  in  consequence  of  the  irregularities  of  the 
roadbed  and  other  points  as  settled  by  the  engineers  who  have  surveyed  the 
route,  with  such  additional  provision  for  cost  of  rolling  stock,  building  of 
.stations,  lines  of  telegraph  and  other  appurtenances  connected  with  the  suc- 
cessful running  of  a  railroad. 

As  the  road  progresses  and  according  to  its  prospects  for  success,  the 
market  for  the  bonds  and  stock  of  the  railroad  company  is  found  by  the 
construction  company  for  which  they  make  the  best  terms  they  can.  Usually 
it  is  supposed  that  a  considerable  bonus  has  to  be  given  in  the  outset  to  some 
parties — often  a  banking  house — to  induce  them  to  take  active  hold  of  and 
to  find  a  market  either  at  home  or  abroad  where  these  wares  can  be  disposed 
of.  This  discount,  however,  or  bonus,  is  something  which  has  been  considered 
by,  and  also  to  be  borne  by  the  construction  company.  The  railroad  company, 
however,  in  reality  paying  for  it  in  the  perhaps  greater  cost  of  construction 
than  would  have  been  the  case  if  they  had  had  the  cash  in  hand  at  start,  with 
which  to  do  the  work  themselves. 

It  will  be  evident  on  this  statement  of  the  case,  that  until  the  road  has 
reached  the  point  covered  by  the  contract  as  between  the  construction  and 
the  railroad  companies,  all  the  operations  of  the  railroad  either  as  to  move- 
ment?" of  freight  or  carrying  passengers  belong  to  and  are  part  of  the  opera- 
tions of  the  construction  company  until  such  time  as  the  road  is  built  and  ready 
to  be  turned  over,  and  the  railroad  company  has  practically  no  books  except 
that  to  which  reference  has  been  made,  which  shows  the  inception  of  the  rail- 
road company,  its  issue  of  bonds  and  stock  and  its  inception  of  such  cash  as 
may  have  come  in,  in  connection  with  the  disposition  of  its  stock  and  bonds. 

Supposing  now,  however,  that  the  construction  company  has  completed 
the  road  and  has  turned  it  over  to  the  railroad  company  and  the  settlement 
has  been  made  between  them,  by  which  the  construction  company  presents 


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Its  bills,  setting  forth  the  cost  of  construction  of  so  many  miles  of  railroad 
at  the  agreed  upon  rate,  and  the  cost  of  equipment,  with  full  description 
of  the  equipment,  that  is  to  say,  number  and  kind  of  locomotives,  number 
and  kind  of  passenger  cars,  number  and  kind  of  freight  cars  of  various 
descriptions,  that  is,  box,  flat,  stock  cars,  refrigerator  cars,  gondola  and  other 
coal  cars,  cabooses,  etc.,  together  with  the  settlement  of  those  bills  by  that 
which  was  received  in  payment ;  and  also,  as  a  matter  of  record  for  the  railroad 
company,  the  operations  of  the  road  up  to  the  date  fixed  upon  the  formal 
transfer.  These  bills  form  the  foundation  for  the  opening  entries  by  the 
railroad  company  in  its  books,  which  will  bring  in  the  various  account  head- 
ings of 

Cost  of  Construction, 
Cost  of  Equipment, 
Right  of  Way  and  Real  Estate, 
and  such  other  subdivisions  as  they  may  deem  necessary. 


CAPITAL   EXPENDITURES. 

.  Separate  capital  accounts  will  be  kept  for  each  branch  or  extension  of 

the  road,  and  these  accounts  will  be  subdivided  so  as  to  show  the  principal 
Items  of  expenditure  on  rails,  sleepers,  station  buildings,  rolling  stock  etc 
This  classification  is  effected  by  means  of  a  voucher  record  and  includes 
expenditures  on  account  of  maintenance  and  renewal  of  road,  materials  and 
wages,  repairs  of  bridges,  telegraph  lines,  signals,  buildings,  rented  properties 
and  compensation  for  damages  to  crops  from  engine  sparks,  or  for  injuries 
received  in  train  wrecks. 

The  extent  of  the  necessary  classification  renders  it  desirable  to  keep  a 
separate    voucher  record    for    equipment    expenditures,    which    will    include 
materials   for   repairs   of  engines,  passenger  and    freight   cars,   wages   paid 
out  on  same,  materials  for  repair  of  engine  and  car  shops,  wages  paid  out 
on  same.     The  voucher  record  is  summarized  at  the  end  of  the  month  to 
show  the  total  vouchers  issued,  which  in  amount,  of  course,  must  tally  with 
the  total  of  the  various  items  of  distribution  of  vouchers,  and  from  this  is 
prepared  the  journal  entry  of  the  general  ledger  book-keeper,  reading  "  Sun- 
dnes  Dr.  to  Vouchers."    Pay  rolls  for  the  pay  of  the  entire  force  of  employes 
of  the  railroad,  whether  in  the  main  office  or  on  the  line  of  the  road    are 
also  prepared  m  the  disbursement  department  and  also  distributed  like  the 
vouchers,  according  to  the  character  of  the  service  for  which  pay  is  given. 
The  officers  and  clerical  force  in  the  main  office  are  a  general  expense,  engineers 
and  firemen  are  motive  power,  the  conductors  and  brakemen  are  expense  of 
transportation  of  passengers  or  freight,  as  the  case  may  be,  the  laborers  work- 
ing upon  the  line  of  the  road,  bridge-builders,  surveyors,  rodmen  and  others  of 
that  character  are  charged  to  maintenance  of  way.     Each  particular  road 
however,  has  its  own  mode  of  designating  the  kind  of  items  which  go  to 
make  up  each  of  these  operating  expenses. 

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Separate  records  will  also  be  kept  for  freiglit  and  express  traffic  expen- 
ditures, and  passenger  traffic  expenditures,  so  that  the  income  derived  from 
each  department  may  be  accurately  ascertained.  The  records  will  include  cost 
of  motive  power,  wages  of  engineers  and  firemen,  salary  and  traveling 
expenses  of  clerks,  etc.,  attached  to  the  department. 

Another  record  will  take  care  of  what  we  may  term  administrative 
expense,  which  will  include  salaries  and  expenses  of  directors,  officers,  auditors, 
clerks,  office  expense,  insurance,  etc. 

It  will  thus  be  seen  that  from  the  ledger,  to  which  the  totals  of  the  various 
records  are  posted,  and  into  which  gross  receipts  from  the  revenue  depart- 
ments also  find  their  way,  the  balance  sheets  and  r.tatements  of  income  and 
expenditures  are  prepared  something  after  the  following  style.  The  state- 
ment of  assets  and  liabilities  in  this  case,  however,  includes  operating  expenses 
in  the  schedule  of  assets,  and  gross  earnings  in  the  schedule  of  liabilities,  so 
that  it  is  really  a  trial  balance  from  the  company's  general  ledger. 

I. 

ASSETS 

Cost   Road   and   Equipment    $67,435,772  37 

Stocks  of  other  companies  owned 4,121,731  73 

Bonds   of  other  companies   owned    4,749,871  48 

Lands    owned    512,244  89 

Land  grants  of  the  State    1,977,155  82 

Foreign  land  grants  (extra-state)    94,257  29 

Cash    on    hand    29,735  47 

Bills    Receivable     7,172  66 

Due  from  solvent  companies  and  individuals    378,067  79 

Other  cash  assets 1,000  00 

Sundries  (rights  way,  franchises,  terminals,  etc.)    367,985  96 

Operating  Expenses  (from  Operating  Expense  Books)  7,528,805  55 

Interest  funded  debt   2,438,886  40 

Other  Interest  account   230.032  52 

Rentals     437,622   16 

Taxes     257,766  72 

Due  from  agents   19.685  21 

Dividends  on  common  stock   515.623  50 

Due  from  connecting  lines   10,408  12 

Materials  and  supplies  on  hand    37,629  50 

Leased  Rolling  Stock   70.000  00 

$91,221,455  14 

LIABILITIES. 

Gross   Earnings    $10,676,1 12  43 

Surplus   carried   down   from   previous   year    3,853,84i  21 

Capital  Stock  paid  in   25.788,925  00 

Funded    Debt     44,876.454  01 

Loans  and  Bills  Payable   2,180.069  79 

Matured   interest  coupons   unpaid    375,627  83 

Audited   Vouchers   and   Accounts    894,876  40 

1163 


St.  Amkrk  an  IUsixkss  and  Accounting  Encyclopkdia 

Wages  due  and  Salary  Account  unpaid  782, 557  M) 

Rentals   duo    68,000  oo 

Net  traffic  balances  due  other  companies    64,fi66  3(5 

Dividends  uncalled  for   171,840  33 

Construction  contracts    495,250  65 

Miscellaneous   taxes,  etc 292.809  25 

Interest  Account   542,968  20 

Income  from  other  sources,  dividends  on  stocks  owned  134,056  II 

Income  from  bond  coupons   1.750  00 

Miscellaneous  income,  less  expense  21,649  97 

$91,221,455   14 


II.       INCOME     ACCOUNT. 

Gross  Earnings  from  Operation   $10,676,113  4.1 

Less  Operating  Expenses 7,528,805  55 

Income   from   operation 

Dividends  on  stocks  owned    $  134,056  11 

Interest  on  bonds  owned    1.750  00 

Miscellaneous   Income,  less  expenses..  21,649  97 

Income  from  other  sources    

Total    Income    


901 


901 


$  3,147,306  88 


157.456  08 
$  3,304,762  96 


DEDUCTIONS    FROM     INCOME. 

Tnst.  on  Funded  Debt  accrued $  2.438.886  40 

Inst,  on  interest  bearing  current  liabili- 
ties accrued,  not  otherwise  provided  for  230.032  52 

Rents    437,622  16 

Taxes     257,766  72 

Other  deductions  (due  from  agents  and 

connecting   lines)    30,093  .33 

Total    deductions    from    income    

Deficit   

Dividends    2%    common    stock 

Total  deficit  from  operation  current  year 

Surplus  carried  down  from  previous  year 

Surplus  forward  current  fiscal  vear.... 


$  3.394,401    13 

89,638   17 
515,623   50 

$605,261   67 
3,853,841  21 

$  3,248,579  54 


TIL      CURRENT    ASSETS    AND    LIABILITIES. 

^^^^     • $        29,735  54 

Bills    Receivable    7  170  66 

Due  from  solvent  companies  and  individuals    378,067  79 

Other   cash   assets    •    j  000  00 

Balance  current  liabilities   5,452,709  42 

$5,868,685  41 

1164 


American  Business  and  Accuunting  Encyclopedia 

Current  Liabilities  accrued  up  to  the  time  of  the  present  report: 

Loans  and   Bills  payable    $2,180,069  79 

Matured  interest  coupons  unpaid,  including  coupons  due      375.627  83 
Miscellaneous    3.312.968  79 


St. 


$5,868.66r,   4 1 


The  miscellaneous  items  just  jjiven  among  the  current  liabilities  are  the 
sum  of  the  amounts  in  the  trial  balance  ranging  from  $81»4.c^Tr..|o  to 
$-29-3,8()9.-2.j,  including  also  the  interest  account,  $54•^,9(J8.•^0. 


balance  sheet. 

Cost  of  Road  and  Equipment,  including  leased  lines.  .$67,505,772  37 

Stocks  and  Bonds  8.871.603  21 

Lands  and  Grants    2,58;{.658  00 

Cash  a»id   Current   Assets    415.975  92 

Sundries    367.985  96 

Materials  and  Supplies   37.629  50 

$79,782,624  96 

Capital  Stock   $25,788,925  00 

Funded   Debt    44,876.454  01 

Current    Liabilities    5.868.666  41 

Surplus  current  year  carried  down    3.248.579  54 

$79,782,624  96 

The  methods  and  books  used  in  the  various  departments  of  a  railn»ail 
are  so  numerous  that  it  is  not  possible  to  go  into  detail  in  regard  t»»  them. 
They  are  adapted  to  record  the  information  recpiired  by  the  various  accounting 
departments,  and  these  requirements  we  will  now  endeavor  to  explain. 


FREIGHT  TRAFFIC. 

The  freight  business  of  a  railroad  is  usually  much  greater  than  the  passen- 
ger business,  and  the  system  of  accounting  is  by  no  means  uniform,  although 
some  general  features  are  much  the  same  with  all  roads.  Every  railroad  uses 
a  waybill  in  some  form,  which  gives  essentially  the  same  detail,  viz.:  Date. 
No.,  Where  from.  Destination.  Consignor,  Consignee,  Description  of  articles 
and  number,  Weight.  Rate,  Local  Charges,  Advanced  Charges  (if  any).  Car 
No.,  and  in  some  instances  information  as  to  junction  points,  etc. 

Some  railroads  have  monthly,  some  weekly  and  some  daily  reports  of 
freight  forwarded  and  received. 

All  corporation  accounts  must  have  some  safeguards  that  are  not  so 
necessary  in  private  business,  not  because  all  men  are  untrustworthv.  but 
where  many  are  employed  there  may  be  unfaithful  persons,  and  all  safeguards 
have  a  tendency  to  strengthen  some  who  might  otherwise  be  weak. 

Freight  accounting  .l>egins  with  the  delivery  of  the  freight  to  the  carrier. 
After  examination  a  bill  of  lading  is  given,  then  follows  the  making  oi  the 

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way  bill.  These  waybills  are  almost  invariably  made  in  copying  ink,  the 
exceptions  being  very  small  stations,  and  there  pen  and  ink  copies  are  made. 
The  freight  is  then  loaded  and  the  way  bill  given  to  the  conductor.  On  most 
roads  the  way  bill  goes  with  the  freight,  so  if  a  car  is  stopped  anywhere  for 
any  reason,  the  way  bill  is  left  with  it.  When  the  freight  arrives  at  the  destina- 
tion, it  has  to  be  unloaded,  inspected  and  often  re-weighed.  Notice  must  be 
sent  to  the  consignee,  and  when  the  goods  are  delivered  by  him  he  must  give 
a  receipt  for  the  freight  and  take  a  receipt  for  the  goods  and  then  the  charges 
must  be  accounted  for.  Out  of  these  transactions  grow  the  reports  that  are 
made  to  the  auditor. 

Let  us  look  first  to  the  duties  of  the  forwarding  agent.  First,  he  must 
examine  the  freight  offered,  count  the  pieces,  see  that  all  are  properly  marked 
and  boxed  where  boxing  is  necessar>'  and  weigh  them.  If  the  freight  is  of 
doubtful  value  or  liable  to  perish  if  not  called  for  at  once  when  received 
at  destination,  the  charges  must  be  prepaid  or  guaranteed,  and  the  forwarding 
agent  is  held  liable  for  these  guarantees.  If  the  shipper  prepays  the  charges 
the  forwarding  agent  is  responsible  for  the  correctness  of  the  charges. 

When  freight  is  received,  the  first  form  used  is  the  bill  of  lading,  some- 
times called  the  shipping  bill  or  dray  ticket.  This  bill  of  lading  is  a  receipt 
when  signed  by  the  agent,  and  should  give  the  name  of  the  shipper,  consignee, 
destination,  list  and  weight  of  the  articles  and  routing.  No  freight  should 
be  received  without  a  bill  of  lading,  as  it  is  the  only  written  authority  the 
agent  has  for  any  action  or  accounting. 

We  now  come  to  the  way  bill,  which  is  the  only  form  that  passes  from 
the  forwarding  agent  to  the  receiving  agent.  It  is  a  different  form  from  the 
bill  of  lading  in  its  arrangement  of  the  same  items.  It  adds  rate  and  charges 
and  has  spaces  for  other  items  peculiar  to  each  road.  A  way  bill  should  never 
cover  more  than  one  car  of  freight  unless  the  cars  are  coupled  together  for 
special  purpose. 

The  columns  on  the  way  bill  will  be  headed  Consignor,  Consignee, 
Articles,  Weight,  Rate,  Advanced  Charges,  Local  Charges,  Prepaid  Charges 
and  Prepaid  Beyond  Charges. 

The  use  of  the  first  five  columns  needs  no  explanation.  The  advanced 
charges  accrued  before  our  billing  agent  received  the  freight.  These 
charges  may  be  for  freight  cars  on  connecting  roads,  switching  charges,  or  for 
drayage,  and  sometimes  it  is  for  the  cost  of  the  article  shipped.  Our  billing 
agent  is  expected  to  pay  these  charges  to  the  proper  persons  and  to  take  a 
receipt  from  them.  Nowadays  it  is  the  rule  to  pay  these  charges  by  draft 
on  the  treasurer  of  the  road.  The  local  charges  are  what  our  road  gets  for 
its  haul.  Each  way  bill  must  have  a  distinguishing  number.  It  is  the  custom 
to  commence  with  No.  1  each  month. 

Interlining  billing  of  freight  is  now  almost  universal.  This  billing  is 
numbered  in  series  with  prefixes  which  indicate  routing,  such  as  I.  C  1  or 
C.  A.  3. 

The  forwarding  agent  sends  copies  of  all  these  way  bills  to  interested 
parties  in  traffic  and  accounting  departments.    In  addition  to  these  copies,  a 

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summary,  called  a  Forwarded  Abstract,  is  made  either  daily,  weekly  or 
monthly,  as  required  by  the  auditor,  on  a  form  with  the  following  headings: 
Date    I    No.    |    Description.    |    Wt.    |    Ad.   Charges.    [    Local.    |    P.   P. 

The  items  are  arranged  in  groups  as  to  receiving  station.  We  will  leave 
further  accounting  of  freight  forwarded  until  we  come  to  the  balance  sheet. 

When  the  freight  is  received,  the  agent  must  first  notify  the  consignee 
of  its  arrival.  Next  an  expense  bill  will  be  made.  This  expense  bill  and  a 
receipt  for  the  freight  are  usually  printed  together,  so  the  agent,  by  the  use  of 
a  carbon  sheet,  can  make  out  both  forms  at  once.  The  expense  bill  will  be 
a  copy  of  the  way  bill  in  almost  every  particular,  but  the  arrangement  of  this 
detail  will  be  in  a  very  different  form.  One  of  these  expense  bills  should  be 
given  with  each  shipment.  It  is  a  very  important  paper,  since  no  claim  will 
be  entertained  either  for  loss,  damage  or  overcharge,  which  is  not  accompanied 
by  the  original  expense  bill.  The  receipt  is  a  very  important  record  for  an 
agent  to  keep,  as,  dealing  with  many  strangers  or  doing  a  large  business, 
disputes  would  arise  many  times  if  it  were  not  for  this  receipt.  These  expense 
bills  and  receipts  are  numbered  consecutively,  commencing  the  first  of  each 
month  at  the  larger  stations  and  once  a  year  at  the  smaller  stations,  and  are 
called  progressive  or  "  pro."  numbers,  to  distinguish  them  from  the  way  bill 
numbers.  In  addition  to  these  expense  bills  and  receipts,  the  receiving  agent 
is  required  to  keep  a  Freight  Received  book,  which  is  really  a  copy  of  each 
and  every  way  bill. 

The  receiving  agent  is  held  responsible  for  the  correctness  of  the  charges 
collected  by  him.  He  must  either  collect  the  proper  amount  and  remit  it  or 
the  freight  must  be  on  hand.  Agents  are  not  allowed  to  extend  credit  for  a 
moment,  except  at  the  most  important  stations,  and  then  only  on  authority 
of  the  auditor. 

The  Freight  Received  Abstract  is  almost  identical  with  the  Forwarded 
Abstract,  only  the  general  heading  being  changed.  The  arrangement  of  items 
on  this  abstract  will  be  grouped  as  to  the  forwarding  stations. 

Both  abstracts  have  summaries  so  that  the  totals  with  each  station  are 
shown  and  a  grand  total  made,  which  grand  total  is  carried  to  the  balance  sheet. 

If  insufficient  charges  were  collected,  the  agent  is  notified  of  the  fact  by 
a  correction  sheet  made  out  by  the  revising  clerk  in  the  general  office,  and 
he  must  charge  himself  with  it.  The  auditor  cares  nothing  about  his  methods 
of  collecting  or  whether  he  collects  it  at  all.  The  agent  should  have  collected 
the  right  amount,  and  he  is  charged  with  it  even  if  it  comes  out  of  his  own 
pocket.  In  exceptional  cases  this  rule  is  not  enforced,  but  such  leniency  is  not 
common. 

When  undercharges  are  collected  the  original  expense  bills  should  be 
returned  and  the  correction  endorsed  on  its  face.  When  overcharges  are 
refunded,  credit  is  not  allowed  an  agent  until  he  can  show  shipper's  receipt 
for  the  overcharge,  unless  the  correction  was  made  before  the  freight  charges 
were  collected.  These  refunds  should  also  be  endorsed  on  the  original 
expense  bills. 

A  cash  book  must  be  kept,  showing  on  one  side  all  collections,  giving 


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Pro.  Xo.,  \V.  B.  Xo.,  Billing  Station,  and  amount  collected.  This  should 
be  posted  to  the  Freight  Received  book  and  any  unpaid  items  will  then  be 
clearly  shown.  These  unpaid  items  are  listed  at  the  close  of  each  month  and 
the  total  carried  to  the  balance  sheet. 

At  the  close  of  the  month,  after  the  abstracts  are  correctly  made  up. 
the  debits  and  credits  are  summed  up  on  a  sheet  called  the  balance  sheet. 
The  debit  or  left-hand  side  of  this  sheet  will  have  the  following  items  on  it: 

(Heading  for  the  Agent's  Statement) 

R.  R.  Co. 

Station. 

Agent's  Statement  for  the  month  of...., 
1899. 

Agent. 

(Left  hand  side.) 

1  Balance,   as   per   last   month's   re- 

port   $ 

2  Uncollected     Bills,     as     per     last 

month's  report    $ 

3  Advanced  Charges  on  Freight  Re- 

ceived this  month    $ 

4  Local    Charges    on    Freight    Re- 

ceived this  month    $ 

Under    Charges    this    month $ 

Prepaid  Charges  on  Freight  For- 
warded this  month $ 

Drafts  on  Treasurer  this  month, 
as   per   list    .$ 

Local  Ticket   Sales  this  month... $ 

Coupon  Ticket  Sales  this  month. $ 

Balance   due  agent    $ 


5 
6 


.3 

4 


8 

9 

10 


(Right  hand  or  credit  side.) 

Balance,  as  per  last  month's  re- 
port      $ 

Advanced  Charges  on  Freight  this 
month $ 

Over  Charges  paid  this  month  . .  .$ 

Cash  Remitted  Treasurer  on  this 
month's  account,  as  per  list...$ 

Prepaid  Charges  on  Freight  Re- 
ceived this  month   $ 

Uncollected  Charges  on  Freight 
on  hand  .$ 

Balance  due  the  Co $ 


$  $ 

On  the  back  of  this  statement  there  is  a  place  for  the  remittances  and  the 
drafts  on  the  treasurer  to  be  listed.  The  list  of  uncollected  freight  charges 
is  usually  on  a  separate  sheet,  as  it  is  frequently  very  long  at  the  large  stations. 

Xow  let  us  look  to  the  explanation  of  these  items  on  the  balance  sheet. 

First,  our  agent  is  expected  to  have  his  sheet  in  balance  so  this  space 
is  not  used,  by  remitting  exactly  enough  to  balance.  However,  this  is  the 
ideal  and  is  not  generally  attained  at  the  smaller  stations  where  cheap  help 
is  used.  Sometimes  the  figures  as  reported  are  changed  in  the  general  office 
and  th?  balance  after  correction  is  shown  here.  Second,  this  item  compares 
somewhat  with  the  inventory  account  in  general  business  in  the  particular 
that  it  is  a  list  of  "  stock  "  on  hand,  and  should  be  carried  over  from  one 
period  to  another  as  the  inventory  is.  Third  and  fourth  items.  Our  agent 
charges  himself  with  all  charges  to  be  collected  by  him,  whether  they  accrued 
on  his  road  or  on  connecting  lines,  so  he  charges  himself  with  both  the  local 
charges  and  the  advanced  charges,  those  being  the  terms  used  to  distinguish 
between  the  charges  accruing  on  our  road  and  its  connections.  Fifth,  this 
item  is  not  used  much  by  some  roads.     Systems  vary  in  their  methods  of 

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correcting  errors.  Some  correct  the  billing  "  on  its  face  "  and  in  listing  local 
charges,  list  the  corrected  figures.  Some  roads  prefer  to  have  the  receiving 
agent  take  the  charges  in  the  under  and  overcharge  columns.  Sixth,  as  our 
agent  collects  the  charges  on  some  of  the  freight  forwarded  by  him.  he  mu-t 
account  for  it,  and  this  is  the  place.  Seventh,  our  agent  must  charge  himself 
with  all  drafts  drav/n  to  pay  advanced  charges  and  must  list  the.se  drafts 
on  the  back  of  the  balance  sheet  in  the  place  provided. 

Some  roads  have  a  separate  balance  sheet  for  the  ticket  business,  but 
unless  there  is  a  freight  auditor  and  a  ticket  auditor  this  is  not  necessary.  In 
cases  where  the  accounting  is  all  done  in  one  department,  the  above  fonn  can 
be  used. 


explanation  of  credit  side. 

Second  Item.  As  the  agent  pays  the  advanced  charges  to  the  road  on 
which  they  accrued,  he  gets  credit  by  putting  it  here  on  the  credit  side  of 
his  balance  sheet.  If,  as  on  most  roads,  he  pays  all  these  items  b>-  draft  on 
the  treasurer,  the  amount  of  the  credit  here  will  be  exactly  the  amount  of  the 
draft  total  on  the  debit  side.  If,  as  on  some  roads,  he  pays  these  charges  out 
of  his  cash,  he  must  take  a  receipt  for  the  amounts  so  paid  and  credit  will 
be  allowed.  Third  Item.  Our  agent  is  entitled  to  credit  for  all  over-charges 
refunded  by  him,  and  this  is  the  place  provided  for  that  purpose.  He  must 
get  a  receipt  for  all  of  these  payments  if  they  were  paid  after  the  expense 
bill  was  made  out  and  must  make  a  notation  of  the  refund  on  the  exi>ense  bill. 
Fourth  Item.  All  remittances  should  be  listed  in  the  place  provided  for  that 
purpose  on  the  back  of  the  balance  sheet  and  the  closing  remittance  should  be 
the  amount  necessary  to  make  a  balance  of  the  sheet.  Fifth  Item.  On  the 
debit  side  our  local  agent  charged  himself  with  all  the  local  charges  on  freight 
received,  but  as  some  of  these  charges  were  collected  by  the  forwarding  agent, 
the  receiving  agent  must  take  credit  for  the  amount  not  collected  by  him  for 
this  reason,  in  this  space.  Sixth  Item.  As  we  cannot  expect  our  agent  to  remit 
for  any  but  the  collected  items  and  as  we  charge  him  with  all  freiirht  charjre- 
on  freight  received  by  him,  we  must  provide  some  place  for  him  to  get  credit 
for  the  items  yet  uncollected  and  we  do  it  here. 

Some  people  may  wonder  how  the  collection  of  charges  on  a  shipment 
going  from  say  Denver  to  Xew  York,  is  accounted  for. 

\\t  will  suppose  that  the  shipment  is  a  car  load  and  is  shipped  by  the 
Union  Pacific,  Chicago  &  Alton,  Lake  Shore  and  Xew  York  Central  railroads, 
and  that  no  system  of  through  billing  is  used.  The  agent  at  Denver  will  bill 
cut  say  $25  local  charges  to  Kansas  City.  At  Kansas  City  the  Union  Pacific 
agent  will  turn  the  car  and  an  expense  bill  over  to  the  Chicago  &  Alton  agent, 
who  will  pay  him  the  '$*?5  and  will  make  his  way  bill  read,  "  Advanced 
Charges  "  $25,  local  charges  say  $20.  The  Chicago  &  Alton  agent  at  Chicago 
will  turn  the  car  over  to  the  Lake  Shore  at  Chicago  with  an  expense  bill  for  $4."i 
and  the  Lake  Shore  agent  will  bill  it  out  as  $45  advanced  charges  and  sav  $1-5 
local  charges.     The  RuflFalo  agent  will  turn  the  car  over  to  the  Xew  York 


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Central  together  with  an  expense  bill  for  $60  and  the  New  York  Central 
agent  will  bill  it  out  as  $60  advanced  charges  and  say  $15  local  charges,  and 
upon  delivery  of  the  car,  will  collect  $75  and  give  an  expense  bill  for  that 
amount.  Thus  it  will  be  seen  that  each  road  has  been  paid  as  they  delivered 
the  car  and  the  total  charges  are  collected  at  destination. 

If  a  system  of  through  billing  was  in  use  for  this  route,  the  agent  at 
Denver  would  bill  it  direct  on  New  York  as  if  it  was  a  station  on  the  Union 
Pacific,  except  that  he  would  have  used  the  series  number  provided  for  the 
routing,  and  left  the  divisions  to  be  made  by  the  general  office. 


passenger  tickets. 

Accounting  for  tickets  is  simple  when  you  know  how,  but  I  have  always 
felt  that  to  the  uninitiated  it  must  be  an  enigma,  so  for  their  benefit  I  will  out- 
line briefly  the  methods  used. 

In  passenger  accounts  we  have  to  do  almost  entirely  with  tickets.  They 
are  of  many  forms,  all  requiring  unflagging  interest  from  the  time  they  leave 
the  printers'  hands  until  they  are  taken  up  by  the  conductor  and  forwarded  to 
the  general  office.  There  is  no  other  form  used  by  railroads  that  corresponds 
in  importance  to  the  passage  ticket. 

Passenger  accounts  are  much  simpler  than  freight  accounts.  The  passen- 
ger buys  his  ticket  and  pays  for  it.  The  accountant  neither  knows  nor  cares 
who  buys  the  ticket,  but  in  freight  handling  he  must  examine  and  receipt 
for  the  property,  issue  bill  of  lading,  and  when  goods  reach  their  destination, 
must  hunt  up  the  consignee,  collect  the  charges  and  get  consignee's  receipt. 
The  passenger  loads  and  unloads  himself,  while  the  handling  of  freight  is 
very  laborious. 

The  modern  ticket  is  the  result  of  many  years  of  progress.  Once  tickets 
were  used  over  and  over  again.  An  early  device  was  the  use  of  different 
colored  tickets  for  different  months.  Passengers  were  then  compelled  to  buy 
a  ticket  and  recheck  their  baggage  at  every  junction  point.  The  plan  of 
numbering  the  tickets  was  perhaps  the  greatest  single  improvement. 

Tickets  are  printed  in  several  cities  by  houses  of  greatest  reliability  and 
responsibility,  and  by  machinery  of  the  highest  order.  The  work  is  done  by 
trusted  employes  and  many  precautions  are  used  to  prevent  fraudulent  tickets 
from  getting  on  the  market. 

The  supply  of  tickets  that  the  ordinary  railroad  keeps  on  hand  to  meet 
the  requirements  of  business  from  day  to  day,  represents  a  fabulous  sum 
of  money.  When  these  tickets  are  sent  to  agents,  they  are  invoiced  just  as 
jobbers  invoice  goods.  The  ticket  stock  of  a  railroad  is  usually  kept  by  the 
general  passenger  agent.  When  tickets  are  sent  to  the  agents,  a  duplicate 
invoice  is  sent  to  the  auditor,  who  charges  the  agent  with  the  tickets,  not  in 
dollars  and  cents,  but  as  so  many  tickets  of  each  kind.  The  agent  is  required 
to  receipt  for  these  tickets  and  return  the  receipt  to  the  general  passenger 
agent. 


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Some  roads  require  a  report  of  tickets  sold  for  each  train,  some  for 
each  day,  and  some  only  weekly  or  monthly  reports. 

There  are  many  kinds  of  tickets  in  general  use.  Local  tickets  are  tickets 
good  on  only  one  road.  Interline  or  coupon  tickets  are  good  on  two  or  more 
roads.  Mileage  tickets  are  good  on  one  or  more  roads,  as  may  be  agreed  upon. 
There  are  various  kinds  of  tickets  issued  under  the  above  general  heads. 
The  most  common  form  is  the  card  ticket.  It  is  printed  on  pasteboard  and  is  of 
two  kinds,  single  and  round-trip.  Both  selling  station  and  destination  are 
printed  on  the  ticket.  This  ticket  is  not  used  altogether  for  local  passage, 
as  that  would  require  every  station  to  have  tickets  good  for  passage  to  ever}' 
other  station  on  the  road,  a  useless  expense  and  a  waste  of  room.  So  we  have 
the  blank  local  ticket  for  use  where  for  any  reason  this  fonn  is  preferable  to 
the  card  ticket.  These  tickets  are  usually  printed  on  safety  paper  and  are 
provided  with  a  stub,  so  that  the  selling  agent  may  keep  a  record.  The 
greatest  objection  to  this  ticket  is  that  the  destination  has  to  be  written  in, 
a  serious  matter  where  many  are  waiting  for  tickets.  This  is  the  form  that  is 
often  used  for  half- fares  by  tearing  off  a  corner.  This  comer  has  to  be 
turned  in  to  the  auditor  with  the  report  as  evidence  of  half  rate. 

Interline  or  coupon  tickets  are  of  many  kinds,  one  part  being  good  over 
each  railroad,  steamboat  or  transfer  bus.  The  money  for  the  entire  ticket 
IS  collected  by  the  road  selling  the  ticket,  which  road  accounts  to  the  various 
roads  over  which  passage  is  sold. 

Were  it  not  for  this  ticket,  travel  between  far  distant  points  would  be 
anything  but  pleasant,  as  we  would  have  to  get  up  at  ever}'  junction  point 
and  buy  a  new  ticket  and  recheck  our  baggage. 

Many  forms  of  interline  tickets  are  in  use.  They  differ  in  arrange- 
ment. Each  coupon  shows  the  name  of  the  selling  road,  the  character  of 
the  accommodation,  date  of  sale,  the  form  and  number  of  the  ticket,  destina- 
tion, lines  over  which  the  passenger  is  to  go  and  the  junction  points. 

No  ticket  is  good  until  it  has  been  stamped  by  the  selling  agent. 

We  will  now  see  how  the  sales  are  accounted  for.  First,  we  have  the 
card  tickets.  The  report  will  usually  have  the  name  of  the  station  printed 
on  it  and  columns  for  each  form  of  card  ticket.  These  colimins  will  be 
headed  "  Highest  No.  on  hand,"  "  Commencing  No.,"  "  Qosing  No.,"  "No. 
sold,"  "  Rate,"  and  "  Proceeds."  The  difference  between  the  closing  number 
one  month  (which  is  the  commencing  number  of  the  month  that  follows  it) 
and  the  closing  number  of  the  next  month,  is  the  number  of  tickets  sold  in 
the  current  month. 

The  report  of  blank  local  tickets  is  made  on  the  same  form  as  to  headings, 
but  the  names  of  the  stations  to  which  tickets  are  sold  is  usually  written  in, 
instead  of  being  printed. 

All  spoiled  tickets  must  be  returned  for  credit,  as  agents  are  charged 
with  all  tickets  not  in  their  cases. 

The  report  of  coupon  sales  is  made  on  another  fonn,  with  heading  sub- 
stantially as  follows:  "Destination,"  "Form  No.,"  **aass,**  "Highest  No. 
on    hand,"    "Commencing    No.,"    "Qosing    No.,"    "No.    sold,"    "Rate,** 


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**  Amount."    A  summary  of  sales  of  all  classes  constitutes  the  charge  against 
the  agent  for  the  month. 

Our  agent  should  remit  closely  every  day  and  the  total  remittance  should 
equal  the  total  sales. 

The  account  of  conductors'  collections  is  the  most  difficult  one  we  have 
to  face.  It  is  not  the  form  of  this  report  that  will  bother  us,  but  to  find  a 
system  that  will  be  effective  as  a  check  on  the  collections.  Neither  gate 
keepers,  train  auditors  nor  ticket  collectors  have  proven  entirely  efficient. 
There  are  many  reasons  why  our  systems  are  defective.  Conductors  may 
be  perfectly  honest,  but  in  the  many  duties  that  are  placed  upon  them,  a  system 
that  might  be  effective  would  be  too  laborious.  When  we  consider  the  duties 
of  a  conductor,  we  will  not  be  so  sure  that  his  errors  are  caused  by  dishonesty. 
Some  roads  nm  ten  or  twelve  coaches  often  crowded  and  doing  a  local  busi- 
ness. In  addition  to  looking  after  his  train,  he  must  take  up  and  cancel  every 
ticket,  many  of  which  will  be  new  forms,  some  issued  by  roads  of  which  he 
has  never  heard,  and  which  may  or  may  not  be  spurious;  issue  train  checks, 
etc.,  etc.,  besides  many  other  duties.  He  has  no  office,  but  must  do  his  work 
in  the  aisle  of  the  car  while  the  train  is  in  motion. 

In  accounting  for  money  collected  the  matter  is  simple  enough  so  far  as 
form  goes,  as  it  is  only  necessary  to  note  the  station  at  which  passenger  gets 
on  and  off  and  the  amount  collected.  Conductors  are,  from  the  nature  of 
their  work,  a  very  intelligent  class  of  men.  Coming  in  contact  with  all  classes 
of  people  sharpens  their  wits  and  in  many  ways  they  are  the  superiors  of  any 
class  of  railroad  employes.  There  is  no  system  of  cash  fare  reports  now  in 
use  to  my  knowledge  but  can  be  beaten  by  a  shrewd  conductor.  Accountants 
have  to  plan  to  circumvent  all  means  by  which  the  public  or  its  own  employes 
seek  to  profit  at  the  expense  of  the  company. 

All  tickets  taken  up  by  the  conductors  are  turned  in  to  the  auditor's 
office  with  their  report  and  are  there  sorted  and  checked  against  the  agent's 
reports  of  sales.  This  sorting  and  checking  requires  much  work  and  care, 
but  is  regarded  essential  by  most  accountants. — F.  M.  Wearer. 


CLASSIFICATIOX  OF  EXPENDITURES  FOR  ROAD 

AND  EOUIPMENT. 


I.    ROAD. 


1.     engineering. 


To  this  account  should  be  charged  salaries  and  expenses  of  all  engineers, 
assistants  and  axmen :  costs  of  teams  for  transportation  of  engineers  and 
men  to  and  from  work,  or  upon  trips  of  inspection  of  line  of  work  or  inci- 
dental thereto:  engineers'  instruments,  rods,  chains,  axes,  hatchets,  tapelines, 
keel  or  marking  chalk,  stakes,  profile  and  drawing  paper,  tracing  linen  or  paper, 
cross-section  paper,   transit  and  level  books,   cross-section   or  topographical 

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books,  india  ink  and  colors,  drawing  boards,  stools,  map  cases,  fuel,  light,  camp 
equipage,  and  other  analogous  items. 

Note. — When  employes  enumerated  above  are  engaged  in  work  not  chargeable 
to  construction  their  pay  and  expenses  should  be  charged  to  the  specific  work  on 
which  engaged. 


2.      RIGHT    OF    WAY    AND    STATION    GROUNDS. 

To  this  account  should  be  charged  the  cost  of  land  acquired  for  roadbed 
(of  necessary  width  conformable  to  depth  and  slopes  of  excavations  and 
embankments,  including  borrow  pits  and  waste  banks  adjoining  right  of  way ) 
and  station  and  terminal  grounds ;  also  the  cost  of  land  purchased  for  ingress 
to  or  egress  from  station  grounds ;  salaries  and  expenses  of  counsel,  right-of- 
way  agent,  and  engineers  and  assistants  when  specially  engaged  for  such 
matters ;  cost  of  stakes  used  to  denote  right-of-way  limits ;  expenses  of 
appraisals,  or  of  juries,  commissioners,  of  arbitrators  in  condemnation  cases: 
cost  of  removal  of  buildings  (if  upon  right  of  way  or  station  or  tenninal 
grounds,  and  not  included  in  property  purchased)  ;  commissions  paid  outside 
parties  for  purchase  of  properties  for  these  purf)oses :  costs  of  plats,  abstracts, 
notarial  fees,  recording  deeds,  etc. ;  and  payments  for  abutting  damages. 

Note. — The  estimated  salable  value  of  property  not  required  in  connection  with 
the  operation  of  the  road  after  completion  thereof,  but  acquired  and  charged  to  this 
account  in  connection  with  land  needed  for  right  of  way  and  station  grounds  should, 
upon  completion  of  the  road,  be  credited  to  this  account  and  charged  to  an  appro- 
priate property  account.  Where  such  property  is  sold  upon  or  prior  to  the  comple- 
tion of  the  road,  the  proceeds  of  sale  thereof  should  be  credited  to  this  account. 

3.      REAL     ESTATE. 

To  this  account  should  be  charged  the  cost  of  land  acquired  for  use 
directly  in  connection  with  the  operation  of  the  road,  but  in  excess  of  and  in 
addition  to  that  actually  required  for  roadbed  or  station  or  terminal  grounds, 
including  all  expenses  incurred  in  connection  with  such  acquisition  as  enum- 
erated in  account  No.  2,  "  Right  of  Way  and  Station  Grounds." 

4.      GRADING. 

To  this  account  should  be  charged  the  cost  of  grading  roadbed,  whether 
excavations  or  embankments;  clearing  and  grubbing;  dressing  slopes  of  cuts 
and  fills ;  reconstructing  pikes  or  roads ;  ditching  roadbed ;  berm  ditches ;  cost 
of  material  taken  from  borrow  pits,  haiU  if  allowed ;  amounts  paid  for  privilege 
of  making  waste  banks  outside  of  company's  right  of  way  or  station  grounds ; 
ditches  for  waterways  not  specially  required  by  right-of-way  agreement  (where 
so  required  cost  would  be  properly  chargeable  to  account  No.  'i,  **  Right  of  Way 
and  Station  Grounds").  This  account  should  include  the  cost  of  retaining 
walls  and  other  masonry  or  riprap  for  the  protection  of  embankments,  cuts, 
and  slopes ;  cribbing  or  bulkheading  built  to  protect  the  tracks  or  embank- 

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ments  along  the  seashore  or  banks  of  lakes  and  streams,  including  the  cost  of 
any  cribs,  breakwaters,  wing  dams,  or  other  devices  constructed  to  change 
the  direction  of  the  current  of  a  stream  to  prevent  the  washing  of  the  bank; 
also  freight  on  material,  and  transportation  and  subsistence  of  grading  gangs. 
If  special  grading  outfits  be  bought  by  the  railroad  company  to  be  used 
in  grading,  the  cost  of  such  outfits  when  bought  should  be  charged  to  this 
account.  'The  proceeds  frorp  sale  of  these  outfits,  if  sold  after  completion  of 
grading,  should  be  credited  to  this  account.  If,  however,  the  outfits  be  retained 
and  used,  this  account  should  be  credited  with  the  inventory  value  thereof  on 
ihe  completion  of  grading,  and  account  No.  41,  "  Work  Equipment,"  charged 
therewith. 

5.    tunnels. 

To  this  account  should  be  charged  the  cost  of  tunneling,  including  such 
timber  as  may  be  used  for  centering,  packing,  etc. ;  cost  of  steel,  stone,  brick, 
cement,  sand,  lime,  salt,  piles,  timber,  spikes,  nails,  braces,  concrete,  etc.,  used 
in  the  construction  or  lining  of  tunnels;  cost  of  labor  preparing  or  securing 
them,  transportation,  scaffolding,  cofferdams,  and  pneumatic  caissons;  cost  of 
soundings,  and  machinery,  pumps,  engines,  etc.,  used  for  such  work. 

Note. — This  account  does  not  include  cost  of  the  track  through  the  tunnel  or 
of  surfacing  such  track. 

6.   BRIDGES,  TRESTLES,  AND  CULVERTS. 

To  this  account  should  be  charged  the  cost  of  bridges  ahd  trestles 
erected  to  carry  tracks  over  streams,  ravines,  streets,  or  other  railways  and 
culverts,  both  substructure  and  superstructure,  including  transportation.  This 
account  should  include  cost  of  abutments,  piers,  supports,  draw  and  pier  pro- 
tection;  machinery  to  operate  drawbridges;  guard  rails;  masonry  ends  and 
wing  walls  for  culverts;  cost  of  inspection  of  bridge  material  either  at  shop 
or  site  of  structure ;  costs  of  tests ;  cost  of  wing  dams,  cribs  or  ice  breakers 
for  regulating  the  current  of  a  stream  or  breaking  up  ice  jams;  also  labor 
and  material  used  in  painting  structure. 

In  case  "  false  work  "  is  furnished  by  the  railway  company  for  erection 
of  bridge  superstructure,  the  cost  should  be  charged  to  this  account,  and 
when  removed  the  value  of  the  material  removed  should  be  credited  to  this 
account  and  charged  to  the  account  benefited. 


I'  *, 

'  i 


7.      TIES. 

To  this  account  should  be  charged  the  cost  of  cross,  switch,  bridge,  and 
other  ties  and  railway  crossing  timbers  laid  in  the  main  track  or  tracks,  sidings, 
spurs,  and  repair  tracks ;  in  timnels,  stations,  shop  and  other  yards ;  on  wharves, 
piers,  track  scales,  inclines,  bridges,  trestles,  and  culverts;  to  and  from  coal 
chutes,  coal  pockets,  fuel  and  water  stations,  etc.,  excluding  inclines  of  fuel 
stations,  tracks  in  ballast  pits,  enginehouses,  shops,  and  storehouses,  and  on 


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transfer  tables  and  turntables.  To  this  account  should  be  charged  also  the 
cost  of  transportation,  inspection,  handling  (except  final  distribution),  and 
any  process  of  preservation. 

Note. — See  account  No.  20,  "  Shops,  Enginehouses,  and  Turntables,"  and 
account  No.  23,  "  Fuel  Stations." 

8.    rails. 

To  this  account  should  be  charged  the  cost  of  rails  laid  in  the  main  track 
or  tracks,  sidings,  spurs,  and  repair  tracks ;  in  tunnels,  stations,  shop  and  other 
yards;  on  wharves,  piers,  track  scales,  inclines,  bridges,  trestles,  and  culverts; 
to  and  from  coal  chutes,  coal  pockets,  fuel  and  water  stations,  etc.,  excluding 
inclines  of  fuel  stations,  tracks  in  ballast  pits,  enj^inehouses,  shops,  and  store- 
houses, and  on  transfer  tables  and  turntables.  To  this  account  should  be 
charged  also  the  cost  of  transportation,  inspection,  and  handling  (except  final 
distribution). 

Note. — See    account    No.    20, 
account  No.  23,  "  Fuel  Stations." 


Shops,    Enginehouses,    and    Turntables,"    and 


'   9.    frogs  and  switches. 

To  this  account  should  be  charged  the  cost  of  frogs,  switches,  derails, 
switch  lamps,  switch  locks,  and  other  switch  material,  including  switch  stands 
(throw  or  lever),  frog  and  switch  guard  rails,  crossing  frogs,  bolts,  etc.,  used 
in  foundations,  or  bases,  and  cost  of  transportation,  inspection,  and  handling 
(except  final  distribution). 

Note.— See  account  No.  20,  "Shops,  Enginehouses,  and  Turntables,"  and 
account  No.  23,  "  Fuel  Stations." 

10.      TRACK  fastenings  AND  OTHER  MATERIAL. 

To  this  account  should  be  charged  the  cost  of  spikes  used  for  laying  rails 

and  of  fish  and  tie  plates,  splice  or  angle  bars,  continuous  rail  joints,  chairs, 

rail  braces,  bolts,  nuts,  nut  locks  or  washers  used  in  connection  therewith :  cost 

of  guard  rails  on  curves  and  in  tunnels;  cost  of  bumping  posts;  also  the 

cost  of  transportation,  inspection,  and  handling  (except  final  distribution). 

Note.— See  account  No.  20,  "  Shops,  Enginehouses,  and  Turntables,"  and 
account  No.  23,  "  Fuel  Stations." 

11.      BALLAST. 

To  this  account  should  be  charged  the  cost  of  ballast,  whether  of  broken 
stone,  slag,  gravel,  or  other  material  specially  provided  for  this  purpose ;  also 
the  cost  of  loading,  hauling,  unloading  alongside  of  track,  and  of  transpor- 
tation. 

If  the  stone  or  other  ballast  is  produced  by  the  builders  of  a  railway 
there  should  be  included  in  the  cost  thereof  quarry  and  gravel  rights,  rails,  ties 

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and  other  track  material  laid  to  and  in  quarries  and  gravel  pits,  together  with 
the  cost  of  labor  employed  in  getting  out  and  preparing  the  ballast.  The  salable 
value  of  such  quarries  and  gravel  pits  or  of  the  rights  therein  upon  the  comple- 
tion of  construction  should  be  credited  to  this  account. 

13.    track  laying  and  surfacing. 

To  this  account  should  be  charged  the  cost  of  distributing,  laying,  spacing, 
and  lining  ties ;  cost  of  laying,  spiking,  and  jointing  rails,  surfacing  and  lining 
track,  including  the  adjustment  of  rails  to  proper  elevation,  and  labor  of 
placing  frogs,  switches,  and  bumping  posts;  cost  of  track  tools,  including 
shovels,  picks,  track  jacks,  crowbars,  levels,  spiking  mauls,  gages  and 
wrenches;  cost  of  spreading  ballast  and  putting  it  under  track;  expenses  of 
locomotives,  cars,  and  crews  distributing  track  material,  and  cost  of  trans- 
portation of  men,  tools,  appliances,  and  outfits  used  on  this  work. 

Note. — See  account  No.  20,  "Shops,  Enginehouses,  and  Turntables,"  and 
account  No.  23,  "  Fuel  Stations." 

13.      ROADWAY  TOOLS. 

To  this  account  should  be  charged  the  cost  of  the  first  outfit  of  tools, 
including  hand  and  push  cars,  velocipedes,  speeders,  etc.,  furnished;  sectio-i, 
bridge,  carpenter,  and  other  gangs  properly  to  equip  them  to  protect,  maintain, 
and  repair  the  property  when  it  is  opened  for  the  handling  of  commercial  traffic. 

14.  fencing  right  of  way. 

To  this  account  should  be  charged  the  cost  of  material  and  labor  used 
in  constntcting  board,  wire,  rail,  hedge,  stone,  or  other  fences  along  the  right 
of  way  or  limits  of  roadbed,  including  cattle  guards  and  wing  fences  thereto, 
and  transportation:  but  no  charge  should  be  made  to  this  account  for  fences 
constructed  around  stock  yards,  fuel  stations,  station  grounds,  shops,  and  on 
other  properties  outside  of  right  of  way,  which  should  be  charged  to  their 
appropriate  accounts.  (The  cost  of  permanent  or  portable  fences  for  pro- 
tection of  tracks  from  snow  or  sand  should  not  be  charged  to  this  account,  but 
to  account  Xo.  31,  "*  Miscellaneous  Structures.") 

15.  crossings  and  signs. 

To  this  account  should  be  charged  the  cost  of  labor  and  material  used  in 
constructing  farm,  country-road,  or  street  crossings  at  grade,  overhead  bridges, 
under  grade  crossings ;  all  track  signs,  crossing  gates,  highway  crossing  alarms, 
and  watchhouses  at  crossings;  and  cost  of  transportation. 

Note. — The  cost  of  bridges  or  trestles  carrying  tracks  over  streets  should  not 
be  charged  to  this  account,  but  to  account  No.  6,  "  Bridges,  Trestles,  and  Culverts." 

Ifi.      INTERLOCKING  AND  OTHER  SIGNAL  APPARATUS. 

To  this  account  should  be  charged  the  cost  of  interlocking  and  other 

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signal  apparatus  complete,  including  apparatus  for  block  signals  of  all  classes, 
when  built  by  contract.  If  built  by  the  railway  company,  there  should  be 
charged  to  this  account  the  cost  of  labor  and  material,  including  all  levers, 
racks,  wires,  pulleys,  semaphores,  .semaphore  signals,  ground  signals,  |x)sts, 
materials  in  box  troughs,  and  other  fixtures;  towers  an<l  foundations  for 
same:  signal  bells,  posts,  power  i)lants,  batteries,  and  wires,  bonding  rails, 
and  other  appliances  incident  thereto  and  all  other  work  necessary  to  com])lete 
them  ;  and  cost  of  transportation. 

17.      TELEGRAPH    AND  TELEPHONE   1,1  XES. 

To  this  account  should  be  charged  the  cost  of  constructing  telegraph  and 
telephone  lines,  including  conduits,  poles,  cables,  wires,  billets,  insulators, 
instruments,  and  all  other  materials  used :  also  labor  employed  in  the  con- 
struction work,  cost  of  all  tools  used :  and  cost  of  transix>rtation. 

IS.      STATION    nUILDIN<.S    AND    FIXTURES. 

To  this  account  should  be  charged  the  cost  of  material  and  labor  expended 
on  station  buildings,  including  cost  of  transportation,  station  signs,  platft)rms. 
sidewalks,  excavations,  foundations,  drainage,  water,  gas,  and  sewer  pipes 
and  connections,  steam  heating  apparatus,  stoves,  electric-light  and  i>ower  fix- 
tures including  wiring  for  same,  grading  and  putting  grounds  in  order  after 
buildings  have  been  finished :  electric  bells,  elevators,  and  all  other  mater;;.!, 
furniture,  or  fixtures  used  to  complete  the  buildings :  wells  for  water  supply 
of  stations;  salaries  and  expenses  of  architects:  also  cost  of  fences,  hedges, 
turnstiles,  etc.,  around  station  grounds. 

XoTE. — This  account  should  not  include  the  cost  of  similar  buildings  on  docks, 
wharves,  and  piers,  which  should  be  charged  to  account  Xo.  2(»,  "  Dock  and  Wharf 
Property." 


10. 


genF':r.\l  office  ruildixgs  and  fixtures. 


To  this  account  should  be  charged  the  cost  of  buildings  devoted  to  general 
office  purposes,  the  cost  of  all  fixtures  thereto  attached,  and  the  cost  of  fur- 
niture for  the  equipment  of  such  buildings. 

XoTE. — If  the  land  occupied  by  general  office  buildings  is  not  a  part  of  right  of 
way  and  station  grounds,  its  cost  should  be  charged  to  account  Xo.  .\,  "  Real  Estate."* 

•?0.      SHOPS.   ENGINEHOUSES   AND  TURNTAP.LE?; 

To  this  account  should  be  charged  the  cost  of  all  buildings  to  be  used 
as  shops  (including  transfer  tables),  car  .sheds,  or  enginehouses  (including 
cinder  and  drop  pits)  :  turntables:  plants  for  furnishing  power  or  for  heating 
and  lighting  the  buildings :  platforms,  sidewalks,  and  outhouses  in  connection 
therewith :  oil  houses,  sand  houses,  storehouses  for  company's  material, 
scrap  bins,  appurtenances,  etc.     This  account  should  include  amoimts  paid  for 

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shops,  enginehouses,  and  turntables  when  erected  under  contract.  If  built  by 
the  company,  there  should  be  charged  to  this  account  cost  of  labor  and  material ; 
preparing  grounds  before  and  clearing  up  same  after  construction;  founda- 
tions; painting;  excavation  for  and  lining  of  turntable  pits,  and  of  cinder 
or  drop  pits  inside  or  outside  of  enginehouses;  foundations  for  turntables; 
loading,  unloading,  and  placing  turntables  in  position;  levers,  tractors,  and 
stops  for  handling  turntables;  sewerage  systems;  connections  with  water- 
supply  systems ;  shop  wells ;  architects'  fees  for  drawing  plans  and  supervision 
of  construction ;  fences  and  hedges  on  and  around  shop  grounds ;  and  trans- 
portation and  incidental  expenditures.  To  this  account  should  be  charged  the 
cost  of  tracks  laid  on  transfer  tables  and  turntables  and  those  leading  there- 
from into  shops  and  enginehouses;  also  the  cost  of  all  tracks  laid  in  any  of 
the  buildings  above  described. 

21.     SHOP  machinery  and  tools. 

To  this  account  should  be  charged  the  cost  of  machinery  and  tools  placed 
in  shops  or  enginehouses,  including  foundations  therefor ;  cost  of  transporta- 
tion, loading,  unloading,  and  placing  machinery  in  position.  This  account 
includes  the  cost  of  stationary  engines  and  boilers,  motors,  compressors,  ash 
conveyors,  shafting,  belting,  cranes,  stationary  and  portable  forges,  lifting 
magnets,  hydraulic,  pneumatic,  and  electric  tools  and  machines,  and  all  other 
machinery  and  tools  in  shops  and  enginehouses,  including  the  small  hand 
tools  necessary  first  to  equip  a  shop. 

22.      WATER   stations. 

To  this  account  should  be  charged  the  cost  of  material  and  labor  expended 
in  the  construction  of  water  stations  for  the  purpose  of  supplying  locomotives 
with  water,  including  cost  of  windmills,  pumps,  boilers,  pumphouses,  tanks, 
tubs,  tank  foundations,  track  tanks  or  troughs,  stationary  engines,  and  all  fix- 
tures and  pipes,  standpipes, . or  penstocks,  and  connections;  pipe  lines,  wells, 
dams,  reservoirs,  settling  basins,  water-purifying  plants,  and  cisterns;  cost  of 
transportation ;  also  tools  used  in  the  work.  This  account  should  not  include 
water- works,  wells,  etc.,  exclusively  for  supply  of  shops,  power  plants,  stations, 
hotels,  tenements,  or  section  houses,  which  should  be  charged  to  appropriate 
accounts. 

23.     FUEL  stations. 

To  this  account  should  be  charged  the  cost  of  material  and  labor  expended 
in  the  construction  of  coal  platforms,  coal  sheds,  coal-pocket  chutes,  wood- 
sheds and  racks,  fuel-oil  plants,  and  all  machinery  or  appliances  necessary  to 
equip  them  for  service.  This  account  includes  inclines  of  fuel  stations  and  the 
cost  of  tracks  laid  thereon,  tipple  cars,  buckets  and  cranes  for  handling,  elevat- 
ing machinery  (including  gasoline  or  other  engines  for  operating),  dumping 
machinery,   all  appliances   for   weighing  coal   in   pockets   and   opening   coal 

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pockets,  also  cost  of  plants  for  handling  ashes  when  to  be  operated  in  connec- 
tion with  fuel  stations,  cost  of  transportation,  architects'  fees,  etc. 


24.   grain  ELEVATORS. 

To  this  account  should  be  charged  the  cost  of  grain  elevators,  including 
cost  of  foimdations,  conveyors,  fixtures,  and  machinery;  the  cost  of  trans- 
portation and  other  charges  incident  to  construction.  This  account  does  not 
include  the  cost  of  small  storage  elevators  at  way  stations,  which  are  con- 
sidered to  be  station  buildings. 


25.      STORAGE  WAREHOUSES. 

To  this  account  should  be  charged  the  cost  of  storage  warehouses,  includ- 
ing machinery  and  fixtures  therein ;  cost  of  transportation  and  all  other  expen- 
ditures incident  to  construction. 

Note. — The  buildings  herein  referred  to  are  not  the  ordinary  freight  ware- 
houses or  stations  where  freight  is  received  for  shipment,  etc.,  but  warehouses  m 
which  merchandise  is  stored,  and  which  the  railway  company  or  others  operate  as 
storage  warehouses. 


26.      DOCK   AND  WHARF  PROPERTY. 

To  this  account  should  be  charged  the  cost  of  docks,  wharves,  ferry  or 
Other  landings,  and  inclines  to  transfer  steamers,  including  buildings,  struc- 
tures, coal  and  ore  handling  machinery  thereon  and  appurtenances,  dredging 
of  slips,  piling,  filling  cribs,  pile  protection,  building  coflFerdams,  pumping 
or  bailing  water,  masonry  walls  or  filling,  etc.,  cost  of  transportation  and  all 
other  expenditures  incident  to  construction,  except  the  cost  of  tracks. 

(The  cost  of  ground  on  which  docks  or  wharves  are  built  and  of  riparian 
or  water-front  rights  in  connection  therewith  should  be  charged  to  account 
No.  2,  "  Right  of  Way  and  Station  Grounds:") 

27.      ELECTRIC-LIGHT   PLANTS. 

To  this  account  should  be  charged  the  cost  of  labor  and  material,  including 
cost  of  transportation,  used  to  put  in  operation  either  arc  or  incandescent  light- 
ing plants  (when  not  in  connection  with  station  buildings  or  shop  plants,  and 
so  covered  by  account  No.  18,  "  Station  Buildings  and  Fixtures,"  or  No.  20 
"  Shops,  Enginehouses,  and  Turntables"),  such  as  dynamos,  engines  for  run- 
ning dynamos,  wire  constituting  lines,  glass  globes,  carbon  or  arc  lights,  car- 
bonized filament  for  incandescent  lights,  poles,  hangers  for  lights,  insulators, 
and  every  expense  incidental  to  the  erection  of  the  plant.  When  it  is  necessary 
to  erect  a  building  for  an  electric-light  plant,  the  entire  cost  thereof  should  be 
charged  to  this  account. 

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28.      ELECTRIC-POWER  PLANTS. 


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To  this  account  should  be  charged  the  cost  of  stations  where  electric 
power  is  generated  for  operation  of  trains  and  cars,  whether  operated  by  steam 
or  water  power,  inchiding  the  cost  of  erection  of  power  house  and  car  sheds 
at  power  plant ;  flowage  rights ;  all  expenditures  for  labor  and  material,  reser- 
voirs, dams,  penstocks,  water  wheels,  or  turbines :  engines,  boilers  and  machin- 
ery, pumps,  condensers,  foundations  and  settings  for  steam  plants ;  generators, 
foundations,  settings,  switch  boards,  and  lighting  apparatus  for  electric-power 
plants.  (Cost  of  plants  for  furnishing  power  at  shops  should  be  charged  to 
account  No.  20,  "  Shops,  Enginehouses,  and  Turntables.") 

20.     electric  power  transmission. 

To  this  account  should  be  charged  all  expenditures  for  labor  and  material 
for  transmission  of  electricity  for  power  purposes,  including  span,  guard, 
feed,  and  overhead  trolley  wires,  poles,  cross-arms,  brackets,  insulators,  and 
connections ;  third  rails,  including  braces,  supports  and  devices  for  insulating, 
covering,  or  protecting;  bonding  rails,  including  connecting  plugs,  insulating 
mats,  plugs,  or  other  devices :  switch  boards,  switches,  cut-outs,  transformers, 
etc.,  (not  at  power  stations  or  substations)  ;  and  any  other  expenditures 
incurred  in  connection  with  the  building  of  lines  for  the  transmission  of 
electric  power. 

30.    gas-producing  plants. 

To  this  account  should  be  charged  the  cost  of  labor  and  material,  includ- 
ing cost  of  transportation,  used  to  put  into  operation  a  gas  producing  or 
compressing  plant  complete.  When  it  is  necessary  to  erect  a  building  for 
a  gas-producing  plant,  the  entire  cost  thereof  should  be  charged  to  this  account. 

31.     miscellaneous  structures. 

To  this  account  should  be  charged  the  cost  of  stmctures  of  every  char- 
acter, including  cost  of  material,  labor,  transportation,  and  all  incidental 
expenses  connected  therewith,  which  are  permanent  and  enter  into  the  cost 
of  road,  and  which  are  not  otherwise  herein  particularly  referred  to,  and  for 
which  no  account  has  been  provided :  the  object  being  to  designate  one  general 
classification,  to  which  may  be  charged  the  cost  of  all  minor  structures  and  in 
this  way  avoid  increasing  the  number  of  primary  accounts. 


10 


transportation  of  men  and  materials. 


To  this  account  should  be  charged  the  fares  of  laborers  and  freight 
charges  on  material,  outfits,  and  supplies  employed  in  construction  work  paid 
by  the  railway  company  and  properly  chargeable  in  expenditures  for  road,  but 
which  can  not  be  correctly  charged  under  any  other  construction  account.   This 

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account  may  include  such  items  as  fares  of  contractors,  their  walking  l)«>sses. 
paymasters,  clerks,  and  storekeepers :  of  lal)or  agents :  of  men  hired  by 
labor  agencies  and  shipped  out  on  the  line  who  may  be  employed  on  any  char- 
acter of  work;  freight  on  powder,  dynamite,  and  other  explosives,  hay,  grain, 
groceries,  and  other  supplies  for  contractors,  stores  to  be  sold  to  subcontractors, 
station  men,  laborers,  and  others ;  and  other  analogous  items. 


33. 


RENT   OF   equipment. 


To  this  account  should  be  charged  rent,  either  on  the  basis  of  per  diem, 
mileage,  or  at  fixed  rates  per  month,  of  all  equipments  (the  cost  of  which  is  not 
charged  to  the  line  under  construction)  used  in  construction  of  new  lines. 

34.      REPAIRS   OF  equipment. 

To  this  account  should  be  charged  repairs  and  renewals  of  all  ec|uip- 
ment  used  in  construction  of  new  lines,  not  otherwise  provided  for. 


OO. 


EARNINGS  AND  OPERATING  EXPENSES  DURING   CONSTRUCTION. 


To  this  account  should  be  charged  the  cost  of  operating  a  piece  of  road 
while  in  charge  of  the  construction  department  and  before  it  is  opened  for 
commercial  operation.  It  includes  the  cost  of  running  construction,  material, 
or  other  trains  when  the  cost  of  operating  such  trains  can  not  pro|>erlv  be 
charged  to  any  specific  account.  To  this  account  should  be  credited  amounts 
collected  for  rents  of  buildings  and  other  properties  and  for  the  transportation 
of  commercial  freight  or  passengers  on  construction,  material,  or  other  trains. 

3514.      INJURIES   TO   PERSONS. 

This  account  includes  all  expenses  incident  to  injuries  to  persons  when 
caused  directly  in  connection  with  construction  of  a  new  road :  proportion  of 
salaries  and  expenses  of  physicians  and  surgeons,  expenses  of  undertakers, 
nursing  and  hospital  attendance,  medical  and  surgical  supplies,  artificial  limbs, 
funeral  expenses,  railway  and  carriage  fares  for  conveying  injured  p>ersons 
and  attendants :  proportion  of  pay  and  expenses  of  claim  adjusters  and  their 
clerks,  and  pay  and  expenses  of  employes  and  others  called  in  consultation  in 
relation  to  the  adjustment  of  claims  coming  under  this  head :  also  witness  fees 
and  amount  of  final  judgments. 

Note. — This  account  does  not  include  such  expenses  incident  to  injurie?  tc 
persons  as  are  properly  includible  in  Account  No.  35,  "Earnings  and  Operating 
Expenses  during  Construction." 

3().      COST   OF   ROAD    PURCHASED. 

To  this  account  shoidd  be  charged  amounts  paid  for  road  purchased. 
In  this  connection  attention  is  specially  directed  to  the  note  at  the  beginning 


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of  this  classification.  Where  payment  is  made  by  an  issue  of  the  company's 
securities  or  other  commercial  paper,  the  cash  value  thereof  at  the  time  of 
such  payment  should  be  charged. 

When  the  purchase  price  paid  includes  equipment,  in  addition  to  the  road, 
the  equipment  received  should  be  appraised  and  the  appraised  value  thereof 
should  be  charged  to  the  appropriate  equipment  accounts,  the  difference  between 
same  and  the  total  amount  paid  in  cash,  or  the  cash  value  of  securities  issued 
in  payment,  being  charged  to  this  account. 

When  contracts  are  entered  into  for  the  construction  of  a  completed  road 
for  a  fixed  amount,  whether  payable  in  cash  or  in  the  company's  securities,  the 
amount  paid  in  cash  or  the  cash  value  of  the  securities  issued  in  payment 
should  be  charged  to  this  account.  In  case  the  contract  amount  includes  equip- 
ment in  addition  to  the  road,  the  value  of  the  equipment  should  be  ascertained 
by  appraisement  and  treated  as  above  provided. 


II.     EQUIPMENT. 

37.      STEAM  locomotives. 

To  this  account  should  be  charged  the  cost  of  steam  locomotives 
and  tenders,  including  all  appurtenances,  furniture,  and  fixtures  necessary  to 
equip  them  for  service,  purchased  or  built  at  the  company's  shops,  including 
cost  of  transportation  and  setting  up  after  receipt  from  builders. 

38.  electric  locomotives. 

To  this  account  should  be  charged  the  cost  of  electric  locomotives,  includ- 
ing all  appurtenances,  furniture,  and  fixtures  necessary  to  equip  them  for  serv- 
ice, purchased. or  built  at  the  company's  shops,  including  cost  of  transporta- 
tion and  setting  up  after  receipt  from  builders. 

39.  passenger-train  cars. 

To  this  account  should  be  charged  the  cost  of  passenger-train  cars  of  all 
classes,  including  all  appurtenances,  furniture,  and  fixtures  necessary  to  equip 
them  for  service,  purchased  or  built  at  the  company's  shops,  including  cost  of 
transportation. 

Note.— The  following  cars  are  classified  as  passenger-train  cars. 


Air-brake    instruction 
Baggage 

Baggage-express 
Baggage-mail 

Baggage-mail-express 

Buflfet 

Business 

Cafe 

Chair 

Colonist 


Combination    passenger 

and  baggage 
Dining 
Emigrant 
Express 
Library 
Mail 
Milk 

Observation 
Officers' 

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Parlor-baggage 

Passenger 

Passenger-baggage-mail 
Pay 

Postal 

Refrigerator-express 

Smoking 

Street 

Tourist 


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40.    freight-train  cars. 


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To  this  account  should  be  charged  the  cost  of  freight-train  cars  of  al! 
classes,  including  all  appurtenances,  furniture,  and  fixtures  necessary  to  equip 
them  for  service,  purchased  or  built  at  the  company's  shops,  including  cost  of 
transportation. 

Note. — ^The  following  cars  are  classified  as  freight-train  cars. 


Beer 

Fruit 

Ore 

Box 

Furniture 

Platform 

Cabin 

Gondola 

Polling 

Caboose 

Gondola-hopper 

Poultry 

Charcoal 

Gondola-long 

Produce 

Coal 

Gun  trucks 

Rack 

Coke 

Hay 

Refrigerator 

Dump    (commercial,    coal 

Lime 

Stock 

or    stone) 

Logging 

Tank  and  water   (when 

Flat 

Oil  tank 

used   as    commercial 
cars) 

41.      WORK  EQUIPMENT. 

To  this  account  should  be  charged  expenditures  of  the  following  nature, 
ing  all  appurtenances,  furniture,  and  fixtures  necessary  to  equip  them  for 
service,  purchased  or  built  at  the  company's  shops,  including  cost  of  trans- 
portation. 

If  special  grading  outfits  be  bought  by  the  railway  company  to  be  used 
in  grading,  the  cost  of  such  outfits  when  bought  should  be  charged  to  account 
No.  4,  "  Grading."  The  proceeds  from  sale  of  these  outfits,  if  sold  after  com- 
pletion of  grading,  should  be  credited  to  that  account.  If,  however,  the  outfits 
be  retained  and  used,  account  No.  4,  "  Grading  "  should  be  credited  with  the 
inventory  value  thereof  on  the  completion  of  grading  and  this  account  should 
be  charged  therewith. 

Note. — ^The  following  equipment  is  classified  as  work  equipment: 


Ballast 

Ballast,  unloaded  cars 

Boarding 

Bridge 

Camp 

Cinder 

Concrete  mixer 

Derrick 

Dirt    spreader 

Ditching 

Dump 

Dynamometer 

Grading 

Gravel 


Indicator 

Locomotive     tanks,     used 

permanently  as  water 

cars 
Outfit 
Painters 
Pile  drivers 
Rail  saw 
Salt 

Sanding 
Scale  test 
Snow  dozer 
Snow  drags 


42.      FLOATING   equipment. 


Snow  ploughs  (not  at- 
tached to  locomotives 
but  moved  by  them) 

Sprinkling 

Steam  shovels 

Steam  wrecking  derricks 

Supply 

Sweeper 

Tool 

Tool  and  block 

Water 

Weed  burner 

Wrecking 


To  this  account  should  be  charged  the  cost  of  marine  or  floating  equipment 
of  all  kinds,  including  all  appurtenances,  furniture  and  fixtures  necessary  to 

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equip  them  for  service,  purchased  or  built  at  the  company's  shops  or  yards, 
including  cost  of  transportation. 

Note.— The  following  equipment  is  classified  as  floating  eqinpment: 
Barges  Ferryboats  Scows 

Canal    boats  Lighters  Steamboats 

Car  and  other  floats  Power  launches  Steamships 

Dredges  Power  lighters  Transfer  boats 

Tugboats 


III.    GENERAL  EXPENDITURES. 

43.      LAW    EXPENSES. 

To  this  account  should  be  charged  expenditures  of  the  following  nature, 
incurred  during  the  progress  of  the  construction  of  a  road,  namely,  the  pay  and 
expenses  of  all  counsel,  solicitors,  and  attorneys,  their  clerks  and  attendants 
and  expenses  of  their  oflfices ;  law  books,  printing  briefs,  legal  forms,  testimony, 
reports,  etc. :  fees  and  retainers  for  services  of  attorneys  not  regular  employes 
of  the  company ;  payments  to  arbitrators  for  the  settlement  of  disputed  ques- 
tions ;  costs  of  suits  and  payments  of  special  fees,  notarial  fees,  and  witness 
fees ;  and  expenses  connected  with  taking  depositions ;  also  all  legal  and  court 
expenses. 

When  any  of  the  expenses  above  enumerated  can  be  charged  directly 
to  the  account  for  which  incurred,  they  should  be  so  charged  and  not  to  this 
account. 

(Expenses  in  connection  with  condemnation  of  right  of  way  or  station  and 
other  grounds  should  be  charged  to  account  No.  2  "  Right  of  Way  and  Station 
Grounds,"  or  account  No.  3  "  Real  Estate.") 

44.      STATIONERY    AND    PRINTING. 

To  this  account  should  be  charged  cost  of  stationery,  stationer)-  supplies, 
postage,  and  printing  blank  books  and  forms  used  by  all  classes  of  employes  in 
the  prosecution  of  construction  work  not  otherwise  provided  for. 

4.").       INSURANCE. 

To  this  account  should  be  charged  insurance  premiums  paid  on  prop- 
erty of  the  line  under  construction  and  before  the  road  is  opened  for  operation. 

Note.— Where  insured  property  is  damaged  or  destroyed  the  account  to  which 
such  property  was  charged  should  be  credited  with  the  amount  of  insurance  recov- 
ered in  respect  thereof. 

4G.     TAXES. 

To  this  account  should  be  charged  state,  county,  township,  city,  school, 
road,  and  all  other  taxes  and  assessments  levied  and  paid  on  propertv  belonging 
to  the  company,  while  under  construction  and  before  the  road  opened'^for 

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commercial  operation,  except  special  taxes  as.sessed  for  street  and  other 
improvements,  such  as  grading,  sewering,  curbing,  guttering,  leaving.  sidewalk>, 
etc.,  which  should  be  charged  to  the  account  to  which  the  property  affected 
was  charged. 

47.    interest  and  commissions. 

To  this  account  should  be  charged  cash  commissions  and  the  actual  cash 
value  of  other  commissions  on  securities  sold :  interest,  cash  commissions,  and 
the  actual  cash  value  of  other  commissions  on  loans  eflfected  and  on  notes  issued 
for  money  borrowed  for  construction  purposes  or  for  purchase  of  equipment : 
interest  on  overdue  payments  to  contractors  or  other  creditors;  and  interest, 
cash  commissions  and  the  actual  cash  value  of  other  commissions  and  exchange 
on  other  commercial  paper  issued  for  similar  purposes.  Interest  on  bonds  and 
other  securities,  including  equipment  bonds  or  car  trust  notes,  paid  or  accrued 
during  construction  and  before  line  is  opened  for  operation,  is  chargeable  to 
this  account.  To  this  account  should  be  credited  all  interest  received  on  monevs 
acquired  for  purposes  of  purchase  or  construction  of  road  or  equipment. 

48.      OTHER   expenditures. 

To  this  account  should  be  charged  organization  expenses,  including  the 
payment  of  all  necessary  fees;  the  cost  of  printing  certificates  of  stock  and 
bonds,  with  payments  to  trustees  and  expenses  incurred  in  the  disposal  of 
securities;  salaries  and  expenses  of  executive  and  general  oflficers  of  a  roa<l 
under  construction ;  clerks  in  general  offices  engaged  on  construction  accounts 
or  work ;  rent  and  repair  of  general  offices  when  rented,  with  the  furniture  and 
office  expenses ;  also  all  items  of  a  special  and  incidental  nature  which  can  not 
properly  be  charged  to  any  other  account  in  this  classification. 


CLASSIFICATION  OF  OPERATING  RFAEXl'ES. 
I.    RE\^EXL'E  FROM  TRANSPORTATION. 


1.     freight  revenue. 

This  account  includes  amount  eamed  by  a  carrier  for  the  transportation  of 
freight. 

To  this  account  should  be  credited  a  carrier's  j^roportion  of  receipts  for 
freight  transportation  :  also  overcollections  made  in  excess  of  proper  rates,  such 
overcollections  to  be  held  subject  to  claim.  To  this  account  should  be  charged 
overcharges  paid  resulting  from  the  use  of  erroneous  rates,  weights,  or  classifi- 
cation ;  amounts  paid  for  switching  charges  absorbed :  authorized  allowances 
and  localized  freight  arbitraries :  also  amounts  paid  for  switching  (ir  to  transfer 
companies  for  completing  a  haul  or  effecting  store-door  deliveries,  when  the 
cost  of  such  service  is  included  in  the  rate  charged  by  the  carrier :  uncollected 

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earnings  on  freight  destroyed  in  transit;  and  on  short  and  lost  freight;  also 
uncollectible  undercharges  determined  after  delivery  has  been  made. 

Note. — When  a  lessee  company  transports  freight  over  the  tracks  of  another 
carrier,  it  should  include  the  entire  compensation  in  its  revenues  and  statistics,  charg- 
ing the  appropriate  joint  facilities,  expense  and  rental  accounts  with  the  amounts 
paid  to  the  lessor  company,  and  the  lessor  company  should  credit  the  same  accounts. 


2.      PASSENGER  REVENUE. 

This  account  includes  amounts  earned  by  a  carrier  for  the  transportation 
of  passengers. 

To  this  account  should  be  credited  a  carrier's  proportion  of  receipts  from 
the  sale  of  tickets  (including  tickets  for  corpses)  and  the  collection  of  cash 
fares ;  also  overcollections  made  in  excess  of  determined  rates,  such  overcollec- 
tions  to  be  held  subject  to  claim.  The  account  should  be  charged  with 
amounts  paid  for  fares  refunded;  tickets  redeemed;  also  amounts  paid  for 
transfering  passengers  and  baggage  between  stations  or  depots,  except  in  cases 
where  the  transfer  of  both  passengers  and  baggage  is  provided  in  the  division 
of  the  through   rate. 

Note  A. — Cash  fare  penalty  collections  made  by  conductors  and  the  proportion 
of  amounts  collected  on  sale  of  mileage  tickets  and  mileage  credentials  subject  to 
refund  should  not  be  credited  to  Passenger  Revenue. 

Note  B. — Passenger  Revenue  should  be  credited  with  interchangeable  mileage 
tickets  only  as  the  mileage  therefrom  is  honored  for  transportation.  Receipts  from 
interchangeable  mileage  books  when  sold  should  be  credited  to  an  open  account, 
which  account  should  be  charged  and  Passenger  Revenue  credited  as  the  mileage 
is  honored. 

Note  C. — When  a  lessee  company  transports  passengers  over  the  tracks  of 
another  carrier  on  the  basis  of  a  proportion  of  revenues,  it  should  include  the  entire 
compensation  in  its  revenues  and  statistics,  charging  the  appropriate  joint  facilities 
expense  and  rental  accounts  with  the  amount  paid  the  lessor  company,  and  the  lessor 
company  should  credit  same  accounts. 


3.      EXCESS    BAGGAGE    REVENUE. 

This  account  includes  amounts  earned  by  a  carrier  for  the  transportatioi\ 
of  baggage  in  excess  of  free  authorized  allowances ;  also  packages,  articles, 
dogs,  etc.,  incident  to  transportation  of  passengers  usually  transported  in 
baggage  cars,  for  which  a  charge  is  made.  To  this  account  should  be  charged 
all  baggage  refunds. 

4.      PARLOR    AND    CHAIR    CAR    REVENUE. 

This  account  includes  amounts  earned  by  a  carrier  in  fares  collected  from 
passengers  for  .seats  in  parlor,  observation,  chair,  and  other  special  passenger 
cars  operated  by  railway  companies  when  not  inconsistent  with  the  Classifica- 
tion of  Revenues  and  Expenses  for  Outside  Operations.  To  this  account  should 
be  charged  authorized  refunds  and  tickets  redeemed. 

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This  account  includes  amounts  earned  by  a  carrier  for  the  transportation 
of  mails,  and  for  the  use  of  railway  post-office  cars,  special  facilities,  and 
bonuses  for  special  mail  transportation.  To  this  account  should  be  charged 
fines  and  penalties  imposed  by  the  Government  when  not  collected  from  agents 
or  employes.  • 

6.    express  revenue. 

This  account  includes  amounts  earned  by  a  carrier  for  transportation  and 
for  facilities  on  trains  and  at  stations  incident  to  the  transportation  of  express 
matter,  not  including  the  separate  rents  of  offices  at  stations.  (See  account 
No.  18,  "Rents  of  Buildings  and  Other  Property.") 

When  a  railway  company  transacts  an  express  business  through  its 
regular  railway  organization,  the  earnings  therefrom  should  be  credited  to  this 
account. 

7.      MILK  revenue   (on  PASSENGER  TRAINS). 

This  account  includes  amounts  earned  by  a  carrier  for  the  transporta- 
tion of  milk  and  cream  on  passenger  trains.  To  this  account  should  be  charged 
refunds  and  overcharges  on  milk  and  cream  so  carried. 

8.    other  passenger-train  revenue. 

To  this  account  should  be  credited  all  amounts  earned  by  a  carrier  incident 
to  the  operation  of  passenger  trains  not  otherwise  provided  for. 

9.      SWITCHING    revenue. 

This  account  includes  amounts  earned  by  a  carrier  for  switching  ser\-ice 
performed  on  the  basis  of  tariffs.  To  it  should  be  charged  all  overcharges  on 
such  switching. 

10.  special  service  train  revenue. 

This  account  includes  amounts  earned  by  a  carrier  for  running  chartered 
trains,  either  on  a  basis  of  a  rate  per  mile  or  a  lump  sum  for  the  trains ;  for 
handling  circus  or  theatrical  company  trains  under  contract  when  specific 
amounts  are  charged  for  transportation  between  designated  stations,  for  running 
chartered  trains  for  the  Federal  or  State  governments  carrying  troops,  muni- 
tions of  war,  camp  outfits,  etc.  To  this  account  should  be  charged  refunds  and 
overcollections  on  such  business. 

11.    miscellaneous  transportation  revenue. 

To  this  account  should  be  credited  all  amounts  earned  by  a  carrier  from 
transportation  not  otherwise  provided  for. 

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II.     REVENUE  FROM  OPERATIOXS  OTHER  THAN  TRANSPOR- 
TATION. 

1'^.      STATION    AND    TRAIN    PRIVILEGES. 

This  account  includes  a  carrier's  revenues  from  weighing,  vending,  and 
other  automatic  machines  located  at  stations ;  from  advertising  at  stations  and 
on  trains ;  from  news  companies  or  others  for  the  privilege  of  operating  news 
stands  at  stations  and  selling  papers,  periodicals,  fruit,  etc.,  on  trains;  from 
telephone  companies  for  the  privilege  of  installing  and  operating  commercial 
telephones  at  stations ;  and  from  other  similar  sources. 

13.      PARCEL-ROOM   RECEIPTS. 

This  account  includes  a  carrier's  revenue  from  the  operation  of  parcel 
rooms,  the  expenses  of  which  are  included  in  operating  expenses. 

14.  STORAGE FREIGHT. 

This  account  includes  a  carrier's  revenues  for  storage  of  freight.  To  it 
should  be  charged  authorized  refunds. 

15.  STORAGE BAGGAGE. 

This  account  includes  a  carrier's  revenues  for  storage  of  baggage.  To  it 
should  be  charged  authorized  refunds. 

16.      CAR    SERVICE. 

This  account  includes  amounts  accruing  as  penahies  for  delay  in  loading 
or  unloading  cars  (demurrage).    To  it  should  be  charged  authorized  refunds. 

17.      TELEGRAPH    SERVICE. 

This  account  includes  a  carrier's  revenues  from  commercial  telegraph 
business  transacted  by  it  when  the  expense  of  transacting  such  business  can 
not  be  separated  from  the  expense  of  conducting  the  railway  telegraph  service : 
amounts  received  from  telegraph  companies,  whether  proportion  of  earnings 
or  otherwise,  for  the  privilege  of  transacting  a  commercial  telegraph  business 
in  offices  along  the  carrier's  lines,  when  the  carrier  furnishes  some  service  of 
its  employes  whose  wages  are  included  in  operating  expenses. 

Note. — When  a  telegraph  company  rents  the  telegraph  line  or  a  carrier  and 
pays  all  expenses  incident  to  its  maintenance  and  operation,  the  rent  received  should 
be  treated  as  Income. 

18.      RENTS   OF    BUILDINGS   AND   OTHER    PROPERTY. 

This  account  includes  a  carrier's  revenues  from  rents  of  buildings,  land, 
and  other  property,  such  as  depot  and  station  grounds  and  buildings,  union 

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depots,  general  and  other  offices,  rooms  rented  at  stations,  docks,  wharves, 
ferry  landings,  elevators,  stock  yards,  fuel  yards,  repair  shops,  section  and 
other  houses,  etc.,  when  such  property  is  used  in  connection  with  operations 
and  the  expense  of  maintaining  and  o])erating  it  can  not  be  separated  from 
ihe  expense  of  that  portion  used  by  the  carrier. 


19. 


miscellaneous. 


This  account  includes  a  carrier's  revenues  from  operation  not  other- 
wise provided  for;  also  collections  from  individuals  and  companies  for  the 
privilege  of  handling  freight  and  passengers  over  a  carrier's  wharves  and 
docks ;  amounts  received  from  others  for  mooring  and  anchoring  boats  at  such 
wharves  and  docks,  and  for  water  furnished  them  when  the  water  plant  is 
operated  by  the  carrier:  receipts  from  coal  and  ore  docks,  stock  yards,  and 
grain  elevators  when  not  treated  as  "  Outside  Operations  " ;  amounts  received 
as  trackage  for  detouring  trains ;  collections  for  the  use  of  a  carrier's  bridge 
by  pedestrians,  street-car  lines,  vehicles,  etc.,  when  the  expense  of  maintaining 
and  operating  such  property  can  not  be  separated  from  the  expense  of  that 
l)ortion  used  by  the  carrier. 

Note.— When  a  bridge  of  one  carrier  is  used  by  another  and  such  use  is  paid 
for  either  on  the  basis  of  a  flat  rent  or  a  charge  per  train  mile,  or  a  toll  per  passen- 
ger, per  ton,  or  per  car,  the  revenue  therefrom  should  be  ccdited  to  appropriate 
accounts. 


CLASSIFICATION  OF  OPERATING  EXPENSES. 
I.    MAINTENANCE  OF  WAY  AND  STRUCTURES. 

1.      SUPERINTENDENCE. 

This  account  includes: 

Pay  of  Officers. — Pay  of  vice-president  or  assistant  when  directly  in 
charge  of  maintenance  of  way  and  structures,  chief  engineer,  assistant  chief 
engineer,  chief  engineer  maintenance  of  way,  engineer  maintenance  of  way, 
assistant  engineer  maintenance  of  way,  engineer  of  bridges  and  buildings, 
principal  assistant  engineer,  engineer  right  of  way,  architect,  division  engineer, 
assistant  engineer,  assistant  division  engineer,  roadmaster,  assistant  road- 
master,  master  carpenter,  assistant  master  carpenter,  supervisor,  assistant 
supervisor,  fire  and  sanitary  inspector,  and  other  officials  engaged  in  the 
maintenance-of-way-and-structures  department. 

Pay  of  Clerks  and  Attendants.— Pay  of  chief  and  other  clerks,  drafts- 
men, rodmen,  transitmen  and  chainmen,  and  attendants  in  offices  and  on 
special  cars  of  officers  whose  pay  is  charged  to  this  account. 

Office  and  Other  Expenses. — Rent  and  cost  of  repairing  rented  offices, 
rent  and  cost  of  telephone  service,  telegraph  messages,  heat,  light,  ice,  water, 
furniture,  and  supplies  for  offices  of  officers  whose  pay  is  charged  to  this 

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account;  incidental  office  and  traveling  expenses  of  such  officers  and  their 
clerks ;  cost  of  provisions  for  and  expenses  of  special  cars  when  used  by  them, 
and  cost  of  running  special  trains  for  officials  mentioned ;  premiums  on  fidelity- 
bonds  of  such  officers  and  their  assistants ;  expenses  of  photographing  build- 
ings and  structures. 

Cost  of  drafting  and  engineering  instruments  and  expenses  of  repairing 
same  and  cost  of  supplies  (except  stationery  and  printing)  used  by  officers 
and  employes  whose  pay  is  charged  to  this  account. 

The  following  is  a  list  of  the  more  important  articles  chargeable  to  this 
account. 

Levels 

Magnets 

Magnifiers 

Oilstones 

Pantographs 

Parallel  rulers 

Periodicals 

Plane  tables 

Planimeters 

Plummets 

Protractors 

Ranging  poles 

Rearing    glasses 

Rods 

Scales 

Section    liners 

Sextants 

Note  A. — When  employes  enumerated  above  are  engaged  in  work  not  charge- 
able to  "  Maintenance  of  Way  and  Structures,"  their  pay  and  expenses  should  be 
charged  to  the  specific  work  on  which  engaged. 

Note  B.— When  officers  and  others  above  enumerated  have  supervision  over 
other  departments  also,  their  salaries  and  expenses  should  be  apportioned  equally 
between  the  departments  over  which  they  have  jurisdiction. 


Atlases 

Barometers 

Books,  scientific  and  refer- 
ence 

Boxes  for  blue  prints 

Boxes  for  drawing  instru- 
ments 

Cameras  and  supplies  for 

Chains 

Compasses 

Curves 

Directories 

Drawing  boards 

Drawing  Instruments 

Field  glasses 

Keel 

Level  rods 


Slide    rules 

Stakes 

Straightedges 

Tacks  for  drawing  boards 

Tally  registers 

Tapelines 

Tee  squares 

Telescopes 

Thermometers 

Tin  boxes  for  tracings  and 

prints 
Transits 
Traverse  tables 
Triangles 
Tripods 
Verniers 


2.  BALLAST. 

This  account  includes  all  expenses  incident  to  the  purchase  and  production 
of  ballast,  as  follows:  Purchase  price  of  gravel,  stone,  slag,  cinders,  sand, 
and  other  material  used  for  ballast,  including  freight  charges,  if  any,  and  cost 
of  first  unloading;  payments  for  gravel  and  quarry  rights  and  privileges, 
expenses  of  sinking  test  holes ;  expenses  of  locomotives  and  work  trains  while 
engaged  in  delivering  ballast  at  points  where  used. 

W'hen  a  gravel  pit  or  quarry  is  to  be  opened,  the  operations  of  which  are 
likely  to  extend  over  a  long  period,  an  account  should  be  opened  designated 

•* Operations  of  Gravel  Pit  at  /'  or  "Operations  of  Quarry  at 

" ,**  as  the  case  may  be. 

To  such  account  should  be  charged: 

(a)  The  excess  cost  of  the  land  over  its  estimated  value  after  the  gravel 
or  stone  has  been  removed.  (Such  estimated  value  being  charged  to  an  appro- 
priate capital  account.) 


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(b)  The  expenses  of  clearing,  stripping,  draining,  and  ditching  the 
land,  and  of  moving  and  changing  fences  and  buildings  preparajory  to  opening. 

(c)  The  cost  of  rails  and  fastenings,  in  excess  of  their  estimated  scrap 
value,  used  in  constructing  tracks  to  and  in  the  gravel  pit  or  quarry.  (Such 
estimated  scrap  value  to  be  carried  in  an  appropriate  material  account.) 

(d)  The  total  cost  of  ties  and  other  material  and  of  labor  expended  on 
such  tracKS. 

(e)  Cost  of  labor  and  train  service  (see  account  "  Roadway  and  Track  '*) 
employed  in  producing,  quarrying,  and  loading  ballast,  including  operations  of 
stationary  engines,  steam  shovels,  stone  crushers,  etc.,  and  watchmen. 

(f)  Repairs  of  stationary  engines,  steam  shovels,  stone  crushers,  and 
other  similar  machinery  used  in  producing  ballast. 

(g)  Depreciation  of  machinery  permanently  used  in  gravel  pits  and 
quarries. 

(h)     Cost  of  explosives,  hand  tools,  and  miscellaneous  expenses. 

This  "Operation  of  Gravel  Pit"  or  "Operations  of  Quarr>^ "  account 
should  be  credited  from  month  to  month  with  the  number  of  cubic  yards  used 
on  the  basis  of  the  average  cost  of  production,  and  account  "  Ballast "  or 
other  proper  account  charged.  The  average  cost  of  production  should  be 
determined  by  dividing  the  total  charge  to  the  account  of  any  pit  or  quarry 
by  the  estimated  number  of  cubic  yards  it  contains. 

As  stripping  and  other  preparatory  expenses  are  not  always  incurred  in 
full  before  beginning  to  take  out  the  gravel  or  stone,  the  cost  of  production 
should  include  an  estimate  of  the  total  of  such  expenses. 

Note  A.— The  cost  of  loading  cinders  at  ash  pits  should  be  charged  to  account 
"  Enginehouse  Expenses — Yard  "  or  account  "  Enginehouse  Expenses Road." 

Note  B.— The  cost  of  labor  putting  ballast  into  track  should  be  charged  to 
account  "  Roadway  and  Track." 

3.      TIES. 

This  account  includes  cost  (including  inspection)  of  cross,  switch,  and 
bridge  ties,  head  blocks  and  railway  crossing  timbers  (plain  or  treated)  for 
main  and  repair  tracks,  sidings,  and  spurs ;  in  tunnels,  stations,  shop  and  other 
yards ;  on  piers,  wharves,  track  scales,  inclines,  bridges,  trestles,  and  culverts ; 
to  coal  chutes,  coal  pockets,  and  fuel  and  water  stations  (except  on  inclines 
to  and  in  fuel  stations;  on  tracks  in  ballast  pits,  enginehouses,  shops,  and 
storehouses,  and  on  transfer  tables  and  turntables.) 

Note  A.— The  cost  of  labor  unloading,  distributin^r  and  putting  ties  in  track  and 
the  expenses  of  trains  distributing  ties  should  be  charged  to  account  "  Roadway  and 
Track." 

Note  B.— This  account  may  include  each  month  a  proportion  of  the  total 
amount  authorized  or  approximated  for  renewals  during  the  fiscal  year  regardless 
of  the  month  in  which  the  actual  renewal  is  made. 

4.     RAILS. 
This  account  includes  cost  (including  inspection)  of  rails  for  main  and 
repair  tracks,  sidings,  and  spurs;  in  tunnels,  stations,  shop  and  other  yards; 

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on  piers,  wharves,  track  scales,  inclines,  bridges,  trestles,  and  culverts;  in 
tracks  to  coal  chutes,  coal  pockets,  and  fuel  and  water  stations  (except  on 
inclines  to  and  in  fuel  stations,  on  tracks  in  ballast  pits,  enginehouses,  shops  and 
storehouses,  and  on  trans fertables,  turntables,  and  car  floats),  less  the  value  of 
old  rails  taken  up. 

Note  A.— The  cost  of  labor  unloading,  distributing,  and  laying  rails  in  track, 
and  the  expenses  of  trains  picking  up  and  loading  rails  taken  out  of  track  should 
be  charged  to  account"  Roadway  and  Track." 

Note  B.— This  account  may  include  each  month  a  proportion  of  the  total 
amount  authorized  or  approximated  for  renewals  during  the  fiscal  year,  regardless  of 
the  month  in  which  the  actual  renewal  is  made. 

5.     OTHER  TRACK  MATERIAL. 

This  account  includes  cost  of  all  track  material  not  chargeable  to  ballast, 
ties,  and  rails ;  also  expenses  of  repairing  track  appliances. 

The  following  is  a  list  of  the  more  important  articles  chargeable  to  this 
account : 


Anticreepers 

Angle  bars 

Connecting  rods 

Derails 

Frog  and  guard  rail 

blocking 
Frogs 
Guard  rails  (except  on 

bridges  and  trestles) 
Guard-rail  clamps 
Guard-rail  fasteners 
Main  rods 


Nut  locks 
Nuts 

Offset  bars 
Rail  braces 
Rail  chairs 
Rail  joints 
Splice  bars 
Stands  switch 
Step  chairs 
Switch  chairs 
Swith  crossings  rigid 
or  slip 


6.      ROADWAY  AND  TIL\CK. 


Switch-lamps 

Switch  locks  and  keys 

Switch  points 

Switches 

Switch-stand  bolts 

Targets,  switch 

Tie  plates 

Tie  plugs 

Tie  rods 

Track  Bolts 

Track  spikes. 


This  account  includes: 

Applying  Ballast.— Pay  of  employes  engaged  in  preparing  roadbed  for 
the  reception  of  ballast ;  also  pay  of  employes  engaged  in  applying  ballast  after 
it  has  been  prepared  and  unloaded. 

Applying  Ties.— Pay  of  employes  engaged  in  unloading,  distributing,  and 
renewing  cross,  switch,  and  bridge  ties,  head  blocks  and  railway  crossing 
timbers,  respacing  ties,  and  burning  old  ties. 

Applying  Rails.— Pay  of  employes  engaged  in  unloading,  distributing, 
cutting,  slotting,  drilling,  and  laying  rails,  adzing  for  new  rails,  gathering  and 
loading  old  rails,  and  adjusting  expansion  and  contraction. 

Applying  Other  Track  Material.— Pay  of  employes  engaged  in  apply- 
ing rail  braces,  angle  bars,  rail  joints,  track  bolts  and  spikes,  nut  locks,  anti- 
creepers,  switches,  switch  stands,  frogs,  crossing  frogs,  tie  plates,  tie  plug's,  and 
other  miscellaneous  track  material  not  specified  above. 

Track  Maintenance.— Pay  of  employes  engaged  in  aligning,  surfacing 
and  gaging  tracks,  placing  and  removing  track  shims  and  tightening  bolts  and 

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,  spikes  in  tracks.  When  a  track  is  taken  up,  the  labor  expended  therefore 
should  be  charged  to  this  account,  whether  another  track  is  laid  to  replace 
it  or  not. 

Care  of  Roadbed. — Expenses  of  constructing  and  cleaning  tile  and  open 
ditches;  cost  and  expense  of  placing  and  cleaning  sewer  pipe  for  drains  (cost 
of  sewer  pipe  laid  under  tracks  should  be  charged  to  account  **  Bridges.  Trestles, 
and  Culverts  " )  ;  cost  of  material  used  and  labor  expended  in  sloping  cut>. 
blasting  rock,  widening  roadbeds,  cuts,  fills,  and  embankments,  filling  borrow 
pits,  removing  slides,  dangerous  rocks,  and  other  similar  obstructions,  expenses 
of  operating  steam  shovels,  scrapers,  and  ditchers  while  engaged  in  such  work : 
also  expenses  of  keeping  tracks  clear  and  repairing  the  subgrade  of  tracks  in 
cases  of  freshets  or  washouts  and  cost  of  boarding  employes  so  engaged.  Cost 
of  labor  building  temporary  tracks  around  slides  and  washouts  and  removing 
such  tracks ;  cost  of  replacing  rails,  ties,  and  ballast  and  repairing  other  dam- 
ages caused  by  washouts  to  tracks  proper  or  to  roadbed ;  cost  of  cutting,  hand- 
ling, and  placing  sod ;  also  landscape  gardening  and  beautifying  along  roadway 
(except  when  chargeable  to  account  "  Buildings,  Fixtures,  and  Grounds" ). 

General  Cleaning. — Pay  of  employes  engaged  in  mowing  right  of 
way  and  burning  grass  and  weeds ;  cost  of  operating  weed  burners,  removing 
brush,  grass,  and  drift  from  right  of  way,  and  removing  cinders  dumped  by 
passing  trains,  plowing  fire  guards,  removing  weeds  from  and  dressing  ballast, 
cutting  sod  lines,  removing  dirt  from  track  yards,  cleaning  streets  used  as  road- 
ways, and  loading  and  handling  track  scrap. 

Patrolling  and  Watching.— Pay  of  track  walkers,  track  watchmen, 
patrolmen,  employes  while  extinguishing  fires  on  right  of  way  and  adjacent 
property,  and  watchmen  at  bad  spots  in  tracks,  slides,  and  dangerous  places. 
( For  pay  of  bridge  watchmen  see  account  "  Bridges,  Trestles,  and  Culverts," 
for  pay  of  street  crossing  watchmen  see  account  "Crossing  Flagmen  and 
Gatemen,"  and  for  pay  of  tunnel  watchmen  see  account  "Tunnels.") 

Changing  Alignment  and  Grades.— The  proportion  chargeable  to  oper- 
ating expenses  of  cost  of  material  used  and  labor  expended  in  changing  the 
alignment    and  reducing  grades. 

Bank  Protection.— Cost  of  material  used  and  labor  expended  in  pro- 
tecting banks  by  retaining  walls,  riprap,  piling,  piers,  dikes,  or  other  means, 
and  in  constructing  breakwaters,  and  revetments,  and  diverting  the  channels 
of  streams  to  prevent  cutting,  washing,  or  sliding  of  embankments. 

Filling.— Cost  of  material  used  and  labor  expended  in  filling  bridges, 
trestles,  culverts,  and  cattle  pits. 

Other  Expenses.— Cost  of  material  used  and  labor  expended  in  paving 
and  improving  streets  used  as  roadway,  and  oiling  roadbed  :  payments  of  assess- 
ments for  street  repairs,  sewers,  or  other  public  improvements  aflFecting  road- 
way adjacent  thereto,  not  chargeable  to  account  "  Buildings,  Fixtures,  and 
Grounds";  expenses  incident  to  track  inspection,  premiums  in  connection 
therewith,  and  any  other  roadway  or  track  expense  not  provided  for  elsewhere. 

Train  Service.— Pay  of  work-train  enginemen,  trainmen,  and  engine- 
housemen;  cost  of  fuel,  stores,  and  other  supplies   for  work-train  locomo- 

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tives  and  cars ;  cost  of  oil  and  wicking  used  in  lanterns  of  work-train  engine- 
men  and  trainmen,  while  such  employes  and  equipment  are  engaged  in  work 
pertaining  to  roadway  and  track. 

7.     REMOVAL  OF  SNOW,  SAND  AND  ICE. 

This  account  includes  the  cost  of  removing  snow,  sand,  and  ice  from 
tracks;  pay  of  work-train  enginemen,  trainmen,  and  enginehousemen,  cost  of 
fuel,  stores,  and  other  supplies  for  work-train  locomotives  and  cars;  cost  of  oil 
and  wicking  used  in  lanterns  of  work-train  enginemen  and  trainmen  while 
such  employes  and  equipment  are  engaged  in  clearing  tracks  and  hauling 
snow;  wages  paid  men  employed  in  shoveling  snow  and  picking  ice  on  tracks, 
and  tools  specially  furnished  them  for  this  purpose,  and  their  meals ;  fuel  and 
stores  used  by  rotary  and  other  snowplows  and  other  snow  and  ice  clearing 
appliances,  and  wages  of  men  employed  in  operating  them ;  cost  of  repairing 
snowplows  (other  than  snowplows  cars  which  are  covered  by  account  "  Work 
Equipment— Repairs,")   and  flangers  and  the  cost  of  putting  them  on  and 
removing  them  from  locomotives  and  cars,  and  cost  of  slatting  pilots.    Wages 
paid  engineers,  firemen,  and  trainmen  held  in  readiness  to  go  out  with  snow- 
plows ;  payments  for  use  of  land  on  which  to  place  snow  fences,  and  for  salt 
for  keeping  switches  free  from  ice  and  snow.     Cost  of  distributing  and  set- 
ting up  portable  snow  fences  and  gathering  them  up  and  loading,  hauling  and 
piling  them  along  the  road.     (For  repairs,  see  account  "Snow  and  Sand 
Fences  and  Snow  Sheds.") 

8.    tunnels. 

This  account  includes  the  cost  of  repaidng  tunnels,  including  the  cost 
of  timber  and  other  materials,  false  work,  and  special  tools ;  pay  of  tunnel 
watchmen  and  cost  of  supplies  used  by  them;  repainting  and  whitewashing; 
oil  and  wicks,  and  repairs  of  lamps,  lanterns  and  electric  light  fixtures  used 
m  lighting.  This  account  does  not  include  renewals  or  repairs  to  roadway 
or  tracks  through  tunnels. 

9.      BRIDGES,  trestles  AND  CULVERTS. 

This  account  includes  cost  of  material  used  (less  salvage)  and  labor  ex- 
pended in  repairing  and  renewing  bridges,  trestles,  culverts  (both  sub- 
structure and  superstructure),  piers,  abutments,  masonry,  and  drainpipes 
including  repairs  made  necessary  by  washouts ;  retaining  walls,  riprapping,  and 
dikes  necessary  to  protect  or  strengthen  bridges  and  culverts  against  ice 
water,  or  drift;  guards  on  bridges,  framing  ties  for  bridges;  bridge  signs  or 
number  boards;  expenses  of  operating  and  rent  of  pile  drivers  and  other 
equipment  engaged  in  repairing  and  renewing  bridges  and  culverts  •  cost  of 
cleaning  channels  under  bridges  and  cleaning  culverts,  gravel  decking  for 
protection  against  fire,  and  altering  and  bracing  bridges  and  trestles  during 
progress  of  filling.  ^ 


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Cost  of  removing  old  bridges  in  connection  with  construction  of  new 
bridges,  and  construction  and  removing  temporary  or  false  work  used  in 
repairing  and  renewing  bridges  and  culverts. 

Pay  of  bridge  foremen  and  bridge  watchmen,  except  at  drawbridges,  and 
cost  of  all  supplies  used  by  them,  such  as  brooms,  lanterns,  oil,  oil  cans,  pails, 
rowboats,  tallow,  waste,  and  water  barrels,  and  fuel  for  heating  bridge  watch- 
houses;  also  repairs  to  and  renewals  of  stationary  engines  at  drawbridges. 

Pay  to  bridge  inspectors  and  expenses  incident  to  bridge  inspection. 

Pay  of  work-train  enginemen,  trainmen  and  enginehousemen,  and  of 
employes  engaged  in  operating  piledrivers;  cost  of  fuel,  stores,  and  other 
supplies  for  work-train  locomotives  and  cars,  and  of  oil  and  wicking  used  in 
lanterns  of  work-train  enginemen  and  trainmen  while  such  employees  and 
equipment  are  engaged  on  work  pertaining  to  bridges  and  culverts. 

Note  A. — Any  structure  carrying  the  tracks  over  other  tracks,  a  stream,  high- 
way, or  canal  should  be  considered  a  bridge  or  a  culvert.  The  cost  of  maintaining 
structures  carrying  other  tracks,  canals,  highways,  etc.,  over  a  carrier's  tracks  should 
be  charged  to  account  "  Over  and  Under  Grade  Crossings." 

Note  B. — This  account  may  include  each  month  a  proportion  of  the  total 
amount  authorized  or  approximated  for  renewals  during  the  fiscal  year  regardless  of 
the  month  in  which  the  actual   renewal   is  made. 

Note  C. — Insurance  recovered  on  bridges,  trestles,  and  culverts  should  be 
credited  to  this  account. 

10.     OVER  AND  UNDER  GRADE  CROSSl  NGS. 

This  account  includes  cost  of  material  used  (less  salvage)  and  labor  ex- 
pended in  repairing  and  renewing  overhead  bridges  and  viaducts  of  all  kinds 
(except  station  overhead  footbridges  not  public  highways),  log  chutes  and 
rollways  erected  over  the  tracks  of  a  carrier,  and  roadways  of  undergrade 
crossings,  foot  or  wagon  (except  subways  not  public  highways) ;  cost  of  drain- 
age and  excavations  for  under  grade  crossings;  expenses  of  opening  public 
roads  for  purposes  of  eliminating  grade  crossings. 

11.      GRADE  crossings,  FENCES,  CATTLE  GUAR])S  AND  SIGNS. 

This  account  includes : 

Highway  Grade  Crossings — Cost  of  material  used  (less  salvage)  and 
labor  expended  in  repairing  and  renewing  street  and  road  (including  farm) 
crossings  at  grade,  crossing  drains,  crossing  gates,  crossing  signal  bells,  and  . 
batteries  with  track  instruments  and  connections,  and  warning  signals;  cost 
of  water  pipes,  water  and  hose  for  sprinkling  grade  crossings ;  and  payments 
of  assessments  for  street  repairs  or  sewers  at  crossings.  (Street  repairs  or 
sewers  within  the  limits  of  shop  grounds  or  immediately  adjacent  to  station 
buildings  should  be  charged  to  account  "  Buildings,  Fixtures  and  Grounds.  ") 

Fences  and  Cattle  Guards— Cost  of  material  used  (less  salvage)  and 
labor  expended  in  repairing  and  renewing  right-of-way  fences,  cattle  guards, 
wing  fences,  aprons  and  hedges. 

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Sic.xs— Cost  of  yard-limit  signs ;  subdivision  boards  :  mile,  section,  whistle, 
water  station,  water  trough,  slow,  stop,  and  boundary  ixjsts ;  overhead  bridge 
and  tunnel  cautions ;  monument  stones,  and  all  other  roadway  signs. 
,  .,  >^'"TE.— The  cost  of  station  and  telegraph  signs,  fences,  and  hedges  around 
binldnig  sites  and  shop  grounds,  and  of  paving  sidewalks,  streets,  and  driveways 
within  the  limits  of  or  immediately  adjacent  thereto,  should  be  charged  to  account 
•  Building,   Fixtures  and   Grounds." 

12.      SXOW   AND   SAND   FENCES   AXD   SXOVVSHEDS. 

This  accoimt  includes  all  expenses  of  repairing,  renewing,  and  replacing 
permanent  and  portable  snow  and  sand  fences  (except  when  the  permanent 
fence  takes  the  place  of  right-of-way  fence,  in  which  case  the  expense  should 
be  charged  to  the  account  "  Grade  Crossings,  Fences,  Cattle  Guards,  and 
Signs  ).  snowsheds  including  necessary  rock  filling  and  cost  of  protecting 
trom  fire :  pay  of  snowshed  watchmen  and  cost  of  supplies  used  by  them,  cost 
of  planting  and  caring  for  trees  to  protect  track  from  snow. 

NoTE.--The  cost  of  distributing  and  setting  up  portable  snow  fence  panels,  and 
gathering  loading,  hauling,  unloading,  and  piling  should  be  charged  to  account 
•  Removal  of  Snow,  Sand,  and  Ice." 

13.     SIGNALS  AND  INTERLOCKING  PLANTS. 

This  account  includes: 

Interlocking  Plants— Cost  of  material  used  (less  salvage)  and  labor 
expended  in  repairing  and  renewing  the  buildings  and  all  appliances  of  inter- 
lockmg  plants,  power  interiocking  plants,  and  all  machinery  such  as  air  com- 
pressors, levers,  boilers,  dynamos,  engines,  and  machinerv  and  fixtures  used  in 
connection  therewith. 

SiciXALS— Cost  of  material  used  (less  salvage),  and  labor  expended  in 
repairmg  and  renewing  block,  automatic  and  semi-automatic  signals. 

Other  Expexse-s— Cost  of  material  used  (less  salvage)  and  labor  ex- 
pended m  repairing  and  renewing  home  and  distance  signals,  signal  posts  signal 
bridges,  semaphores,  train-order  signals  or  order  boards,  and  flag-station 
signals,  gates  at  crossings  of  other  raihvays.  and  all  other  road  or  track  signals 
not  provided  for  above,  used  in  the  government  of  the  movement  of  trains 
including  signal  lamps  and  their  connections.  Pav  of  signal  engineers  and 
supervisors  of  signals  and  their  assistants,  their  office  and  traveling  expenses  • 
also  pay  of  mechanics  and  laborers  and  cost  of  special  tools  while  engaged  in 
repairing  and  renewing  interiocking  plants  and  signals. 

XoTK.-This  account   does  not   include  the  cost  of  maintaining  and   renewing 
track   material   proper   required   in   connection   with    interlockers.    such   as   switches 
special   track   fastenings,   split   rails,   frogs,   etc.,   which   costs   should   be   charged   to 
account   "Other  Track   Material." 

U.     TELEGRAPH  AND  TELEPHONE  LINES. 

This  account  includes : 

Telegraph— Cost  of  material  used    (less  salvage)   and   labor  expended 
in  repairing  and  renewing  telegraph  lines  owned  by  a  carrier,  or  for  which 

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it  is  responsible :  also  cost  of  conduits,  poles,  cross-arms.  wire,  insulators, 
cables,  cable  boxes,  instruments,  battery  jars,  switchboards,  and  all  other 
appurtenances  forming  a  part  of  the  plant.  Pay  of  chief  line  repairmen,  line- 
men, and  other  employees,  and  cost  of  special  tools  used  by  them ;  also  pay, 
office  and  traveling  expenses  of  superintendent  and  assistant  superintendent 
of  telegraph,  their  clerks  and  attendants. 

Telephone — All  expenses  similar  to  the  above,  incurred  in  connection 
with  telephone  lines,  and  telephone  boxes  on  telegraph  and  telephone  ])oles. 

Pay  of  work-train  enginemen.  trainmen  and  engniehousemen,  and  t>tlK'r 
employes,  cost  of  fuel,  stores,  and  other  supplies  for  work-train  locomotives 
and  cars,  and  of  oil  and  wicking  used  in  lanterns  for  work-train  enginemen  and 
trainmen,  while  such  employees  and  equipment  are  engaged  on  work  i)ertain- 
ing  to  telegraph  and  telephone  lines. 

Note. — The  salaries  and  expenses  of  superintendents  and  assistant  >upcrin- 
tendents  of  telegraph  and  their  clerks  when  engaged  in  both  maintaining  and  oper- 
ating telegraph  and  telephone  lines  should  be  charged  ')0  per  cent,  to  account  "  Tele- 
graph and  Telephone  Lines  "  and  50  per  cent,  to  account  **  Telegraph  and  Telephone- 
Operation." 


lo 


electric  power  trans.mlssiox. 


This  account  includes  cost  of  material  used  (less  salvage)  and  lalv>r  ex- 
pended in  repairing  and  renewing  all  appliances  for  transmitting  power  from 
powerhouses  and  substations  to  the  place  where  it  is  to  be  applied :  covers 
span,  guard,  feed,  and  over-head  trolley  wires,  poles,  cross-arms,  brackets,  in- 
sulators and  connections,  third  rail,  including  braces,  supports,  and  devices  for 
insulating,  covering  or  protecting:  bonding  rails,  including  connecting  plug>. 
insulating  mats,  plugs,  or  other  devices :  switch-lx)ards,  switches,  ciit-i>uts. 
transformers,  etc.  (except  at  power  and  sub-stations),  pay  of  electricians, 
mechanics  and  other  employees  engaged  in  repairing  and  renewing  electric 
power  transmission  lines :  also  pay  of  work-train  motormen,  enginemen.  train- 
men and  enginehousemen  and  other  employees,  and  cost  of  fuel,  electric  cur- 
rent, stores  and  other  supplies  for  work-train  locomotives  and  cars,  and  of 
oil  and  wicking  used  in  lanterns  of  work-train  enginemen  and  trainmen  while 
such  employees  and  equipment  are  engaged  on  work  pertaining  to  electric 
power  transmission  lines. 

Ifi.      P.UILDINGS.  FIXTURES  AXD  GROUNDS. 

This  account  includes  all  expenses  incident  to  repairing  and  renewing 
buildings  owned  by  a  carrier  and  used  in  its  operations  ( not  otherwise  pn>- 
vided  for  herein)  and  maintaining  drivewavs  and  grounds  connected  there- 
with, as  follows: 

Buildings — Cost  of  material  used  (less  salvage)  and  labor  expeiuled 
in  repairing  and  renewing  buildings  and  platforms:  also  station  subways 
and  station  overhead  footbridges  not  public  highways  and  stairways  for  ap- 
])roaches  to  stations :  and  in  ])ainting.  glazing,  graining,  varnishing,  papering, 
calcimining  and  decorating  buildings :   signs  on  buildings :  building  iKrmits ; 

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cost  of  land  for  buildings  when  chargeable  to  expenses ;  removing  old  struc- 
tures, and  removing  snow  from  roofs  of  buildings. 

The  following  is  a  list  of  the  more  important  structures  classified  as 
buildings. 

Grain  elevators 

Grain    warehouses 

Greenhouses 

Hand-car  houses 

Hayhouses 

Hosehouses 

Houses    for    oil    and    lan- 
terns used   by  trainmen 

Icehouses 

Laboratories 

Lumber  sheds 

Mail  cranes 

Milk  stands 

Offices 

Offices,   general 

Oilhouses 

Outhouses 

Planing  mills 

Platforms,   passenger 

Platforms,  freight 

Powerhouses 

Powerhouses    for    electric 
traction  lines 

Pumphouses 

Reading  rooms 

Repair  shops 

Rooms  for  Y.  M.  C.  A. 

Roundhouses 

Sandhouses 

Fixtures— Cost  of  fixtures  (less  salvage),  such  as  bunks,  counters,  file 
cases,  ice  chests,  railing,  shelving,  washbowls,  water  coolers,  etc.,  when  im- 
movable and  built  in  as  a  part  of  the  structure;  also  cost  of  repairing  and 
renewing  such  fixtures. 

Machinery— Cost  of  material  used  (less  salvage),  and  labor  expended 
in  repairing  and  renewing  machinery  and  structures  (except  tools  and 
machinery  chargeable  to  accounts  "  Signal  and  Interlocking  Plants,"  "  Shop 
Machinery  and  Tools,"  and  "Power  Plant  Equipment")  used  in  connection 
with  buildings,  such  as  air  compressors,  armatures  and  fields,  ash  buckets, 
ash  hoists,  belting,  boilers,  chutes,  cisterns,  coal  buckets,  coal  buggies,  coal 
pockets,  cranes,  derricks,  dump  cars  for  fuel  plants,  dynamos  and  parts,  fire 
engines,  fire  extinguishers,  fire  hose,  gas  pumps,  hoists,  hose  carts,  hose  reels, 
hydrants,  hydraulic  rams,  pipe  lines,  pumps,  sand  driers,  scales  for  weighing 
fuel,  screens,  shafting,  stand  pipes,  stationary  engines,  steam  pipes,  switch- 
boards and  parts  (except  telegraph  and  telephone),  tipples,  track  tanks,  tres- 
tles, water  troughs,  windmills  and  wood  racks. 

Other  Expenses— Cost  of  material  used  (less  salvage)  in  repairing  and 
renewing  transfer  tables  and  turntables,  including  tracks  thereon,  cinder  pits, 

1198 


Air-compressing  houses 

Baggage  rooms 

Bins  for  material 

Boarding    houses 

Breakwaters     for     protec- 
tion  of  buildings. 

Buildings    and    rooms    for 
trainmen 

Buildings  on  piers 

Carpenter   shops 

Carsheds 

Coal    chutes 

Coal   chute,   engine   house 

Coal    chutes    inclines    (in- 
cluding  tracks   thereon) 

Coal,  hoists 

Coaling  platforms 

Dry  houses 

Dwellings 

Eating  houses 

Elevators 

Enginehouses 

Express  buildings 

Fire-engine  houses 

Foundries 

Fuel  houses  or  stations 

Gas  compressing  houses 

General  o%ces 

Grain  cribs 


Scrap  bins 

Section   houses,   dwelling 

Shops,   blacksmith 

Shops,  car 

Shops,  machine 

Stables 

Station    platforms 

Station    signs 

Station  subways 

Station   stairways 

Stations,  freight 

Stations,   passenger 

Stock  pens 

Storehouses 
Switch-tender   houses 
Tanks,  gas 
Tanks,  oil 
Tanks,  water 
Telegraph   offices 
Test  rooms 
Toolhouses 
Track    scales 
Transfer    houses 
Waiting  rooms 
Warehouses 
W^ashrooms 
Watchhouses 
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drop  pits,  tracks  in  engine-houses,  shops  and  storehouses  and  on  inclines  of 
fuel  stations,  framework  for  shafting,  foundations  for  machinery,  and  station- 
ary scales  of  all  kinds,  including  foundations,  platforms,  supports  for  dead 
rails,  beams,  weights,  and  all  fixtures  and  appurtenances ;  also  the  cost  of 
draining  scale  pits  and  testing  and  inspecting  scales;  expense  of  protecting 
pipes,  and  of  drilling,  testing,  and  prospecting  for  water  supply,  and  pay- 
ments for  permanent  water  rights. 

Cost  of  material  used  (less  salvage)  and  labor  expended  in  repairing  and 
renewing  stationary  fixtures  used  in  connection  with  heating  and  lighting 
buildings;  such  as  arc  lamps,  chandeliers,  electric-light  fixtures,  electric-light 
wiring,  electroliers,  furnaces,  gas  burners,  box  lamps  at  stations,  lamps  when 
permanently  attached  to  buildings,  pipes  radiators  and  registers. 

Cost  of  repairing  and  renewing  stationary  fixtures  used  for  supplying 
buildings  with  water,  or  for  draining;  water  pipes,  water  closets  and  wash- 
stands  ;  freight  and  passenger  elevators ;  piping,  hydrants  and  other  permanent 
fixtures  for  cleaning,  heating  and  lighting  cars ;  ore  and  coal  conveyors :  clean- 
ing sewers,  framing  cross-ties  for  water  troughs,  protection  against  fire,  such 
as  water  mains  and  fire  plugs;  also  protecting  buildings  and  grounds  against 
floods  and  washouts  by  means  of  walls  and  embankments. 

Grounds — Cost  of  material  used  (less  salvage)  and  labor  expended  in 
repairing  and  renewing  fences,  hedges,  walls,  sidewalks  and  streets  within  the 
limits  of  shop  grounds,  or  immediately  adjacent  to  buildings,  not  provided  for 
elsewhere ;  fences  between  tracks  at  stations ;  and  drive  ways  and  alleys 
used  for  receipt  or  delivery  of  passengers  or  freight  at  stations  or  in  yards ; 
dams,  ponds,  reservoirs,  and  wells.  Payments  of  assessments  for  street  re- 
pairs, sewers,  or  other  public  improvements  aflfecting  building  sites  and  shop 
grounds.  Cost  of  laying  out,  cleaning  (except  ordinary  cleaning  performed 
by  station  cleaners),  grading,  draining,  mowing,  and  beautifying  shop  and 
station  grounds,  and  landscape  gardening  (including  cost  of  plants  at  such 
grounds) ;  also  cost  of  trees  and  shrubs,  and  of  maintaining  and  operating 
nurseries.  Pay  of  sub-division  foremen,  work-train  enginemen,  trainmen  and 
enginehousemen,  and  of  employees  engaged  in  operating  steam  shovels,  scrapers, 
pile  drivers  and  ditchers;  cost  of  fuel,  stores,  and  other  supplies  for  work- 
train  locomotives  and  cars,  and  oil  and  wicking  used  in  lanterns  of  work- 
train  enginemen  and  trainmen,  while  such  employees  and  equipment  are  en- 
gaged on  work  pertaining  to  buildings  and  grounds. 

Note  A. — This  account  may  include  each  month  a  proportion  of  the  total 
amount  authorized  or  approximated  for  renewals  during  the  fiscal  year  regardless  of 
the  month   in  which  actual   renewal   is   made. 

Note  B. — Insurance  recovered  on  buildings,  fixtures,  and  grounds  should  be 
credited  to  this  account. 

Note  C. — This  account  should  not  include  costs  of  repairing  and  renewing 
buildings,  fixtures,  and  grounds,  the  operations  of  which  are  included  in  *'  Outside 
Operations." 

17.      DOCKS   AND   wharves. 

This  account  includes  cost  of  material  used  (less  salvage)  and  labor  ex- 
pended in  repairing  and  renewing  docks,  wharves,  piers  and  other  landings, 

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ferry  slips,  transfer  bridges,  pontoons,  slips,  bulkheads,  jetties,  and  inclines 
thereto,  including  filling,  strengthening,  bracing  and  painting:  expenses  of 
operating  pile  drivers,  tugs,  barges  and  floats  while  engaged  on  such  work. 

Cost  of  dredging  about  docks,  piers,  bulkheads  and  ferry  slips,  or  for  ap- 
proaches to  such  properties,  and  removing  material  dredged  out ;  expenses 
of  operating  dredges,  mud  scows,  barges  and  floats,  and  pay  of  crews,  divers 
and  pilots  while  engaged  on  such  work ;  cost  of  crib  work,  racks,  or  caissons 
constructed  for  preserving  the  depth  of  water  secured  by  dredging:  cutting 
ice  around  docks  and  wharves  to  prevent  damage:  guard  and  other  piling 
and  protection  from  damage  by  drift  or  ice;  also  pay  of  supervisors  of  docks 
and  wharves. 

Pay  of  work-train  enginemen,  trainmen  and  enginehousemen.  and  of  em- 
ployees engaged  in  operating  pile  drivers,  dredges  and  tug  boats;  cost  of 
fuel,  stores  and  other  supplies  for  work-train  locomotives  and  cars,  and  of  oi! 
and  wicking  used  in  lanterns  of  work-train  enginemen  and  trainmen  while 
such  employees  and  equipment  are  engaged  on  work  pertaining  to  docks 
and  wharves. 

Note  A.— Cost  of  maintenance  of  tracks  and  buildings  on  docks  and  wharves 
should  be  charged  to  other  appropriate  accounts  herein  provided. 

Note  B.— This  account  should  not  include  costs  of  repairing  and  renewing 
docks  and  wharves  the  operations  of  which  are  included  in  "  Outside  Operations  " 

18.     ROADWAY  TOOLS  AND  SUPPLIES. 

This  account  includes  cost  of  roadway  tools  when  chargeable  to  expenses 
(except  tools  otherwise  provided  for)  and  cost  of  all  material  used  (less 
salvage),  and  labor  expended  in  repairing  and  renewing  all  tools,  implements, 
flags  and  lanterns  used  in  repairing  roadway,  tracks,  interlocking  plants  and 
signals,  electric  traction  lines,  fences,  road  crossings,  signs,  telegraph  lines, 
bridges,  culverts,  buildings  and  other  structures. 

Cost  of  oil.  waste  or  like  material  used  on  hand  cars  and  hand  trucks, 
oil  and  wicking  used  in  lanterns  of  track  walkers,  track  watchmen,  or  patrol- 
men :  ice  and  oatmeal  for  drinking  water  of  track  repair  men ;  and  heating 
and  lighting  subdivision  tool  houses. 

The  following  is  a  list  of  the  more  important  roadway  tools  chargeable 
to  this  account: 


Adzes 
Anvils 
Augers 
Axes 

Ballast  forks 
Bars,  claw 
Bars,   crow 
Bars,  lining 
Bars,   pinch 
Bars,   raising 
Bars,  tamping 
Braces  and  bits 
Brooms 


Brush  hooks 

Cables 

Cable   stretchers 

Cans,    oil 

Cans,   water 

Cant  hooks 

Cars,  hand 

Cars,  lever 

Cars,  motor  inspection 

Cars,   push 

Chains 

Chisels,    track 

Curbing  hooks 

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Dippers 

Drawing  knives 
Drill  bits 
Drills 

Engines,   hoisting 
Flags,    signals 
Furnaces,  portable 
Grindstones 
Hammers,   tapping 
Hammers,  paving 
Hammers  spiking 
Handles,  adz 
Handels,   ax 


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Handles   Hatchet 

Handles,  maul 

Handles   pick, 

Hatchets, 

Hoes, 

Hydraulic  outfits, 

Jack  levers. 

Jacks,  hydraulic, 

Jacks,   ratchet, 

Jacks,  screw. 

Kegs,  water, 

Lanterns  and  fixtures. 

Lawn  mowers, 

Levels, 

Lines  for  ditching, 

Lines,    tape, 

Nippers, 

Oilstones, 

Padlocks, 

Pails,   water. 

Paint   brushes, 

Picks,  clay, 

Picks,    tamping, 

Pike    poles, 

Pile  drivers,  not  on  cars. 


Plows, 

Post-hole  diggers. 

Post-hole   tampers. 

Punches, 

Rail  benders. 

Rail  tongs, 

Rail  unloaders. 

Rakes, 

Ratchet  drills, 

Rock  crushers. 

Rope, 

Saws,  crosscut. 

Saws,   hand. 

Scrap  boxes. 

Scythes, 

Shovels, 

Shovels,  coal, 

Shovels,  railroad. 

Sickles, 

Signal  lanterns. 

Sledges, 

Spades, 

Spike  mauls, 

Spike  pullers. 

Spot  boards, 


Squares, 

Straightening   machines. 

Stone  drills, 

Switch   ropes    (when   used 

in  repairing  roadway  i. 
Tapelines, 
Thermometers    for   laying 

rail. 
Timber  trucks. 
Tongs. 
Tool  boxes, 
Torches, 
Track  gages, 
Track  jacks, 
Track  levels. 
Velocipedes, 
Vises, 

Weed  spuds, 
Wheelbarrows, 
\\  hetstones. 
Wood  chisels. 
Wood  mallets, 
Wrenches,  monkey. 
Wrenches,  track. 


19.      WORK    EQUIPMENT — ^REPAIRS. 

This  account  includes  cost  of  material  used  (less  salvage)  and  labor  ex- 
pended in  repairing,  painting  and  lettering  work  or  service  equipment  of  all 
classes  (see  "Note  A"  under  this  account),  furniture  for  cabin  or  caboose 
cars,  and  fixtures  for  all  work  or  service  cars,  including  cost  of  renewing 
.same;  such  as  bunks,  coal  boxes,  coal  hods,  curtains,  cushions,  lamp  fixtures, 
links  and  pins,  screens,  stoves  and  fixtures;  also  cost  of  repairing  commercial 
cars  and  locomotives  when  assigned  to  and  in  maintenance-of-way  service: 
changes  made  in  such  cars  to  fit  them  for  work  service,  and  refitting  them 
for  commercial  service;  cost  of  repairing  floating  e(|uipment  used  in  main- 
tenance or  construction  of  a  carrier's  property,  such  as  floating  pile  drivers, 
dredges,  scows,  etc.;  cost  of  supervision,  cutting  up  condemned  work  cars, 
and  repairing  cars  of  foreign  lines  damaged  on  the  line  while  in  a  carrier's 
work  service;  material  used  by  car  inspectors  and  car  repair  men  while  en- 
gaged  in   inspecting  and  making  light   repairs:   small  hand   tools   used   ex- 
clusively in  inspecting  and  repairing  work  equipment ;  expenses  of  fitting  cars 
with  devices  for  special  maintenance-of-way  work ;  traveling  expenses  of  em- 
ployees whose  pay  is  chargeable  to  this  account :  payments  of  royalties  or  for 
patent  rights  on  brakes,  brake  fixtures,  and  other  appliances  used  on  work 
or  service  equipment ;  and  payment  for  cars  of  foreign  lines  destroyed  on  the 
line  while  in  a  carrier's  work  service;  also  proportion  of  shop  expenses  as 
provided  in  Note  following  account  "  Other  Expenses  "  under  head  of  "  Main- 
tenance of  Equipment.  " 

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The  value  of  old  material  released  during  repairs,  insurance  recovered, 
and  repayments  from  other  roads  should  be  credited  to  this  account. 
Note  A. — The  following  equipment  is  classified  as  work  equipment: 


Ballast, 

Ballast,  unloaded  cars. 

Boarding, 

Bridge, 

Camp, 

Cinder, 

Derrick, 

Ditching, 

Dump, 

Grading, 


Outfit, 

Painters, 

Pile  drivers. 

Rail  saw. 

Scale  Test, 

Snow  dozer. 

Snow  drag, 

Snowplows    (not  attached 
to  locomotives  but 
moved  by  them). 


Sprinkling, 

Steam    shovels, 

Steam   wrecking  derricks. 

Supply, 

Sweeper, 

Tool, 

Tool  and  block. 

Water, 

Weed    burner. 

Wrecking. 


Gravel, 

Note  B. — The  word  **  repairs  "  as  here  used  includes  all  repairs  to  or  renewals 
of  parts  of  work  equipment  commonly  known  as  running  repairs;  also  repairs  or 
renewals  of  the  more  important  or  vital  parts  of  work  equipment,  the  necessity 
for  which  is  caused  by  breakage  or  failure  while  in  service;  also  the  repairs  to  work 
equipment  ,  the  necessity  for  which  is  caused  by  breakage  or  failure  while  in  service; 
also  the  repairs  to  work  equipment  damaged  through  accident  or  otherwise  neces- 
sary to  restore  to  service;  and  also  renewals  of  important  or  vital  parts  made 
necessary  by  reason  of  age  or  wear  and  tear  from  use. 

Note  C. — The  cost  of  repairing  work  equipment  of  foreign  lines  waybilled  as 
freight,  damaged  in  transit  should  be  charged  to  account  "  Loss  and  Damage — 
Freight,"  and  damage  to  work  equipment  of  foreign  lines  having  trackage  rights 
over  a  carrier's  lines  damaged  in  collision  or  wrecks  for  which  a  carrier  is  liaDle 
should  be  charged  to  account  "  Damage  to  Property." 

20.      WORK   EQUIPMENT — RENEWALS. 

This  account  includes  the  original  cost  (estimated,  if  not  known),  record 
value,  or  purchase  price  of  all  work  equipment  condemned,  destroyed,  or  sold, 
less: 

(a)  Amount  previously  charged  for  depreciation  up  to  date  of  retire- 
ment : 

(b)  Scrap  value  of  salvage  or  the  amount  received  from  sale  of  work 
equipment  retired. 

Note. — The  term  "  record  value  "  should  not  be  interpreted  to  mean  the  value 
of  equipment  as  it  stands  in  the  capital  account,  unless  that  account  represents  the 
original  value  of  the  equipment  on  hand. 

21.     WORK  EQUIPMENT — DEPRECIATION. 

This  account  includes  a  monthly  charge  to  one-twelfth  (1-12)  of  a  certain 
per  cent,  per  annum  of  the  original  cost  (estimated,  if  not  known),  record 
value,  or  purchase  price  of  work  equipment,  to  provide  a  fund  for  replacement 
when  retired. 

22.      INJURIES   TO   PERSONS. 

This  account  includes  all  expenses  incident  to  injuries  to  persons  when 
caused  directly  in  connection  with  maintenance  of  way  and  structures;  pro- 
;:onion  of  salaries  and  expenses  of  physicians  and  surgeons,  expenses  of  imder- 

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takers,  nursing  and  hospital  attendance,  medical  and  surgical  supplies,  artificial 
limbs,  funeral  expenses,  railway  and  carriage  fares  for  conveying  injured  per- 
sons and  attendants;  also  proportion  of  pay  and  expenses  of  claim  adjusters 
and  their  clerks,  and  pay  and  expenses  of  employees  and  others  called  in  con- 
sultation in  relation  to  the  adjustment  of  claims  coming  under  this  head. 

Note  A. — Witness  fees  and  other  expenses  in  connection  with  the  conduct  of 
suits  should  be  charged  to  account  "  Law  Expenses,"  but  the  amount  of  final  judg- 
ments, including  plaintiff's  court  costs,  should  be  charged  to  this  account. 

Note  B. — When  contributions  are  made  to  hospitals,  the  total  thereof  should 
be  distributed  to  the  several  "Injuries  to  Persons"  accounts  as  follows:  25  per 
cent,  to  "  Maintenance  of  Way  and  Structures,"  25  per  cent,  to  "  Maintenance  of 
Equipment,"  and  50  per  cent,  to  "  Transportation  Expenses." 

Note  C. — The  pay  and  expenses  of  claim  adjusters,  clerks,  chief  surgeons,  and 
others  whose  pay  can  not  be  actually  allocated  to  any  case  should  be  divided  equally 
between  personal  injury  and  other  claims  over  which  they  have  jurisdiction. 


II.  MAINTENANCE  OF  EQUIPMENT. 


superintendence. 


This  account  includes  the  same  items  as  maintenance  of  way  and  struc- 


tures. 


It  also  includes  the  following  accounts: 
Repairs  of  steam  and  electric  locomotives. 
Renewal  of  steam  and  electrical  locomotives. 
Depreciation  of  steam  and  electric  locomotives. 


repairs  of  passenger  train  cars. 


The  following  cars  are  classified  as  passenger  train  cars 


Air-brake    instruction. 

Baggage, 

Baggage — express. 

Baggage — mail. 

Buffet, 

Business, 

Cafe, 

Chair, 

Colonist, 

Combination    passenger 


Dining, 

Emigrant, 

Express, 

Library, 

Mail, 

Milk, 

Observation, 

Officers', 

Parlor, 

Parlor — baggage, 


Passenger, 

Passenger    —    baggage 

mail. 
Pay, 
Postal, 

Refrigerator — express. 
Smoking, 
Street, 
Tourist. 


and  baggage. 

Renewal  of  passenger  train  cars. 
Depreciation  of  passenger  train  cars. 


3.      REPAIRS  OF  freight  TRAIN  CARS. 

The  following  cars  are  classified  as  freight  train  cars : 
Beer,  Caboose,  Coke, 

Box,  Charcoal,  Dump   (commercial,  coal 

Cabin,  Coal,  or  stone,) 

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Flat,  Lime, 

Fruit,  Logging, 

Furniture,  Oil  tanks. 

Gondola,  Ore, 

Gondola — hopper.  Platform, 

Gondola — long,  Poling, 

Gun  trucks.  Poultry, 
Hay, 

Renewal  of  freight  train  cars. 

Depreciation  of  freight  train  cars. 

Repairs  of  electric  equipment  of  cars. 

Renewal  of  electric  equipment  of  cars. 

Depreciation  of  electric  equipment  of  cars. 


4.     REPAIRS  OF  FLOATING  EQUIPMENT. 


Produce, 

Rack, 

Refrigerator, 

Stock, 

Tank    and    water     (when 

used       as       commercial 

cars). 


This  account  includes,  when  not  chargeable  to  "  Outside  Operations :" 
Steamboats  and  Tugboats — Cost  of  material  used  and  labor  expended 
in   repairing  steamships,   steamboats,   power   launches,   steam   lighters,    ferry, 
transfer,  tug.  and  all  other  boats  propelled  by  their  own  power  (see  "Note 
A  "  under  this  account)  ;  also  boilers,  engines,  masts,   rigging,   sails,   wood 
foundations,  bearings  for  machinery,  wheels,  rudders,  shafts,  steering  gear, 
ventilators,  electric  plants,  steam  and  hot-water  fixtures,  and  all  other  parts; 
furniture  and  fixtures  of  such  boats,  including  cost  of  renewing  machinery; 
furniture   and   fixtures,   such  as  anchors,  axes,  barometers,   beds   and   bed- 
ding, binnacle  lamps,  block  and  tackle,  capstan  bars,  carpets,  chairs,  charts, 
clocks,  compasses,  copying  presses,  counters,  desks,  engine   furnishings,  fire 
buckets,  fire  extinguishers,  flue  cleaners,  gang  planks,  hatchets,  hooks,  keys, 
lamps    (when    permanently    attached    to   boats),    life-preservers,    lines,    lino- 
leum, logs  and  log  lines,  mats,  matting,  mattresses,  oil  cans,  pianos  on  passen- 
ger boats,  pillows,  pokers,  racks,  railings,  rugs,  safes,  scales,  scrapers,  settees, 
shovels,  splice  bars,  spy-glasses,  stoves  and  stove  furniture,  tables,  ticket  cases 
and  fixtures,  tool  boxes,  tools,  wrenches ;  payments  of  royalties,  or  for  patent 
rights  on  improved  machinery.     Pay  and  expenses  of  shore  engineers,  shore 
captains,  and  their  assistants  when  engaged  in  supervising  the  maintenance 
of  floating  ecjuipment. 

The  value  of  old  material  released  during  repairs  and  insurance  re- 
covered should  be  credited  to  this  account. 

Barges,  Car  Floats  and  Canal  Boats— Cost  of  material  used  and  labor 
expended  in  repairing  barges,  canal  boats,  car  and  other  floats,  dredges,  lighters 
and  s^cows  (see  "Note  B"  under  this  account):  also  hulls,  decks,  cabins, 
rigging,  and  all  other  parts  and  furniture  and  fixtures  of  such  boats,  including 
cost  of  renewing  machinery,  furniture,  and  fixtures,  such  as  those  enumerated 
above. 

The  value  of  old  material  released  during  repairs  and  insurance  recovered 
should  be  credited  to  this  account. 
Renewal  of  floating  e(|uipment. 
Depreciation  of  floating  equipment. 


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O.     SHOP  MACHINERY  AND  TOOLS. 

This  account  includes: 

Repairs — Cost  of  material  used,  and  labor  expended  in  repairing  to»>ls 
and  machinery  in  enginehouses  and  at  locomotive  and  car  shops  and  foundries, 
including  stationary  engines  and  boilers  for  furnishing  power:  scaffolds,  shaft- 
ing, belting,  and  other  appliances  for  running  machinery,  cranes,  hoists  ( power 
and  hand),  drop  tables,  jacks  and  other  appliances  used  in  connection  there- 
with; also  in  repairing  furnaces,  forges,  hydraulic  and  other  portable  jacks, 
portable  scales,  and  sewing  machines  used  in  shops.  Cost  of  repairing  heating 
boilers  should  be  charged  to  account  '*  Buildings,  Fixtures  and  Grounds.  " 

Renewals — Cost  of  new  tools  and  machinery  Cless  salvage),  used  in 
enginehouses  and  at  locomotives  and  car  shops  and  foundries,  including  station- 
ary engines  and  boilers  for  furnishing  power ;  scaflfolds,  shafting,  belting  and 
other  appliances  for  running  machinery,  cranes,  hoists  (ix)wer  and  hand), 
drop  tables,  jacks  and  other  appliances  used  in  connection  therewith:  also 
furnaces,  forges,  hydraulic  and  other  portable  jacks,  portable  scales  and  sewing 
machines  used  in  shops.  Cost  of  renewing  heating  boilers  should  be  charged 
to  account  "  Buildings,  Fixtures  and  Grounds.  " 

().      TOWER  PLANT  EQUIPMENT. 

This  account  includes : 

Steam  and  Water  Plant— Cost  of  materials  used  (less  salvage)  and 
labor  expended  in  repairing  and  renewing  steam  and  water  plant  equipment, 
including  engines  and  engine  parts,  appliances  and  fixtures;  behs,  belt 
tighteners  and  fixtures;  receivers,  lubricators  and  oiling  devices:  shafting, 
clutches,  cranes,  hoists,  and  other  engine-room  appliances,  boilers,  boiler  fittings, 
and  appliances,  furnaces,  economizers,  stacks,  mechanical  draft  machinerj-, 
pumps,  feed-water  heaters,  purifiers,  tanks,  condensers,  coal  and  ash  conveying 
machinery,  mechanical  stokers  and  other  boiler-room  appliances:  piping  and 
steam  fitting,  including  valves,  separators,  water  and  sewer  connections,  and 
water  meters. 

Electric  Plant — Cost  of  materials  used  and  labor  expended  in  repairing 
and  renewing  all  electric  equipment  within  the  power  house  ( not  inchuling  the 
method  of  transmission  of  power  beyond  the  power  house),  including  genera- 
tors and  generator  parts,  dynamos,  switch  boards,  cables,  and  feeder  terminals, 
and  wiring  in  connection  therewith :  storage  batteries,  transformers,  boosters, 
rheostats,  circuit  breakers,  meters,  and  other  electric  equipment. 

7.      INJURIES   TO    PERSONS. 

When  contributions  are  made  to  hospitals,  the  total  thereof  should  be 
distributed  to  the  several  "Injuries  to  Persons"  accounts  as  follows:  'io  per 
cent,  to  "  Maintenance  of  Way  and  Structures,  '*  25  per  cent,  to  *'  Maintenance 
of  Equipment,  "and  oO  per  cent,  to  "  Transportation  Expenses.  " 


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The  pay  and  expenses  of  claim  adjusters,  clerks,  chief  surgeons,  and  others 
whose  pay  can  not  be  actually  allocated  to  any  case  should  be  divided  equally 
between  personal  injury  and  other  claims  over  which  they  have  jurisdiction. 

8.    insurance. 


9.  OTHER   expenses. 

This  account  includes  all  expenses  in  connection  with  maintenance  of 
equipment  not  properly  chargeable  to  other  maintenance  of  equipment  ac- 
counts. 

10.  SHOP  EXPENSES. 

It  is  recognized  that  costs  incident  to  maintenance  of  equipment  other 
than  those  enumerated  herein  not  chargeable  directly  to  any  particular  account 
provided,  will  be  incurred,  such  as  heating,  lighting,  water,  watchmen,  and 
incidentals.  To  provide  for  the  distribution  of  such  costs  to  proper  expense 
accounts,  a  clearing  account  called  "  Shop  Expenses  "  should  be  opened,  to 
which  these  items  and  other  unassignable  items  of  expense  at  shops,  engine- 
houses,  repair  tracks,  and  other  places  at  which  mechanical  work  is  done  should 
be  charged.  Such  shop  expenses  should  be  apportioned  among  the  various  ac- 
counts affected  on  the  basis  of  the  amount  of  distributed  labor  charged  to  those 
accounts.  The  basis  of  distribution  should  be  the  relative  proportion  which 
the  total  amount  of  charges  to  "  Shop  Expenses  "  bears  to  the  total  of  the 
distributed  labor. 

To  avoid  monthly  fluctuations  in  the  percentage  of  shop  expenses  to 
the  total  of  distributed  labor,  carriers  will  be  permitted  to  make  the  monthly 
apportionment  on  the  basis  of  a  fixed  percentage  for  the  fiscal  year,  provided 
the  "  Shop  Expenses  "  account  is  adjusted  and  closed  out  at  the  end  of  that 
year. 

The  expenses  above  referred  to  are  as  follows: 
,      Heating — Cost  of  fuel,  including  freight  charges  and  handling,  if  any, 
used  for  heating  shops  and  shop  offices,  repair  tracks,  and  other  places  at  which 
mechanical  work  is  done,  watchmen's  and  gate  keepers'  boxes,  and  inspectors* 
shanties. 

Lighting— Cost  of  electric  current,  gas,  torches,  lamp  burners,  lamp  chim- 
neys, lamps  when  not  permanently  attached  to  buildings,  oil,  incandescent  lamps 
and  carbons,  and  other  material  used  for  fighting  shops  and  shop  offices,  repaif 
tracks,  and  other  places  at  which  mechanical  work  is  done ;  and  cost  of  material 
used  and  labor  expended  in  operating  electric  light  plants  and  repairing  electric 
light  lamps  at  shops. 

Water— Cost  of  water  used  in  shops  and  shop  offices,  repair  tracks,  and 
other  places  at  which  mechanical  work  is  done. 

Watchmen— Pay  of  watchmen,  gate  keepers  and  policemen  at  shops,  re- 
pair tracks,  and  other  places  at  which  mechanical  work  is  done. 

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Incidentals — Pay  of  employees  while  attending  fires  and  fire  drills; 
cost  of  supplies  for  test  rooms  and  laboratories  incident  to  shop  work,  ice 
for  shops,  watchmen's  uniforms,  clocks,  and  call  boxes,  removing  snow  and 
ice  from  transfer  tables  and  shop  yards;  traveling  expenses  not  chargeable 
to  other  accounts ;  cost  of  cleaning  privy  vaults ;  oil,  grease,  waste,  and  other 
material  used  in  lubricating  shop  machinery  and  tools;  horses  and  horse 
keep,  and  repairing  wagons  and  harness  used  m  connection  with  shops.  Cost 
of  supplies  and  small  hand  tools  used  by  mechanics  on  miscellaneous  work 
and  soon  worn  out,  and  pay  of  employees  while  making,  replacing  or  having 
charge  of  same ;  pay  of  shop  foremen,  assistant  foremen,  clerks,  time-keepers, 
and  shop  accountants,  stationary  engineers  and  firemen,  sweepers,  cleaners, 
roustabouts,  and  other  unskilled  laborers  employed  in  general  work  in  and 
about  shops  and  shop  grounds;  cost  of  fuel  for  forges,  fuel,  stores  and  sup- 
plies; and  other  undistributed  shop  expenses;  all  expenses  of  switching 
locomotives,  including  wages,  repairs,  fuel,  and  supplies  when  exclusively  as- 
signed to  switching  service  at  shops.  (When  switching  at  shops  is  performed 
by  locomotives  in  regular  switching  service,  all  expenses  of  such  switching 
should  be  charged  to  appropriate  "  Maintenance  "  and  "  Transportation  "  ac- 
counts.) 

Maintaining  joint  equipment  at  terminals — Dr. 
Equipment  borrowed — Dr. 

Maintaining  joint  equipment  at  terminals — Cr. 
Equipment  loaned — Cr. 

11.      hire  OF  EQUIPMENT. 

To  this  account  should  be  charged  monthly: 

(1)  The  gross  accruals  for  the  use  of  equipment  of  all  classes  be- 
longing to  another  carrier  or  company  on  a  basis  of  per  diem,  mileage,  or 
rental. 

To  it  should  be  credited  monthly: 

(3)  The  gross  accruals  for  the  use  of  a  carrier's  equipment  while  on 
the  lines  of  other  carriers,  companies,  or  individuals  ("  Car  Service  "  excepted), 
either  on  a  basis  of  per  diem,  mileage,  or  rental. 

To  it  should  be  charged  monthly : 

(3a)  An  amount  equal  to  12  cents  per  car  per  day  for  the  number  of 
car-day's  a  carrier's  freight-train  cars  are  on  the  lines  of  other  carriers  or 
in  use  by  other  companies  or  individuals. 

(3b)  An  amount  equal  to  the  portion  of  the  depreciation  and  repairs 
charges,  accruing  against  the  carrier  upon  its  equipment  other  than  freight- 
train  cars  while  on  the  lines  of  other  carriers,  or  in  use  by  other  companies  or  in- 
dividuals. 

Note — These  two  debits  should  invariably  equal  the  monthly  credit  to 
*'  Maintenance  of  Equipment  "  under  the  primary  account  "  Equipment  Loaned 
— Cr. " 


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To  it  should  also  be  credited  monthly: 

(4a)  An  amount  ecjual  to  I'i  cents  per  car  per  day  for  the  number  of 
car  day^.  freight-train  cars  of  other  carriers,  companies,  or  individuals  are  on 
the  lines  of  the  carrier  company. 

(4b)  An  amount  equal  to  the  portion  of  the  depreciation  and  repairs 
charges,  accruing  against  other  carriers,  companies  or  individuals,  upon  their 
equipment  other  than  freight-train  cars  while  on  the  lines  of  the  carrier. 

III.    TRAFFIC  EXPENSES. 

1.      SUPERINTENDENCK. 

This   account   includes   pay   of  officers,   pay   of   clerks   and   attendants, 
office  and  other  expenses. 
Outside  Agencies. 
Advertising, 
Traffic  Associations, 
Fast   Freight  lines, 
Industrial  and  Immigrant  Bureaus, 
Stationary  and  Printing. 
Insurance. 
Other  expenses. 

IV.    TRAXSPORTATIOX  EXPENSES. 

Superintendence, 

Dispatching  trains, 

Station  employees. 

Weighing  and  car  service  associations. 

Stock-yards  and  grain  elevators. 

Coal  and  ore  docks. 

Station  supplies  and  expenses, 

Yard  masters  and  their  clerks. 

Yard  conductors  and  brakemen, 

Yard  switch  and  signal  tenders,  ' 

Yard  supplies  and  expenses, 

Yard  engine  men. 

Yard  engine-house  expenses. 

Fuel  for  yard  locomotives. 

Water   for  yard   locomotives. 

Lubricants  for  yard  locomotives. 

Other  supplies   for  yard  locomotives. 

Operating  joint  yards  and  terminals — Dr. 

Operating  joint  yards  and  terminals— Cr. 

Motormen, 

Road  engine-men. 


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Road  engine-house  expenses, 
Fuq\  for  road  locomotives, 
Water  for  road  locomotives. 
Lubricants  for  road  locomotives. 
Other  supplies  for  road  locomotives. 
Operating  power  plant, 
Purchased  power, 
Road  trainmen. 

1.     ROAD  SUPPLIHIS  AND  EXPENSES. 

This  account  includes: 

Cleaning  Cars — Pay  of  car  cleaners ;  also  employees  engaged  in  scrub- 
bing the  outside  of  cars  at  car-cleaning  or  station  yards :  cost  of  hose  for 
washing  cars,  steam  hose,  and  fuel  for  heating  water  for  washing  cars, 
water  used  for  cleaning  cars,  compressed  air  for  cleaning  cushions  and 
car  seats,  brooms  brushes,  soap,  modoc  and  other  liquids,  sponges,  and  all 
other  material  for  cleaning  and  disinfecting  cars. 

Heating  Cars — Pay  of  employees  engaged  in  handling  coal  for  heating 
cars  and  removing  ashes  from  stoves  in  cars ;  stoves  and  heaters  for  tem- 
porary use  in  freight  cars :  cost  of  hose  and  loose  or  movable  articles  con- 
nected with  heating  plants  at  stations  used  for  supplying  heat  to  cars :  fuel, 
steam  or  other  heating  materials,  expenses  of  boiler  plants  used  for  supplying 
heat  to  cars  at  stations  and  yards. 

Lighting  Cars — Pay  of  employees  engaged  in  filling  and  cleaning  lamps 
for  lighting  cars ;  cost  of  supplying  or  pumping  gas  into  cars  and  hose  use<l  in 
connection  therewith  ;  gas,  electric  current,  oil,  candles,  wicks,  globes,  shades, 
chimneys,  and  all  other  supplies  used  in  lighting  cars;  supplies  and  fuel  for 
gas-pumping  plants,  gas-pump  engines,  gas  pumps,  carburetors,  and  filling 
cans  for  carburetors. 

Lubricating  Cars — Pay  of  car  oilers ;  also  employees  engaged  in  ilis- 
tributing  supplies  for  lubricating  cars ;  cost  of  tools,  such  as  packing  hooks 
and  irons,  dope  buckets,  oil,  grease,  waste,  wool,  and  other  supplies  used  in 
lubricating  cars. 

Icing  and  Watering  Cars — Pay  of  employees  engaged  in  icing  and 
watering  cars;  cost  of  ice,  water,  and  tools,  such  as  buckets,  ladders  and 
hose,  used  in  icing  and  watering  cars;  also  cost  of  refrigeration  when  borne 
by  the  carrier. 

Detouring  Trains — Cost  of  temporary  use  of  tracks  of  other  companies, 
including  the  cost  of  pilot  service,  on  account  of  wrecks,  washouts,  land- 
slides,  snow  blockades,   and   other  defects   of  tracks,   bridges,   or  tunnels. 

Other  Expenses — Pay  of  attendants'  keeping,  and  cost  of  supplies  fur- 
nished bunk  rooms  for  engineers,  firemen,  and  trainmen :  contributions  to 
Y.  M.  C.  A.  and  similar  organizations,  including  pay  of  superintendents  and 
secretaries  of  reading  rooms :  cost  of  oil  and  wicking  for  train  signal  lamps 
and  for  lanterns  of  trainmen  (^except  work  trainmen),  waste  for  cleaning 
lamps  and  lanterns,  and  pay  of  employees  engaged   exclusively  in  cleaning, 

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trimming  and  filling  them ;  cost  of  miscellaneous  supplies  furnished  cars  for 
the  purpose  of  protection  against  accidents  and  fires;  provisions,  supplies,  or 
board  for  passengers,  or  feed  for  live  stock  on  snow-bound  trains  or  trains 
delayed  by  accident  or  by  other  causes ;  cost  of  bedding  for  stock  cars,  dunnage, 
furnished  cars,  chains  for  securing  loads,  temporary  grain  doors,  temporary 
lining  of  freight  cars  for  carrying  freight  otherwise  liable  to  injury,  planking 
cars  for  shipments  of  billets  and  other  material,  boards  for  flooring  fruit  cars, 
boards  and  slats  to  fit  box  and  stock  cars  for  carrying  coal,  coke,  and  other 
freight:  safety  chains  for  holding  together  twin  and  triple  cars;  opening 
ends  of  cars  for  shipment  of  rails  and  structural  material;  transferring  pas- 
sengers, express  matter,  baggage,  mail,  and  freight  on  account  of  defective 
tracks,  bridges,  or  tunnels;  premiums  on  fidelity  bonds  of  trainmen;  cost  of 
apparatus  for  testing  sight  and  hearing  of  engineers,  firemen,  and  trainmen; 
uniforms,  uniform  trimmings,  and  badges  for  trainmen;  laundry  work  for 
cars ;  also  cost  of  miscellaneous  supplies  required  fully  to  equip  revenue  trains 
for  service. 

Clearing  wrecks, 

Telegraph  and  telephone  operation. 

2.    operating  floating  equipment. 

This  account  includes  steamboats  and  tug  boats — superintendence  and 
manning;  steamboats  and  tug  boats — charters;  steamboats  and  tug  boats — 
incidentals ;  barges,  car  floats  and  canal  boats — superintendence  and  manning ; 
barges,  car  floats  and  canal  boats — charters ;  barges,  car  floats  and  canal  boats — • 
incidentals ;  fuel ;  elevators  and  longshore  labor. 

Express  service, 

Stationery  and  printing, 

Insurance, 

Other  expenses, 

Loss  and  damage — freight. 

Loss  and  damage — baggage, 

Damaged  property. 

Damage  to  stock  on  right  of  way,  ^ 

Injuries  to  persons. 

Operating  joint  tracks — Dr. 

Operating  joint  tracks — Cr. 


V.    GENERAL  EXPENSES. 

Salaries  and  expenses  of  General  Officers. 
Salaries  and  Expenses  of  Clerks  and  Attendants. 
General  office  supplies  and  expenses. 
Law  expenses. 
Insurance. 

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Relief  Department  expenses. 

Pensions. 

Stationery  and  Printing. 

Other  expenses. 

General  administration  joint  tracks,  yards  and  terminals — Dr. 

General  administration  joint  tracks,  yards  and  terminals — Cr. 

STEAM  RAILROAD  COST  ACCOUNTING. 

There  is  no  subject  of  interest  to  accounts  that  is  receiving  so  much 
attention  as  that  of  Cost  Accounting.  The  factory  manager  has  long  since 
conceded  the  necessity  of  a  practical  system  of  accounting  for  expenditures 
and  ascertaining  to  a  certainty  the  cost  of  his  product.  But  has  his  brother 
■ — the  railway  manager — done  as  much  in  this  direction?  It  is  the  experience 
of  the  writer  that  he  has  not.  He  is,  of  course,  interested  in  knowing  just 
what  it  costs  to  run  his  railroad  and  just  what  profit  is  made,  but,  as  he  is 
very  rarely  an  accountant,  the  necessity  of  showing  the  more  minute  details 
of  expenditures  is  not  so  apparent  to  him,  and  for  that  reason  few  of  the 
details  of  expenditure  come  to  his  notice.  His  province — in  the  matter  of 
operating  expenses — seems  to  be  that  of  "  putting  it  up  to  "  the  general  super- 
intendent and  superintendent  of  motive  power,  or  mechanical  superintendent. 
These  officers  have  in  turn  to  look  to  the  division  superintendent  and  general 
store-keeper  or  auditor  of  motive  power  accounts,  respectively,  for  the  actual 
details  of  operating  and  maintenance  expenditures. 

Under  date  of  July  1st,  1907,  the  Third  Revised  Issue  of  the  Interstate 
Commerce  Commission's  Classification  of  Operating  Expenses  became  a  law 
in  accordance  with  Section  20  of  the  "  Act  to  Regulate  Commerce."  This  law 
provides,  however,  that  railways  may  keep  such  "  temporary  or  experimental 
accounts  "  as  are  necessary  for  their  needs.  This  gives  the  accounting  officer 
sufficient  leeway  to  construct  his  system  of  accounts  so  as  to  cover  the  neces- 
sary details. 

Under  the  Classification  of  Operating  Expenses  as  prescribed  by  the  Inter- 
state Commerce  Commission  there  are  five  general  accounts  as  follows: 

1.  Maintenance  of  Way  and  Structures. 

2.  Maintenance  of  Equipment. 

3.  Traffic  Expenses. 

4.  Transportation  Expenses. 

5.  General  Expenses. 

It  is  the  intention  of  this  article  to  show  a  method  for  detailing  the  various 
sub-accounts  of  general  account  No.  2,  Maintenance  of  Equipment,  which  is 
one  of  the  most  important  of  the  general  accounts. 

This  account  is  kept  by  the  mechanical  officer  or  by  the  general  store- 
keeper or  auditor  of  motive  power  accounts.  As  a  rule  one  of  the  last  named 
officers  is  held  responsible  for  the  accounting  of  the  mechanical  department 

The  charges  to  repairs  and  renewals  of  locomotives  and  cars  are  gen- 
erally shown  more  in  detail  than  the  charges  to  other  classes  of  equipment, 

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and  are  justified  or  otherwise  by  comparison  with  the  work  performed  by  their 
respective  classes.  In  other  words,  by  reducing  the  charges  to  a  "  cost  per 
mile  "  basis.  This  is  generally  done  by  means  of  locomotive  "  Performance 
Sheets  "  or  similar  form  of  locomotive  and  car  reports.  These  reports  embrace 
in  addition  to  repairs  and  renewals  per  locomotive,  car  and  "  ton  "  mile,  the 
pounds  of  coal  and  pints  of  various  kinds  of  oil  used  per  "  ton  "  mile  and 
per  locomotive  mile. 

This  plan  of  procedure,  however,  leaves  out  of  consideration  a  large 
item  of  expense  in  connection  with  equipment  maintenance,  namely,  repairs 
of  shop  tools  and  machinery. 

In  determining  costs  there  are  three  elements  to  be  considered: 

1st.     Material. 
2nd.     Labor. 
.3d.     Expense. 

The  first  of  these  elements  can  be  determined  to  a  very  accurate  degree 
by  means  of  price  records  which  record  the  prices  paid  for  all  classes  of 
material  including  transportation  charges — when  material  is  purchased  f.  o.  b. 
point  of  shipment — and  also  the  cost  of  all  repair  parts  and  articles  made  in 
the  shops  for  stock. 

The  second  element  is  determined  in  a  variety  of  ways,  all  of  which 
bring  the  same  result,  i.  e.,  a  correct  distribution  of  each  employe's  time  while 
engaged  directly  on  the  product  of  the  shop.  This  labor  is  called  "  Productive 
labor,"  "  Direct  labor,"  or  "  Distributed  labor." 

The  third  element  is  the  proverbial  "  Bone  of  Contention."  It  is  called 
by  various  names,  such  as  "  Shop  Expense,"  "  Overhead  Expense,"  "  Clear- 
ing Account,"  "  Expense  Burden,"  etc.  It  consists  of  the  non-distributable 
items  of  expense  which — while  they  be  properly  charged  to  any  of  the  stand- 
ing accounts — are  of  benefit  to  them  all.  The  following  are  a  few  of  the 
principal  items  which  come  under  this  caption :  Wages  of  shop  foremen,  shop 
clerks  and  accountants,  watchmen,  yard  laborers,  etc. ;  supplies  furnished  for 
the  use  of  the  above  employes;  oil  and  waste  used  in  lubricating  shop  tools 
and  machinery;  light,  heat  and  water  furnished  shops  and  many  other  items 
of  unassigned  expense. 

It  is  not  so  much  a  question  of  what  items  shall  be  considered  "  shop 
expense  " — this  matter  being  pretty  thoroughly  understood — but  the  manner 
in  which  these  charges  shall  be  pro-rated  is  the  subject  of  a  great  deal  of 
discussion,  and  it  is  proper  that  it  should  be  so,  for  this  account  is  a  large  one 
and  generally  exceeds  the  amount  of  the  direct  or  productive  labor  charges. 

A  safe  and  conservative  method  of  pro-rating  expense  charges  is  to 
base  the  percentage  of  distribution  on  the  amount  of  productive  labor,  as 
this  practically  means  a  percentage  based  on  the  hours  charged  on  each  piece 
of  work.  It  is  very  evident  that  the  more  hours  an  employe  puts  in  on  a  job 
the  more  benefit  the  job  derives  from  shop  superintendence,  supplies,  and 
other  shop  facilities. 

It  is  manifestly  incorrect  to  pro-rate  expense  material  on  the  basis  of  the 
productive  material  charge— as  is  often  done.    Let  us  take,  for  example,  a  case 

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which  frequently  occurs:  An  article  is  made  of  brass  or  copper  and  the  same 
article  or  one  similar  in  shape  and  size  is  made  of  tin  or  steel.  The  material 
used  in  the  brass  or  copper  article  costs — let  us  say — fifty  cents  while  that 
used  in  the  tin  or  steel  article  costs  twenty-five  cents.  Let  us  assume  the  shop 
expense  proportion  chargeable  to  material  to  be  100  per  cent.  The  expense 
charged  on  the  higher  priced  article  would  then  be  fifty  cents,  while  the  lower 
priced  article  would  receive  only  twenty-five  cents  expense  charge.  The 
expense  of  supervision  and  proportion  of  cost  of  running  the  shop  is  no 
greater  in  one  case  than  in  the  other,  and  if  the  productive  labor  basis  of 
distribution  were  employed,  the  shop  expense  charge  in  both  cases  would  be 
equal. 

One  of  the  strongest  arguments  in  favor  of  the  "  productive  lalx>r " 
method  of  pro-rating  expense  charges  is  the  recommendation  of  the  Inter- 
state Commerce  Commission  in  its  Classification  of  Operating  Expenses  which 
reads  as  follows :  "  Such  shop  expense  should  be  apportioned  among  the 
various  accounts  affected  on  the  basis  of  the  amount  of  distributed  labor 
charged  to  these  accounts.  The  basis  of  distribution  to  be  the  relative  propcjr- 
tion  which  the  total  amount  of  charges  to  *  shop  expense  '  bears  to  the  total 
of  the  distributed  labor." 

It  is  sometimes  considered  desirable  to  use  an  average  percentage  for  pro- 
rating shop  expense.  This  is  done  by  taking  an  arbitrary  percentage  and  using 
it  throughout  the  year.  The  Interstate  Commerce  Commission  provides  for 
this  but  stipulates  that  an  adjustment  must  be  made  at  the  end  of  each  fiscal 
year. 

This  adjustment  can  be  made  by  opening  a  "  suspense  account,"  debiting 
the  account  each  month  with  the  amount  of  actual  shop  expense  incurred  and 
crediting  it  with  the  amount  charged  oflf.  This  account  can  be  closed  at  the 
end  of  the  year  and  the  balance  placed  to  the  debit  or  credit  of  the  current 
month's  expense. 

The  advantages  of  handling  shop  expense  in  this  manner  are  that  it 
requires  less  work  and  prevents  fluctuations  in  the  monthly  shop  expense 
charges.  This  last  item  is  of  considerable  advantage  in  making  estimates  of 
repairs  to  equipment. 

Form  No.  1  is  intended  to  furnish  the  operating  officer  with  a  detailed 
account  of  equipment  charges  with  which  he  may  compare  the  performance 
and  efficiency  of  the  different  shops  and  repair  stations  under  his  supervision. 
It  will  also  enable  him  to  compare  the  expenses  of  a  certain  shop  with  its 
own  past  performances. 

In  considering  this  form — ^as  well  as  Form  Xo.  3 — it  must  be  remembered 
that  the  divisions  of  the  accounts  shown  are  only  representative  details  and 
may  be  supplemented  by  various  others  and  sub-divided  to  a  very  much  finer 
point.  Take  for  example  the  account  "  repairs  of  cars,"  this  classification  also 
includes  under  *^  freight  cars  "  the  further  divisions  of  "  ore,"  "  dump,"  '*  bal- 
last," "  stock,"  "  poultry,"  "  tank,"  "  rack,"  "  charcoal,"  "  dray,"  *'  vehicle  "  and 
many  other  classes  of  freight  equipment.     In  the  same  manner  "  repairs  of 


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1213A 


1213B 


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St. 


American  Business  and  Accounting  Encyclopedia        901-902 


locomotives  "  can  be  made  to  embrace  each  individual  locomotive  instead  of 
each  class  if  so  desired. 

It  will  be  noticed  that  there  is  no  column  provided  in  form  No.  1  for 
shop  expense.  It  is  intended  that  the  shop  expense  shall  be  combined  with 
the  labor  charge  and  shown  as  one  figure.  If  for  any  reason  the  direct  labor 
charge  is  desired  it  can  be  readily  obtained  from  the  shop  expense  percentage 
shown  on  form  No.  2. 

It  is  intended  that  form  No.  2  shall  furnish  the  operating  officer  the  com- 
plete details  of  the  charges  to  shop  expenses  incurred  in  the  varioits  shops  in 
order  that  he  may  have  an  opportunity  to  check  this  important  account  and 
regulate  unnecessary  expenditures. 

Shop  expense  charges  in  total  should  not  be  taken  as  a  final  basis  of  com- 
parison as  it  is  often  found  that  while  the  charges  are  higher  in  dollars  and 
cents  than  in  a  former  period,  they  are  justified  by  an  increased  productive 
labor,  so  that  the  final  basis  of  comparison  should  be  the  shop  expense  per- 
centage. This  is  arrived  at  by  dividing  the  amount  of  productive  labor,  shown 
at  the  top  of  form  No.  2,  into  the  amount  of  shop  expense,  shown  at  the 
bottom  of  the  form. 

In  compiling  these  two  forms  it  will  be  found  very  convenient  to  have 
the  forms  printed  on  tracing  cloth  and  the  original  copy  made  with  India  ink. 
An  unlimited  number  of  copies  can  then  be  made  at  very  slight  expense  and 
additional  copies  can  be  made  at  any  time. 

One  of  the  difficulties  which  assails  the  accountant  is  the  number  of 
apparently  unavoidable  clerical  errors  which  creep  into  all  calculations.  By 
the  use  of  adding  machines,  slide  rules  and  other  mechanical  calculating 
machines  these  errors  can  be  greatly  reduced,  and  at  the  same  time  the  office 
output  is  increased. 

Railroads  appear  to  be  the  slowest  of  all  corporations  in  taking  up  these 
machines  and  the  principal  excuse  given  is  the  plea  of  excessive  cost.  How 
long  would  these  same  railroads  hesitate  in  spending  many  times  their  cost 
for  a  turret  lathe  or  any  labor  saving  tool  for  shop  equipment?  Who  would 
think  of  allowing  a  workman  to  file  out  a  wheel-fit  or  journal  for  a  driving 
axle?  The  principle  involved  is  precisely  the  same.  The  clerk  or  accountant 
can  do  his  work  better  and  faster  when  assisted  by  these  labor  savers. 

In  conclusion  the  writer  cannot  advise  too  strongly  the  practice  of  show- 
ing, in  all  fonns  of  accounting  records,  every  detail  or  fact  that  can  be  of  any 
interest  whatever  to  the  manager  or  operating  officer  or  any  fact  than  can 
possibly  give  him  a  different  point  of  view  in  considering  and  comparing 
expenditures. — C  D.  Rockzvood. 

(902)     STOCK  (MERCHANDISE). 

Inventory.     See  Stores  Records,  Perpetual  Inventory. 

1214 


803-909         American  Business  and  Accounting  Encyclopedia  St. 

903)     STOCK  (CORPORATION). 

(904)       ALLOTMENT  OF   STOCK. 

In  large  corporations,  especially  those  whose  stock  is  open  to  public  sub- 
scription, it  is  necessary  to  keep  a  record  of  shares  applied  for  and  shares 
allotted,  as  it  frequently  happens  that  applications  have  to  be  passed  upon  and 
the  most  desirable  ones  selected.  This  is  more  especially  true  of  very  promising 
mining  companies. 

In  such  a  case,  one  of  the  authorities  on  Corporation  Accounting  recom- 
mends separate  sheets  being  employed  for  each  letter,  and  where  subscriptions 
are  invited  for  more  than  one  class  of  share,  the  employment  of  separate 
application  forms,  printed  on  different  colored  paper,  so  that  the  applications 
and  allotment  sheets  for  each  class  of  shares  may  be  easily  distinguished. 
When  the  allotment  is  complete  the  sheets  can  be  bound  either  in  the  fomi 
of  a  book  or  of  a  binder,  in  order  to  make  a  permanent  record. 

Appended  is  an  illustration  of  a  record  of  applications  and  allotment. 


(905)       BONUS. 

A  donation  of  stock  by  a  corporation  in  consideration  of  services  rendered 
or  value  received. 

(906)       CAPITAL   STOCK. 

The  sum  divided  into  shares,  which  is  raised  by  mutual  subscription  of 
the  members  of  a  corporation.  It  is  the  sum  upon  which  dividends  are 
expected  to  be  paid.  The  term  is  used  to  indicate  the  amount  of  capital  which 
the  charter  or  articles  of  incorporation  provides  for,  and  the  value  of  the 
property  of  the  corporation;  the  entire  sum  agreed  to  be  contributed,  whether 
paid  in  or  not. 

(907)       CAPITAL   STOCK   UNSUBSCRIBED. 

See  Subscription  Stock — Treasury  Stock. 

(908)       CLANDESTINE  STOCK. 

A  secret  issue  of  stock  for  the  purpose  of  raising  funds  which  it  is  not 
desired  to  make  public.  Such  issues  of  stock  can  sometimes  be  made  for 
the  purpose  of  defrauding  the  public,  who,  when  it  is  oft'ered  for  sale,  imagine 
it  is  regular  stock  and  purchase  at  market  price. 

Clandestine  stock  is  illegal  and  enjoys  none  of  the  privileges  of  authorizetl 
stock. 

(909)       COMMON   STOCK. 

The  ordinary  stock  of  corporations  on  which  dividends  are  paid  from  the 
surplus  earned  and  the  holders  of  which  possess  no  special  privileges  over 
any  other  class  of  stockholders. 

1215 


American  Business  and  Accounting  Encyclopedia         910-912 

(910)     corporation  stock  accounting  records. 

The  records  usually  required  by  an  authorized  corporation  are  as  follows : — 

1.  Minute  Book. 

2.  Record  of  By-Laws. 

3.  Stock  Certificate. 

4.  Stock  Certificate  Record. 

5.  Stock  Ledger. 

6.  Transfer  Journal. 


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(911)     cumulative  preference  stock. 

This  is  stock  on  which  dividends  must  be  paid  before  the  common  stock- 
holders receive  anything  from  the  profits.  If  the  profits  are  not  sufficient  to 
pay  the  cumulative  preference  stockholders,  the  dividends  unpaid  constitute 
a  liability  of  the  business  which  must  be  paid  out  of  future  profits  prior  to 
any  further  distribution. 

In  the  case  of  preference  stock  which  is  non-cumulative,  dividends  not 
earned  in  any  given  year  are  never  paid. 


(912)       NON-CUMULATIVE  PREFERENCE  STOCK. 

Stock,  the  holders  of  which  lose  any  unpaid  guaranteed  dividends  which 
the  earnings  of  a  company  were  insufficient  to  pay  when  payable. 

1216 


912 


American  Business  and  Accounting  Encyclopedia 


St. 


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Shareholder's  Register. 

1217 


St. 


American  Business  and  Accounting  Encyclopedia         913-921 

(913)       DELINQUENT  STOCK. 


(914)       FORFEITED  STOCK. 

Stock  on  which  assessments  or  instalments  have  not  been  paid.  Forfeited 
stock  is  usually  carried  in  the  treasury  until  re-sold. 

(915)       GUARANTEED   STOCK. 

Stock  on  which  certain  specified  dividends  are  guaranteed  to  be  paid  out 
of  the  first  profits  of  a  company  in  priority  to  the  rights  of  all  other  stock- 
holders. ("  Cumulative  Stock.") 

(916)       INSTALLMENT    STOCK    RECORD. 

An  account  book  used  for  the  record  of  installments  due  and  payable  on 
stock.  The  usual  headings  for  this  book  are:  Folio,  Names  of  Subscribers, 
Number  of  Shares,  Amount  of  Installment,  When  Paid,  Amount  Paid,  Totals, 
Remarks. 

(917)       INSTALLMENT    DIVIDEND. 

A  dividend  paid  in  unissued  subscription  stock  instead  of  in  cash.  Equi- 
valent to  a  stock  dividend  except  that  in  this  case  the  stock  subscribed  is 
payable  in  instalments. 

(918)       INSTALLMENT  SCRIP. 

A  form  of  receipt  for  instalments  received  on  stock  subscribed,  the 
stock  itself  being  held  by  the  corporation  until  the  last  installment  has  been  paid. 

(919)       NON-ASSESSABLE    STOCK. 

Stock  which  is  only  liable  to  the  extent  of  its  par  value  and  is  guaranteed 
not  to  be  assessed  for  the  payment  of  any  future  obligations  incurred  by  the 
company.  The  legality  or  actual  advantage  of  such  a  guarantee  is,  however, 
open  to  question. 

(920)       PREFERRED  STOCK. 
(921)       PREFERRED   STOCK   DIVIDEND. 

A  Special  stock  issued  on  which  a  special  dividend  is  guaranteed  and 
which  dividends  must  be  paid  prior  to  the  holders  of  common  stock  receiving 
any  distribution  from  the  profits  of  an  enterprise.  Where  a  business  is  very 
prosperous,  common  stock  may  be  a  much  more  valuable  investment  than 
preferred  stock,  as  it  may  receive  larger  dividends  according  to  the  increase 
of  profits  available  for  distribution,  whereas,  preferred  stock  can  never  receive 
more  than  the  specified  percentage. 

1218 


922-926 


American  Business  and  Accounting  Encyciopedi\ 


St. 


(  922  )       REDUCTION  OF  CAPITAL  STOCK. 

An  expedient  sometimes  resorted  to  by  corporations  for  the  purpose  of 
wiping  out  a  large  deficit  arising  from  losses  sustained  in  the  course  of  business. 


(923)       SCRIP     DIVIDEND. 

"  A  scrip  dividend  is  a  dividend  of  certificates,  giving  the  holder  certain 
rights  which  are  specified  in  the  certificate  itself.  These  dividends  are  usually 
declared  when  the  company  has  profits  which  are  not  in  the  shape  of  money, 
but  in  the  other  forms  of  property,  and  the  company  wishes  to  anticipate  the 
time  when  the  property  may  be  sold  for  cash,  and  the  cash  distributed  by  a 
money  dividend.  The  certificate  sometimes  entitles  the  holder  to  a  sum  of 
money  payable  with  interest  at  a  certain  time  after  date,  or  at  the  option  of 
the  company,  or  when  tlie  company  shall  have  accumulated  sufficient  surplus 
to  pay  the  certificates  in  full.  Sometimes  the  certificates  are  made  convertible 
at  the  option  of  the  holder  into  bonds  or  stocks ;  and  sometimes  the  certificate 
entitles  the  holder  to  exchange  the  certificate  for  lands  of  the  corporation  to 
an  amount  equivalent  in  value  to  the  face  value  of  the  certificate :  the  latter 
is  a  common  method  adopted  by  railroad  companies  holding  large  land 
grants,  and  the  title  to  many  western  town  sites  has  been  acquired  in  thi«? 
manner.  In  issuing  such  certificates  the  corporation  often  reserves  the  right 
to  redeem  them,  either  at  a  fixed  time  or  at  its  option,  either  in  money  or 
bonds  or  stock.  Sometimes  the  certificate  so  far  pa-takes  of  the  character 
of  a  certificate  of  stock  that  it  entitles  the  holder  to  dividends  upon  such  certifi- 
cate. Where  the  corporation,  having  a  large  surplus,  issues  such  certificates, 
they  are  not  held  to  transfer  the  title  to  that  surplus  from  the  corporation  to  the 
holders  of  the  certificates.  In  general,  the  issue  of  scrip  dividends  is  entirely 
lawful,  and  they  are  upheld  by  the  courts;  but  when  they  are  declared  in 
fraud  of  the  rights  of  third  parties  they  may  be  set  aside." 


New  form  I.  A.  S. 


(924)       STOCK   CERTIFICATE. 

(See  page  1217.) 


(925)       STOCK    CERTIFICATE    RECORD. 

Next  in  order  is  the  stock  certificate  book.  \\'hen  issuing  a  certificate  a 
careful  record  should  be  made  upon  the  stub  of  the  name  and  address  of  the 
stockholder,  the  number  of  shares  issued,  and  the  number  of  the  certificate, 
unless  this  is  printed  upon  the  stub,  as  is  generally  done.  A  receipt  should  be 
taken  from  the  stockholder  at  the  time  the  certificate  is  delivered  to  him,  and 
this  should  appear  at  the  bottom  of  the  stub. 


(926)       STOCK  DISCOUNTED. 

The  sale  of  corporation  stock  at  less  than  par  in  order  to  obtain  working 
capital. 

1219 


Ift 

I 


St. 


American  Business  and  Accounting  Encyclopedia 


926-930 


As  an  illustration  we  present  a  corporation  which  sells  $60,000  worth  of 
stock  at  a  discount  of  20%,  expending  the  $48,000  on  construction  of  manu- 
facturing plant. 

The  following  quotations  indicate  differences  of  opinion  as  to  the  disposi- 
tion of  the  discount. 

"It  is  considered  permissible  to  carry  stock  discount  on  the  books  as  an 
asset  under  the  heading  of  Preliminary  Expense  to  be  written  off  from  profits 
during  the  first  four  or  five  years  of  the  business." 

"  The  discount  of  $13,000  is  a  cost  item  inasmuch  as  the  stock  was  sold  at 
20%  below  par  value,  a  capital  loss  sustained  in  order  to  procure  funds  to 

erect  the  plant." 

"The  Stock  Discount  account  may  be  closed  into  Profit  and  Loss  or 
Surplus  whenever  sufficient  profits  have  been  accumulated." 

"  A  thing  costs  us  what  we  pay  for  it  and  not  what  we  might  have 
paid  under  different  circumstances.  It  is  proper,  therefore,  to  debit  to  Con- 
struction the  discount  of  20%  rather  than  carry  it  on  the  books  in  a  separate 
account." 

(927)       STOCK  DIVIDEND. 

"  Dividends  are  frequently  paid  by  certificates  of  stock  where  the  author- 
ized capital  of  a  corporation  has  been  subscribed  but  not  fully  paid  up.  Such 
dividends  are  also  paid  where  the  corporate  plant  has  increased  in  value  and 
it  seems  better  to  issue  new  stock  to  represent  the  excess  of  value  than  to 
declare  a  cash  dividend.  Preferred  stockholders  are  entitled  to  share  equally 
with  the  common  stockholders  in  the  distribution  of  stock  by  a  stock  dividend, 
such  stock  becoming  preferred  with  the  same  rights  and  privileges  as  the 
preferred  stock  originally  issued." 

(928)     stock  donated. 
For  Working  Capital. 

If  the  capital  stock  of  a  corporation  has  not  been  paid  up  and  the  directors 
vote  to  donate  ten  shares  each  to  the  corporation  to  increase  the  working  capital, 
those  directors  are  responsible  for  the  unpaid  balances  of  the  shares  of  stock  so 
donated. 

For  Services. 
See  Bonus. 

(929)     stockholder. 

A  holder  of  stock  in  a  corporation. 


(930)     stock  ledger  or  account  book. 

The  corporation  stock  ledger  is  usually  considered  a  memorandum  ledger 
in  order  to  show  at  any  time  the  amounts  subscribed  by  the  stockholders  and  a 
record  of  transfers.  A  good  plan  for  keeping  the  corporation  stock  ledger  in 
balance  is  to  establish  accounts  with  Capital  and  Treasury  Stock,  debiting 

1220 


t 


930-933 


American  Business  and  Accounting  Encyclopedia 


St. 


these  accounts  with  the  total  stock  subscribed  and  the  total  stock  unsubscribed. 
Credit  the  stockholders'  account  with  the  amount  of  stock  subscribed  and  debit 
them  with  transfers. 

In  very  large  corporations  with  numerous  stockholders  special  methods 
are  adopted. 

(931)     stock  record. 

A  Stock  Certificate  Book. 

(932)     stock  register  and  transfer  book. 

In  large  banks  where  there  are  many  stockholders,  a  stock  register  and 
transfer  book  will  be  found  useful.  In  this  book  is  recorded  all  the  certificates 
of  stock  issued,  giving  date  of  issue,  number  of  certificate,  name  of  stockholder, 
number  of  shares  and  one  column  for  "  succeeding  number  "  and  one  for  "  pre- 
ceding number,"  these  last  to  be  used  in  case  of  transfer.  By  this  book  the 
location  of  every  certificate  of  stock,  and  in  fact  its  history,  can  be  seen  at  a 
glance. 

As  all  transfers  should  be  recorded  clearly,  giving  number  and  name, 
upon  the  stub  of  the  stock  certificate  book,  it  is  from  this  book  that  the  items 
are  posted  to  the  stock  register  and  transfer  book,  and  to  the  stock  ledger. 


(933)     stock  subscription. 

It  is  usual,  immediately  upon  organization,  to  determine  by  resolution 
how  the  stock  will  be  disposed  of.  If  subscriptions  thereto  are  to  be  taken, 
the  incorporators  may  decide  whether  such  subscriptions  are  to  be  paid  at 
one  time,  or  in  instalments,  and  upon  what  terms;  or  they  may  depute  that 
power  to  the  next  board  of  directors.  We  will  presume  that  in  this  instance 
it  is  decided  that  25  per  cent,  shall  be  paid  November  1,  1907 ;  25  per  cent,  in 
two  months  from  that  date ;  25  per  cent,  four  months  later ;  and  the  remainder 
when  called  for  by  the  board  of  directors;  and  that  business  may  be  com- 
menced when  not  less  than  $ shall  have  been  subscribed. 

A  subscription  list  is  then  opened  in  form  as  follows,  and  we  will  sup- 
pose signatures,  etc.,  to  be  secured  as  thereon  entered : 


Date. 


Name  and  Address. 


No.  of  Shares. 


Amount. 


We,  the  undersigned,   severally  subscribe  to  the  capital   stock  of  the 
.,  in  the  amount  and  for  the  number  of  shares  set  opposite 


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our  respective  names,  and  agree  to  pay  for  the  same  as  follows:  Twenty- 
five  per  cent.  November  1.  1907;  25  per  cent.  January  1,  1908;  25  per  cent. 
May  1,  1908;  and  the  remainder  when  called  for  by  the  board  of  directors. 


(931:)       STOCK   TRANSFER. 

See  Stock  Register  and  Transfer  Book. 
See  Stock  Ledger. 

(935)       SUBSCRIPTION  STOCK. 
(936)      TREASURY    STOCK. 

Both  titles  are  used  to  denote  capital  stock  unsubscribed. 

The  latter  title  is  also  used  in  connection  with  stock  which  has  been 
acquired  by  a  corporation  from  the  original  owners,  either  by  way  of  purchase 
or  donation. 

The  value  of  the  unissued  shares  depends  upon  the  price  that  can  be 
obtained  for  them  and  this  price  depends  particularly  on  the  ability  of  the  sales- 
man. 

The  question  as  to  the  title  of  an  account  is  not  important.  An  account 
exhibiting  unissued  shares  of  stock  may  be  termed  Subscription  account, 
Unsubscribed  Subscription  account  or  Treasury  Stock  account.  It  makes 
very  little  difference.  At  the  same  time  for  the  sake  of  uniformity,  we  would 
prefer  to  see  Treasury  Stock  account  representing  only  the  buying  in  of  cor- 
poration stock  by  a  corporation. 


(937)       WATERED  STOCK. 

That  part  of  capital  stock  which  is  not  represented  by  actual  assets  but  by 
inflated,  fictitious  or  anticipated  values. 

Examples. — Patents,  copyrights,  franchise,  promotion  expense,  advertis- 
ing, good-will,  etc. 


(937A)       MARKET  value  OF  CAPITAL   STOCK. 

PROBLEM. 

A  corporation  with  a  capital  stock  of  $60,000  closed  up  its  last  fiscal 
year  with  a  surplus  of  $45,000  and  no  liabilities. 

Of  this  $45,000,  $30,000  consisted  of  cash  and  $5,000  of  quick  available 
assets. 

During  the  last  six  years  this  corporation  has  declared  a  dividend  of  15 
per  cent,  per  annum. 

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solutions. 

Assuming  that  the  original  cost  of  the  plant,  or  property,  was  equal  to 
the  par  value  of  the  stock  when  issued,  I  would  say  that  the  balance  she« 
at  the  end  of  the  period  mentioned  should  show  as  follows : 

BALANCE  SHEET. 

J)jj  ASSETS. 

Cost  of  Property  ♦•♦^'^^^ 

Added  through  Income   ^^^-^^^^ 

70,000.00 

Available  Assets   ^\^ .'    . 

^     ,  30,000.00 

Cash    

105,000.00 

LIABILITIES.  CR. 

„      .,  ,    c*     u  60,000.00 

Capital   Stock   _' 

Profit  and   Loss  Account— Surplus    4o,000.00 

105,000.00 
This  would  show  that  the  business  had  not  only  provided  for  depreciation 
on  the  property  through  the  mediimi  of  operating  expenses,  but  had  paid  its 
15  per  cent,  dividend  each  vear  for  six  years  and  had  permitted  the  accumula- 
tion of  assets  valued  at  $5,000,  added  $10,000  to  the  value  of  its  property, 
and  still  had  in  its  treasury  $30,000,  so  that  the  capital  stock  of  $60,000  repre- 
sents assets  to  the  value  of  $105,000.  On  this  basis  the  stock  would  be  worth 
to  its  present  holders  par  $100,  plus  surplus  (45-60  of  par)  $75,  or  $17o  per 

share. 

If  the  present  holders  were  to  sell  the  plant  valued  at  $:0.000  at  that 

figure,  the  600  shares  would  net  $116.66%  per  share. 

The  $35,000  in  cash  and  assets  would  then  be  divided  among  the  old 

owners  on  a  basis  of  $58,331/3  per  share,  making  net  of  $175  per  share  realized. 

—E.  H.  Bell.  ,     u-  u         yA 

The  above  question  admits  of  several  answers,  any  one  of  which  would 

be  correct,  according  to  the  assumed  circumstances. 

In  any  event,  an  answer  indicating  the  market  value  of  the  stock  would 
be  subject  to  criticism,  according  to  the  point  of  view  of  the  critic. 

In  an  open  market,  the  fluctuations  attending  the  sale  of  stock  are  caused 
invariably  by  the  demand,  which  is  occasioned  by  causes  at  times  that  are 
not  in  accord  with  economy  or  good  business  judgment.  Xorthem  Pacific, 
for  instance,  sold  at  one  time  for  $1,000  a  share,  yet  who  will  say  that  the 
stock  was  worth  that  much  to  the  ordinary  purchaser? 

If  your  corporation  was  dissolved  at  the  close  of  the  fiscal  year,  the  intrin- 
sic value  of  the  stock  would  be  175  per  cent,  of  the  par  value,  assuming  that  all 
of  the  assets  were  good.  This  conclusion  is  obtained  from  the  surplus  plus 
the  capital,  the  company  necessarily  having  good  assets  to  offset  these  liabilities. 
I  mention  the  intrinsic  value  of  the  stock  as  being  175,  but  the  market  value  of 
the  same  stock  may  be  more  or  less,  governed  only  by  the  conditions  of  itr^ 
sale,  the  parties  to  the  sale,  the  prevailing  rate  of  money  and  the  vendor  and 

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vendee's  idea  as  to  the  amount  of  revenue  with  which  they  would  be  satisfied 
from  their  mvestment. 

.n^  ?i"J^^  ""')""  ^^"^'  '^  '^"  corporation  still  continued  its  operations,  any 
and  all  kmds  of  conditions  may  be  set  forth  to  justify  conclusions  arrived  at 
change  in  management  or  policy,  the  condition  of  the  times,  the  probable  future 
earning  power  of  the  corporation,  the  existing  conditions  and  rates  in  the 
money  market,  all  would  have  a  direct  bearing  even  on  the  intrinsic  value  of 
the  stock;  and  supplementing  this  conclusion  with  the  fluctuations  in  the  open 
market  we  may  arrive  at  a  basis  for  the  market  value. 

Again,  if  we  assume  that  the  corporation  will  continue  indefinitely  and 
earn  sufficient  to  warrant  the  declaration  of  an  annual  dividend  of  15  per  cent 
what  basis  shall  we  assume  to  enable  us  to  determine  the  market  value?  D.  L.' 
&  W.,  a  20  per  cent,  dividend  stock,  sells  at  540,  while  U.  P.,  a  10  per  cent  divi- 
dend stock  sells  at  175,  and  so  on  throughout  the  enti.  listed  ^r^. 
Which  of  these  stocks,  or  any  of  the  others  for  that  matter,  can  be  accepted 
as  the  proper  basis.  Both  are  considered  gilt-edge  investments.  Even  if 
«ie  prevailing  rate  for  money  could  unalterably  be  fixed,  how  easy  it  would 
be  to  obtain  a  basis  of  value,  provided  no  other  changes  occurred 

Basing  calculations  on  the  present  average  price  and  approximate  yield 
from  investments  in  conservative  industrials,  viz.,  6  per  cent.,  and  conditions 
remaining  the  same  at  the  end  of  the  fiscal  year  as  stated,  I  would  say  that 

Wahh  ''""'^  '^''''^'^  ^'  ^^^  P"'  ''"'•  ""^  '^^  P^'  value.--r.  /. 

nr  ^.frr'"''".^  *^'u^''''  '''  ^'''  P"''  ^'  ^'^^  '"'  '^^''^  ^^rth  $105,000, 
or  $175  per  share,  this  amount  being  the  book  value,  or  the  amount  the  stock- 
holders would  receive  per  share  should  the  corporation  go  out  of  business 

Market  value  diflfers  from  par  value  and  book  value  in  that  it  is  affected 
not  only  by  these  two  values,  but  by  the  dividends  paid  and  by  the  general 
aspect  of  prosperity  shown.  general 

A  15  per  cent,  dividend  being  paid  annually,  and  a  surplus  of  three-fourths 
of  the  amount  of  capital  being  established  besides,  denotes  a  well-managed 
corporation,  and  would  tend  to  raise  the  market  value,  or  the  actual  value  of 
shares  to  investors,  above  the  book  value.  Ten  thousand  dollars  of  the  surplus 
assets  being  slow  assets  would  tend  to  keep  the  market  value  from  going  much 
above  the  book  value.  ^     ^ 

A  15  per  cent,  dividend  on  a  $100  share  would  net  $15,  but  a  $15  dividend 
based  on  an  investment  of  $175  would  be  realizing  only  about  Sy^  per  cent 
As  stocks  of  well-managed  corporations  usually  net  about  7  or  8  per  cent* 
whed^er  they  sell  above  or  below  par,  I  would  consider  the  market  value  of 
shares  of  this  corporation  to  be  on  approximately  an  8  per  cent,  basis,  or  hav- 
ing a  market  value  of  around  $187.50  per  share.-i/.  K.  Lyon, 

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(937B)     WHAT  IS  watered  stock  when  it  is  not  so? 

Question— According  to  a  definition  given  in  a  current  text  book,  watered 
stock  IS  "  any  stock  issued  by  a  corporation  for  which  said  corporation  has  not 
received  full  value." 

If  stock  is  issued  at  a  discount  in  order  to  procure  Working  Capital  or  pay 
preliminary  expenses,  is  it  watered  stock? 

If  firms  have  presented  small  blocks  of  stock  free  of  charge  to  valuable 
employes,  is  it  watered  stock? 

I  know  of  cases  where  large  corporations  have  increased  their  Capital  Stock 
and  consequently  decreased  the  percentage  of  their  dividends,  being  desirous 
of  hiding  from  the  public  the  amount  of  money  they  are  making.  Would  not 
this  increase  have  to  be  sanctioned  by  the  Secretary  of  State?  Would  it  not 
have  to  show  on  the  books  of  the  company?  If  the  increase  is  sanctioned  by 
the  Secretary  of  State,  would  it  not  thereby  be  made  public  and  the  fraud 
disclosed?  I  understand  in  a  transaction  of  this  kind  that  the  extra  <;tock 
issued  would  be  given  to  the  present  stock-holders  either  gratis  or  for  a 
normal  consideration. 

Answer— As  in  a  great  many  other  accounting  problems,  one  solution 
or  definition  does  not  conform  with  every  condition. 

In  the  definition  you  quote,  the  idea  was  the  issue  of  new  stock  by  a 
Railroad  Company  for  example,  which  is  sold  to  the  public  on  the  under- 
standing that  It  is  to  be  used  for  construction,  but  which  is  actually  taken  pos- 
session of  by  the  directors  of  the  Railroad  on  the  ground  that  the  value  of 
future  profits  justifies  it.  As  you  are  probably  aware  there  is  considerable 
legislation  being  attempted  with  a  view  of  preventing  anything  of  this  kind 
from  happening  again. 

If  a  corporation  issues  stock  at  a  discount  and  carries  the  full  authorized 
capital  on  the  books  and  hides  the  discount  under  the  name  of  Good  Will  Con- 
struction  Account,  or  something  of  that  kind,  it  is  watered  stock. 

If  a  corporation  includes  on  the  asset  side  of  the  Balance  Sheet  the  "  Dis- 
count on  Stock  "  as  a  fictitious  asset,  so  that  the  conditions  may'  be  plainly 
understood,  it  is  not  watered  stock. 

If  a  corporation  donates  a  few  blocks  of  stock  to  department  heads  as 
payment  for  valuable  services,  it  is  not  watered  stock. 

As  you  suggest,  where  the  Capital  Stock  has  been  increased  for  the  pur- 
pose of  decreasing  dividends,  it  should  be  considered  fraudulent,  because  a^  a 
rule,  this  stock  is  not  distributed  in  the  way  of  a  stock  dividend  but  is  held  for 
the  benefit  of  the  officers  of  the  company  by  a  resolution  of  the  directors  or 
something  of  the  kind.  We  do  not  believe,  however,  that  anything  like  this 
often  happens. 


(937C)       CORPORATION. 

"  An  artificial  being  created  by  law  and  composed  of  one  or  more  natural 
persons  who  subsist  as  a  body  politic  under  a  special  denomination,  with  the 
capacity  of  perpetual  succession  of  members  without  changing  the  identity 

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93VC 


of  the  body,  and  of  acting  within  the  scope  of  its  charters,  or  the  laws  under 
which  it  is  organized,  as  a  natural  person." 

It  is  this  characteristic  of  succession  of  a  corporation,  sometimes  called 
its  immortality,  prolonging  its  existence  beyond  the  term  of  natural  life,  and 
thereb}'  enabling  a  long-continued  effort  and  concentration  of  means  to  the  end 
which  it  was  designed  to  answer,  that  constitutes  its  principal  utility. 

All  corporations,  of  whatever  kind,  are  moulded  and  controlled,  both  as  to 
what  they  may  do  and  the  manner  in  which  they  may  do  it,  by  their  charters 
or  acts  of  incorporation,  which  to  them  are  the  laws  of  their  being,  which 
they  can  neither  dispense  with  nor  alter.  Subject,  however,  to  such  limitations 
as  these,  or  such  as  general  statute  or  constitutional  laws  may  impose,  every 
corporation  aggregate  has  by  virtue  of  incorporation  and  as  incidental  thereto. 
First,  the  power  of  perpetual  succession,  including  the  admission,  and  except 
in  the  case  of  mere  stock  corporations,  the  removal  for  cause  of  members; 
Second,  the  power  to  sue  and  be  sued,  to  grant  and  to  receive  grants,  and  to 
do  all  acts  which  it  may  do  at  all,  in  its  corporate  name ;  Third,  to  purchase, 
receive,  and  to  hold  lands  and  other  property,  and  to  transmit  them  in  succes- 
sion ;  Fourth,  to  have  a  common  seal,  and  to  break,  alter,  and  renew  it  at  pleas- 
ure; and.  Fifth,  to  make  by-laws  for  its  govera>ment,  so  that  they  be  con- 
sistent with  its  charter  and  with  law.  Indeed,  at  this  day,  it  may  be  laid 
down  as  a  general  rule,  that  a  corporation  may,  within  the  limits  of  its  charter 
or  act  of  incorporation,  express  or  implied,  lawfully  do  all  acts  and  enter  into 
all  contracts  that  a  natural  person  may  do  or  enter  into,  so  that  the  same 
be  appropriate  as  means  to  the  end  for  which  the  corporation  was  created. 

A  corporation  may  be  dissolved,  if  of  limited  duration,  by  the  expiration 
of  the  term  of  its  existence,  fixed  by  charter  or  general  law ;  by  the  loss  of  all 
its  members,  or  of  an  integral  part  of  the  corporation,  by  death  or  otherwise, 
if  the  charter  or  act  of  incorporation  provide  no  mode  by  which  such  loss 
may  be  supplied ;  by  the  surrender  of  its  corporate  franchise  to,  and  the  accept- 
ance of  the  surrender  by,  the  sovereign  authority;  and.  lastly,  by  the  for- 
feiture of  its  charter  by  the  neglect  of  the  duties  imposed  or  abuse  of  the 
privileges,  conferred  by  it :  the  forfeiture  being  enforced  by  proper  legal 
process. 

In  the  United  States,  although  the  charter  of  a  municipal  corporation 
may  be  altered  or  repealed  at  pleasure,  the  charter  of  a  quasi  public,  or  a 
private  corporation  is,  unless  express  power  be  for  that  purpose  reserved, 
within  the  protection  of  that  clause  of  the  Constitution  of  the  United  States 
which,  among  other  things,  forbids  a  State  from  passing  any  "  law  impairing 
the  obligation  of  contracts."  Under  this  clause  of  the  Constitution  it  has  been 
settled  that  the  charter  of  a  quasi  public  or  a  private  corporation,  whether 
civil  or  eleemosynary,  is  an  executed  contract  between  the  government  and 
the  corporation,  and  that  the  legislature  can  not  repeal,  impair  or  alter  it 
against  the  consent  or  without  the  default  of  the  corporation,  judicially  ascer- 
tained and  declared.  On  the  other  hand,  the  doctrine  is  firmly  established 
that  only  that  which  is  granted  in  clear  and  explicit  terms  passes  by  a  grant 
of  property,  franchise  or  privileges  in  which  the  government  or  the  public 

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has  an  interest Statutory  grants  of  that  character  to  be  con- 
strued strictly  in  favor  of  the  public,  what  is  not  unequivocally  grauted  i> 
withheld,  nothing  passes  by  mere  implication. 

A  corporate  franchise,  however,— as,  to  build  and  maintain  a  toll  bridge- 
may,  by  virtue  of  the  power  of  eminent  domain,  be  condemned  by  a  State 
to  public  uses,  upoti  just  compensation,  like  any  other  private  property. 

Aggregate  Corporations  are  those  which  are  composed  of  two  or  more 
members  at  the  same  time. 

Civil  Corporations  are  those  which  are  created  to  facilitate  the  tran>- 
action  of  business. 

Ecclesiastical  Cor|X)rations  are  those  which  are  created  to  secure  the 
public  worship  of  God. 

Eleemosynary  Corporations  are  those  which  are  created  for  the  purposes 
of  charities,  such  as  schools,  hospitals,  and  the  like. 

Lay  Corporations  are  those  which  exist  for  secular  purposes. 

SOME   ADVANTAGES   OF   INCORPORATING. 

Each  Stockholder  is  liable  only  for  the  amount  of  stock  subscribed. 

A  corporation,  whenever  in  need  of  increase  in  the  working  capital  can 
issue  debenture  bonds,  and  place  same  on  the  public  market  without  giving 
Chattel  Mortgage.  Nobody  knows  what  a  Trust  Deed  mav  include,  but  a 
Chattel  Mortgage  must  be  registered  in  a  Court  of  Record,  which  records 
are  published. 

If  the  management  of  a  comi)any  is  entrusted  to  some  stockhoUler.  who 
proves  to  be  inefficient,  he  ma}  be  removed  by  vote  of  the  majority  of  the 
stock,  and  some  one  else  appointed. 

(037D  )       ARTICLES  OF  INCORlY)RATION. 

While  any  citizens  of  the  United  States  may  enter  into  a  partnership 
agreement  without  first  consulting  the  State  or  Federal  laws  ( excepting,  for 
their  own  protection,  those  which  cover  the  proper  construction  of  panner- 
ship  agreements),  a  corporation  has  certain  defined  legal  privileges  in  regard 
to  limited  liability,  on  account  of  which  the  conferring  or  obtaining  of  a 
charter  of  incorporation  has  been  made  a  favor  to  be  secured  onl>  by  com- 
plying with  certain  legal  forms  and  obligations. 

Unfortunately  the  laws  governing  corporations  are  not  uniform  in  all 
the  States,  this  being  a  reform  nuich  to  be  desired,  and  some  day  to  be 
achieved.  In  order,  therefore,  to  obtain  a  suitable  form  of  Articles  of  Incor- 
poration, it  is  advisable  and  necessary  to  consult  the  local  statutes  in  order 
to  ascertain  the  State  and  other  requirements,  but,  as  examples,  the  followincr 
may  be  found  useful:  * 

(9o7E)       ARTICLES   OF   ASSOCIATION. 
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We,  the  undersigned,  desiring  to  become  incorporated  under  the  provi- 
sion of  Act  No.  232  of  the  PubHc  Acts  of  1885,  entitled  "  An  act  to  revise 
the  laws  providing  for  the  incorporation  of  all  manufacturing  companies 
(except  such  as  are  contemplated  by  Act  No.  42  of  the  Session  Laws  of  1867, 
which  provides  for  the  incorporation  of  persons,  or  corporations,  engaged  in 
the  manufacture  of  salt),  and  mercantile  companies,  or  any  union  of  the  two, 
and  to  fix  the  duties  and  liabilities  of  such  corporations,"  and  the  acts  amenda- 
tory thereof  and  supplementary  thereto,  do  hereby  make,  execute,  and  adopt 
the  following  articles  of  association,  to-wit: 

ARTICLE    I. 

The  name  assumed  by  this  association,  and  by  which  it  shall  be  known 
in  law,  is 

ARTICLE   II. 

The  purpose,  or  purposes,  of  this  corporation  are  as  follows : 

ARTICLE  III. 

The  operations  of  this  corporation  are  to  be  carried  on  in  the  County 
of ,  State  of 

ARTICLE   IV. 

The  capital  stock  of  the  corporation  hereby  organized  is  the   sum  of 
.dollars. 


ARTICLE  v. 

The  number  of  shares  into  which  the  capital  stock  is  divided 
of  the  par  value  of  ten  dollars  each. 


is 


sum 
per 


ARTICLE  VI. 

The  amount  of  said  stock  actually  paid  in  at  the  date  hereof  is  the 

*^*  dollars,  being 

cent,  of  said  capital  stock. 

ARTICLE  VII. 

The  office  in  the  State  of  ,  for  the  transaction  of 

business,  shall  be  kept  at   

ARTICLE  VIII. 

The  term  of  existence  of  this  corporation  is  fixed  at 

years  from  the  date  hereof. 

ARTICLE  IX. 

The  names  of  the  stockholders,  their  respective  residences,  and  the  number 
of  shares  of  stock  subscribed  for  by  each,  are  as  follows: 


NAMES. 


RESIDENCE. 


NO.  OF  SHARES. 


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In  Witness  Whereof,  We,  the  parties  hereby  associating,  for  the  pur- 
pose of  giving  legal  eflfect  to  these  articles,  hereunto  sign  our  names,  this 
day  of ,  A.  D.  19 . . 


NAMES. 


names. 


form    of   ACKNOWLEDGMENT    OF    SIGNATURE. 

State  of ,  County  of  ,  ss. 

On  this (lay  of ,  19. . . .,  before  me, 

J,  in  and  for  said  County,  personally  appeared 


known  to  me  to  be  the  persons  named  in,  and  who  executed  the  foregoing 
instrument,  and  severally  acknowledged  that  they  execute  the  same  freely 
and  for  the  intents  and  purposes  therein  mentioned. 


Articles  of  Incorporation  of  the 
Registered  Office  with  the   


NAME. 


First.    The  name  of  the  corporation  shall  be 


PRINCIPAL    OFFICE. 

Second.    The  location  of  its  principal  office  in  the  State  of 

shall  be  at »  at  ,  in  the 

County  of »  and  said  Corporation  shall  be  registered  wuh 

tlje   Trust  Company.     The  said  Trust  Company  is  the 

agent  therein,  and  in  charge  thereof,  and  upon  whom  process  against  this 
Corporation  may  be  served. 

OBJECTS. 

Third.  That  the  objects  for  which,  and  for  each  of  which,  this  Corpora- 
tion is  formed,  are: 

To  manufacture,  buy,  sell,  deal  in  and  deal  with  steel  or  iron,  or  both, 
and  all  like  or  kindred  products;  to  mine,  manufacture,  prepare  for  market, 
market  and  sell  the  same,  and  any  articles  or  product  in  the  manufacture 
or  composition  of  which  metal  is  a  factor,  including  the  acquisition  by 
purchase,  mining,  manufacture,  or  otherwise  of  all  materials,  supplies,  and 
other  articles  necessary  or  convenient  for  use  in  connection  with  and  m 
carrying  on  the  business  herein  mentioned,  or  any  part  thereof. 

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To  build,  construct,  repair,  maintain,  and  operate  water,  gas,  or  electrical 

works,  tunnels,  bridges,  viaducts,  canals,  wharves,  piers  and    

railroads,  and  any  like  works  of  internal   improvement,   or  public   use,   or 
utility. 

In   furtherance,  and  not  in  limitation,  of  the  general  powers  conferred 

by  the  laws  of  the  State  of   ,  and  of  the  objects  and 

purposes   as   herein   above   stated,   it   is   hereby   expressly   provided   that   the 
Company  shall  have  also  the  following  powers,  that  is  to  say: 

powers. 

(a)  To  do  any  or  all  of  the  things  herein  set  forth  as  objects,  purposes, 
powers  or  otherwise,  to  the  same  extent,  and  as  fully,  as  natural  persons 
might  or  could  do,  and  in  any  part  of  the  world,  as  principals,  agents,  con- 
tractors, trustees  or  otherwise. 

(b)  To  conduct  its  business  in  all  its  branches,  and  have  one  or  more 
offices,   and   unlimitedly   to   hold,   purchase,   and    convey,    real   and   personal 

property,  both  within  and  without  the  State  of   ,  and 

in  all  other  States,  Territories,  and  Colonies  of  the  I'nited   States,  and   iu 
all  foreign  countries  and  places. 

(c)  To  manufacture,  purchase,  or  otherwise  acquire,  hold,  own,  sell, 
assign  and  transfer,  invest,  trade,  deal  in  and  deal  with  goods,  wares,  and 
merchandise  and  property  of  every  class  and  description,  and  to  do  both 
mining  and  manufacturing  of  any  kind. 

(d)  To  purchase,  or  otherwise  acquire,  to  hold,  own,  maintain,  work, 
mine,  develop,  to  sell,  convey,  or  otherwise  dispose  of,  without  limit  as  to 

amount,   within   or   without   the    State  of    and   in   any 

part  of  the  world,  real  estate  and  real  property,  and  any  interest  and  rights 
therein. 

(e)  To  acquire  the  good  will,  rights  and  property  of  all  kinds,  and  to 
undertake  the  whole  or  any  part  of  the  assets  and  liabilities  of  any  person, 
finn,  association  or  corporation,  and  to  pay  for  the  same  in  cash,  stock  of 
this  Company,  bonds  or  otherwise. 

(f)  To  apply  for,  obtain,  register,  purchase,  lease  or  otherwise  acquire, 
and  to  hold,  own,  use,  operate,  introduce  and  sell,  assign,  or  otherwise  dis- 
pose of,  any  and  all  trade-marks,  trade  names,  and  distinctive  marks,  and 
all  inventions,  improvements  and  processes  used  in  connection  with,  or  secured 
under  Letters  Patent  of  the  United  States  or  elsewhere,  or  otherwise,  and 
to  use,  exercise,  develop,  grant  licenses  in  respect  of,  or  otherwise  turn  to 
account,  any  such  trade-marks,  patents,  licenses,  concessions,  processes  and 
the  like,  or  any  such  property,  rights,  and  information  so  acquired,  and  with 
a  view  to  the  working  and  development  of  the  same,  to  carry  on  any  business, 
whether  mining,  manufacturing,  or  otherwise,  which  the  Corporation  may 
think  calculated,  directlv  or  indirectly,  to  effectuate  these  objects. 

(g)  To  hold,  purchase,  or  otherwise  acquire,  to  sell,  assign,  transfer, 
mortgage,  pledge  or  otherwise  dispose  of  shares  of  the  capital  stock,  bonds. 
or  other  evidences  of  indebtedness  created  by  other  corporation,  or  corpo- 

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rations,  and  while  the  holder  of  such  stock,  to  exercise  all  the  rights  and 
privileges  of  ownership,  including  the  right  to  vote  thereon,  to  the  same 
extent  as  a  natural  person  might  or  could  do. 

(h)  To  purchase,  lease,  exchange,  hire,  or  otherwise  acquire,  anv  and 
all  rights,  privileges,  permits  or  franchises  suitable  or  convenient  for  any 
of  the  purposes  of  its  business;  to  erect  and  construct,  make,  improve,  or 
aid  or  subscribe  towards  the  construction,  making  and  improvement  of  mills, 
factories,  store-houses,  buildings,  roads,  docks,  piers,  wban^es.  houses  for 
employes  and  others,  and  works  of  all  kinds;  and  in  conjunction  with,  and  in 
furtherance  of  the  general  business  and  purposes  of  the  Corporation,  as 
above  described,  to  construct,  lease,  own,  operate,  or  sell  a  railroad,  or  rail- 
roads, or  both,  in  any  State  or  country  other  than  the  State  of 

subject  to  the  laws  of  such  other  State  or  country,  either  directly  t)r  through 
the  ownership  of  stock  of  a  corporation  formed,  or  to  be  foniied.  for  the 
purpose  under  the  laws  of  such  other  State  or  count r v. 

(i)  To  guarantee  the  payment  of  dividends,  or  interest  on  any  shares, 
stocks,  debentures,  or  other  securities  issued  by,  or  any  other  contract,  or 
obligation  of,  any  corporation,  whenever  proper  or  necessar>%  for  the  business 
of  this  Corporation  in  the  judgment  of  its  Directors,  or  the  Executive  Com- 
mittee. 

(j)  To  make  and  enter  into  contracts  of  every  sort  and  kind  with  any 
individual,  firm,  association,  corporation,  private,  public,  or  municipal  body 
politic,  and  with  the  Government  of  the  United  States,  or  any  State,  Terri- 
tory or  Colony  thereof. 

(k)  To  do  all  and  everything  necessary,  suitable  or  proper  for  the 
accomplishment  of  any  of  the  purposes  or  attainment  of  any  one  or  more  of 
the  objects  herein  enumerated,  or  which  shall  at  any  time  appear  conducive 
or  expedient  for  the  protection  or  benefit  of  the  Corporation,  either  as  holders 
of  or  interested  in  any  property,  and  in  general  to  carry  on  any  business. 
whether  manufacturing,  mining  or  otherwise. 

It  is  the  intention  that  the  objects,  purposes  and  jiowers  specified  and 
clauses  contained  in  this  third  paragraph  shall,  except  where  otherwise 
expressed  in  said  paragraph,  be  nowise  limited  or  restricted  by  reference 
to,  or  inference  from  the  terms  of  any  other  clauses  of  this  or  any  other 
paragraph  in  this  charter,  but  that  the  objects,  purposes  and  powers  specified 
in  each  of  the  clauses  of  this  paragraph  shall  be  regarded  as  independent 
objects,  purposes  and  powers. 

CAPITAL    STOCK. 

Fourth.     The  total  amount  of  the  capital  stock  of  this  Corix)ration  is 

to  be   divided  into   shares 

of dollars  each.     Of  the  said  stock 

shares,  amounting  at  par  to   ^re  to  be 

preferred  stock,  and  shares,  amounting  at 

par  to dollars,  are  to  be  common  stock. 


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The  rights,  privileges  and  conditions  following  shall  attach  to  the  shares 
aforesaid,  that  is  to  say: 

(1)  The  common  stock  shall  be  subordinate  to  the  rights  of  the 
preferred  stock,  except  that  both  preferred  and  common  stock  shall  have 
equal  voting  powers. 

(2)  The  Corporation  shall  not  be  at  liberty  without  the  consent  in 
writing  first  obtained  of  the  holders  of  two-thirds  in  amount  of  the  preferred 
stock  issued  and  outstanding: 

(a)     To  create  or  issue  any  other  or   further  shares   ranking  in   any 

respect  in  priority  to  the  aforesaid  issue  of   of  preference 

shares. 

(bj  Nor  to  create  any  charge,  excepted  as  herein  provided,  upon  the 
net  profits  of  the  Corporation  which  shall  not  be  subordinate  to  the  rights 
of  the  preference  shares. 

(c)  Not  to  reserve  a  surplus  fund  which  shall  not  be  chargeable  with 
the  payment  of  the  accrued  dividends  on  the  preference  shares. 

(3)  The  said  preference  shares  shall  carry  a  fixed  cumulative  prefer- 
ential .  dividend  at  the  rate  of,  but  never  exceeding  per 

annum  on  the  par  value  thereof,  and  such  dividends  shall  be  declared  quarterly 

on  the  days  of    in  each  year,   or  at  such  other  times   as  the 

Board  of  Directors  or  the  Executive  Committee  shall  see  fit  and  determine. 

If  in  any  year  dividends   amounting  to    per 

annum  shall  not  be  paid  on  such  preferred  stock,  the  deficiency  shall  be  a 
charge  on  the  net  profits,  and  be  payable,  without  interest,  before  any  divi- 
dends shall  be  paid  upon  or  set  apart  for  the  common  stock. 

(4)  The  balance  of  the  net  profits  of  the  Corporation,  after  the  payment 

of  said  accumulative  dividend  at  the  rate  of   per  annum 

to  the  holders  of  the  preferred  stock,  may  be  distributed  as  dividends  among 
the  holders  of  the  general,  or  common  stock,  as  and  when  the  Board  of 
Directors  or  the  Executive  Committee  shall  in  their  discretion  determine. 

(5)  In  the  event  of  the  liquidation  or  dissolution  of  the  Corporation, 
the  surplus  assets  and  funds  thereof  shall  be  applied  in  the  first  place  in 
repaying  to  the  holders  of  the  aforesaid  cumulative  preference  shares  the 
full  amount  of  the  principal  thereof  and  the  accrued  dividends,  if  any,  charged, 
before  any  amount  shall  be  paid  upon  the  common  stock,  and  after  such 
payment  in  full  to  the  holders  of  said  cumulative  preference  shares,  the 
surplus  assets  and  funds  shall  belong  to  and  be  divided  among  the  holders  of 
the  other  shares. 

From  time  to  time  the  preferred  and  common  stock  may  be  issued  in 
such  amount  and  proportion  as  shall  be  determined  by  the  Board  of  Directors, 
in  accordance  with  the  laws  of  the  State  of   ; 

directors. — classification. 
Fifth.     The  Directors  of  the   Corporation   shall  be  divided   in   respect 

to  the  time  for  which  they  shall  severally  hold  office,  into classes, 

equal  in  number.    The  first  class  shall  be  elected  for  a  period  of  


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years,  the  second  class  for  a  period  of  years,  the  third  class  for 

a  period  of   years,  the  fourth  class  for  a  period  of   

years,  and  the  fifth  class  for  a  period  of  years,  etc.,  and  at  each 

annual  election  after  the  successors  to  the  class  of  Directors  whose  terms 

expire  in  such  years,  shall  be  elected  to  hold  office  for years,  so 

that  the  term  of  office  of  at  least  one  class  shall  expire  in  each  year. 

In  case  of  an  increase  in  the  Board  of  Directors  between  the  annual 
election  by  the  stockholders,  the  newly  created  Directorship  shall  be,  and  be 
construed  as,  vacancies  until  the  next  annual  election  to  be  filled  forthwith 
by  the  Board. 

incorporators,  names  and  post-office  address. 

Sixth.  The  names  and  post-office  .ddress  of  the  incorporators,  and 
the  number  of  shares  of  common  stock  subscribed  for  by  each,  the  aggregate 

of  which    is  the  amount  of  capital  stock  with   which   this 

Corporation  will  commence  business,  are  as  follows: 

no.  of  shares  of 

NAME.  P.  O.   ADDRESS COMMON   STOCK. 


duration. 
Seventh.    The  duration  of  the  Corporation  is  to  be  perpetual. 

regulations  and  limitations. 

Eighth.  (1)  The  Corporation  shall  have  no  power  to  mortgage  its 
real  property,  except  upon  the  assent  in  writing  first  obtained  of  the  holders 

<^f of  the  issued  preferred  stock  hereinbefore  described, 

or  upon  the  affirmative  vote  of  the  holders  of  a  majority  of  the  said  preferred 
stock  at  a  meeting  of  the  preferred  stockholders  duly  called  for  that  purpose : 
and  upon  such  assent  so  obtained  or  upon  such  affirmative  vote  so  had,  and 
not  otherwise,  the  Corporation  shall  have  power  to  mortgage  its  real  propertv 
to  secure  an  issue  of  bonds  or  otherwise. 

(2)  The  Board  of  Directors  shall  have  power  without  the  assent  or 
vote  of  the  stockholders,  to  make,  alter,  amend  and  rescind  the  by-laws  of 
this  Corporation,  and,  subject  always  to  the  payment  of  the  dividends  on  the 
preferred  stock,  to  fix  the  amount  to  be  reserved  as  working  capital. 

(3)  With  the  assent  in  writing,  or  pursuant  to  the  vote  of  the  holders 
of  two-thirds  of  all  the  stock,  irrespective  of  class,  issued  and  outstanding, 
the  Directors  shall  have  power  and  authority  to  sell,  assign,  transfer,  convey.' 
or  otherwise  dispose  of  the  property  and  assets  of  this  Corporation  as  an 
entirety  on  such  terms  and  conditions,  and  for  such  consideration,  as  the 
Directors  shall  deem  fit,  right  and  just. 

(4)  The  Board  of  Directors,  and  when  the  Board  is  not  in  session, 
the  Executive  Committee,  in  addition  to  the  powers  and  authorities  Ly 
statute  and  by  the  by-laws  expressly  conferred  upon  them,  are  hereby  emp.  w- 
ered  to  exercise  all  such  powers,  and  to  do  all  such  acts  and  things  as  luzy 

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be  exercised  or  done  by  the  Corporation,  but  subject,  nevertheless,  to  the 
provisions  of  the  statute,  of  the  charter,  and  to  any  regulations  that  may 
from  time  to  time  be  made  by  the  stockholders;  provided  that  no  regula- 
tions so  made  shall  invalidate  any  provisions  of  this  charter,  or  any  prior 
acts  of  the  Directors  or  Executive  Committee  which  would  have  been  valid  if 
such  regulations  had  not  been  made. 

(o)     There  shall  be  an  Executive  Committee  of   members, 

who  shall  be  elected  by  the  stockholders  from  the  Directors,  and  hold  office 
as  hereinafter  provided.  The  said  committee  shall  have  and  exercise  all 
the  powers  expressly  conferred  upon  it  by  this  Article  of  Incorporation,  and 
also  all  the  powers  of  the  Board  of  Directors  whenever  a  quorum  shall  fail 
to  be  present  at  any  stated  or  other  meeting  of  the  Board,  and  as  well  at  all 
times  whenever  the  Board  shall  not  be  in  session,  and  shall  have  power  to 
affix  the  seal  of  the  Corporation  to  all  papers  which  they  may  deem  to  require  it. 

The  officers  of  the  committee  shall  be  a ,  a 

,  and  a ,  who  shall  hold  office  during  the 

term  of  their  office  as  members  of  the  committee,  and  shall  be  elected  by  the 
stockholders. 

At  all  meetings  of  the  committee  all  questions  shall  be  decided  by  a 
majority  of  votes,  and  in  case  of  an  equality  of  votes,  the  Chairman,  and  in 
his  absence,  the  \"ice-Chairman,  and  in  the  absence  of  both,  the  Secretary 
shall  have  a  second  and  deciding  vote. 

The  stockholders  shall,  at  their  first  meeting,  elect  by  ballot  the   said 

committee  of members,  from  the  Directors  elected  at  such 

meeting,  and  shall  also  elect  the  said  officers  thereof. 

The  stockholders  shall  determine  and  fix  the  compensation  to  be  paid 
to  the  members  of  the  committee,  and  to  any  of  the  officers  thereof,  as  such, 
and  the  compensation  of  any  member,  or  officer  of  the  committee,  so  fixed, 
shall  not  be  diminished  during  his  tenure. 

At  every  annual  meeting,  after  the  first  meeting,  whenever  the  term 
of  office  of  any  member  or  officer  of  the  committee  shall  expire,  the  stock- 
holders shall  elect  a  successor.  Any  member  of  the  committee  may  be  elected 
to  succeed  himself. 

Any  director,  irrespective  of  class,  is  eligible  to  election  as  a  member  of 
the  Executive  Committee. 

The  term  of  offxe  of  each  member  of  the  committee  shall  be  co-extensive 
with  the  term  of  his  office  as  Director,  unless  the  stockholders  at  the  time 
of  his  election  shall  fix  a  shorter  period  or  term  of  office,  which  they  shall 
have  power  to  do.  Any  member  of  the  committee  who  shall  cease  to  be  a 
Director  of  the  Company  shall  ipso  facto  cease  to  be  a  member  of  the  committee. 

Neither  the  Directors  nor  the  members  of  the  Executive  Committee 
nor  the  President  nor  \'ice-President  shall  be  subject  to  removal  during 
their  respective  terms  of  office,  nor  shall  their  terms  of  office  be  diminished 
during  their  tenure. 

All  vacancies  in  the  Executive  Committee  shall  be  filled  for  the  unex- 
pired term  from  the  Directors  by  the  remaining  members  of  the  committee. 


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(G)  The  Directors  shall,  from  time  to  time,  determine  whether,  and 
to  what  extent,  and  at  what  times  and  places,  and  under  what  conditions 
and  regulations,  the  accounts  and  books  of  the  corporation,  or  any  of  them, 
shall  be  open  to  the  inspection  of  the  stockholders,  and  no  stockholder  shall 
have  any  right  to  inspect  any  account,  or  book,  or  document  of  the  Corpora- 
tion except  as  conferred  by  statute  of  or  authorized  by  the  Directors. 

(7)  The  Directors  shall  have  power  to  hold  their  meetings,  to  have 
one  or  more  offices,  and  to  keep  the  books  of  the  Corporation  (except  the 
stock  and  transfer  books)  outside  of  this  State,  at  such  places  as  may  from 
time  to  time  be  designated  by  them. 

It  should  be  understood  that  in  the  framing  of  Articles  of  Incorp)oration, 
they  should  include  the  name  by  which  the  corporation  shall  be  known,  the 
locality  where  its  main  offices  will  be  situated,  the  kind  of  business  which 
it  is  organized  to  transact  (being  careful  under  this  heading  to  include  every- 
thing which  may  be  found  necessary  as  directly  concerning  or  auxiliary'  to 
the  business  to  be  transacted)  ;  the  period  for  which  the  corjwration  has  been 
organized  (not  necessary  in  all  the  States);  amount  of  capital  stock:  how 
divided  and  par  value  of  shares:  amount  of  capital  stock  subscribed  and 
names  'of  subscribers ;  signatures  of  subscribers  and  statutory-  acknowledge- 
ment of  signatures. 

Care  must  also  be  taken  in  the  selection  of  the  name  of  the  corporation, 
as  an  imitation  of  the  name  of  another  corporation,  especially  if  in  the  same 
line  of  business,  will  not  be  allowed.  The  names  selected  should,  therefore, 
be  first  submitted  to  the  Secretary  of  State,  who  will  advise  whether  there 
will  be  any  objection  to  their  adoption.  The  variations  in  State  laws  are 
considerable;  for  instance,  in  some  States,  the  amount  for  which  a  corpo- 
ration can  be  capitalized  is  limited,  and  the  amount  of  capital  stock  paid  at 
date  of  articles  must  be  specified ;  stock  holders  must  hold  shares  in  a  corpo- 
ration in  order  to  quaHfy  as  Directors:  the  word  "  Hmited  "  must  be  made 
a  part  of  the  corporation  name;  a  corporation  is  not  permitted  to  own  stock 
or  bonds  in  any  other  corporation.  A  number  of  these  variations  will  be 
described  under  the  heading  of  "  Corporation  Law." 


(937F)       AMENDMENT    TO    ARTICLES    O;'   INCORPORATION. 

While  there  are  generally  slight  diflferences  in  the  corporation  laws  of  each 
State,  it  may  be  generally  understood  that  a  corporation  desiring  to  amend  its 
Articles  of  Association,  must  first  secure  the  assent  of  two-thirds  of  the  sub- 
scribed capital  stock  and  a  majority  vote  of  its  Board  of  Directors  or  Trustees. 
The  by-laws  of  a  corporation  usually  include  a  provision  that  thev  may  only 
be  repealed,  or  amended,  or  new  by-laws  adopted  at  a  special  meeting  (to 
be  called  as  provided  in  the  by-law^s),  or  at  the  annual  meeting,  such  new 
by-laws  to  be  adopted,  or  such  old  by-laws  to  be  repealed  or  amended  only 
when  voted  for  by  a  certain  majority  of  stock. 

In  creating  bonded  indebtedness,  or  increasing  or  reducing  capital  stock, 
it  is  also  necessary  in  some   States  to  file  with  the  Secretary  of  State,  a 


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certificate  reciting  the  history  of  the  proposed  change,  and  a  report  of  the 
meeting  at  which  the  change  was  effected.  In  most  States,  changes  in  the 
Articles  of  Incorporation  can  be  effected  without  reference  to  the  State 
authorities. 

The  following  is  an  example  of  the  procedure  necessary  to  amend  Articles 
of  Incorporation: 

Whereas,  At  a  meeting  of  the  Board  of  Directors  of  the •. 

a   Corporation,   regularly  and   legally  called   and   held   at   the   ofifice   of   said 

Corporation,  at  the of  and of 

at o'clock, ,  on  the day  of   A.  D. 

»  all  of  the  members  of  said  Board  of  Directors  being  present  and 

voting,. it  was  determined  by  resolution  passed  and  adopted  by  unanimous 
vote,  duly  recorded,  to  amend  the  Articles  or  Certificate  of  Incorporation  of 

said   Corporation,  which   were   heretofore,   to-wit,   on   the    day  of 

>  A.  D ,  filed  in  the  office  of  the  County  Clerk  of  the 

County  of ,  State  of ,  and  the'  said  Amended 

Articles,  as  hereinafter  set  forth,  were  read,  duly  considered  and  adopted 
by  said  Board  of  Directors  of  said  Corporation: 

Nozi',   Therefore,  These  Amended   Articles   of   Incorporation,  Witness: 

First.    That  the  name  of  said  Corporation  is,  and  shall  be 

Second.     That  the  purposes  for  which  it  is  formed  are: 

(Here  insert  the  original  purposes  of  the  corporation.) 
Third.     That   the   place   where   its   principal   business   is,   and   is   to   be, 

transacted  is  the  Town  or ,  in  the  County  of 

State  of 

Fourth.    That  the  terms  for  which  it  is  to  exist  is  fifty  (50)  years  from 
and  after  the  date  of  its  original  incorporation. 

Fifth.     That   the   number   of   Directors   under   the   original   Articles   of 

Association    and    Certificate   of    Incorporation    was    ;    that    the 

names  and  residences  of  the  Directors  who  were  duly  elected  as  such  at  the 

regular  annual  meeting  of  this  Corporation,  lield  on«  the    day 

of ,  A.  D ,  ser\^e  until  the  election  of  their  successors, 

and  are  as  follows,  to-wit : 

But  that  the  number  of  Directors  is  now,  and  shall  be,  diminished  from 

(■•••)   to (....).   and  that  the   following  named  persons,   who 

arc  members  of  the  Corporation  and  duly  qualified  under  the  by-laws  of 

the  Corporation,  to-wit ,  shall  serve  as  the  said 

Directors  from  the  time  of  the  filing  of  the  copy  of  these  Amended  Articles 
of  Incorporation,  as  provided  by  law,  until  their  successors  shall  be  elected. 

Sixth.    The  amount  of  the  capital  stock  of  this  Corporation  is 

dollars   ( ),  and  the  number  of  shares  into  which  it   is  divided  is 

( )   shares,  of  the  par  value  of   dollars 

( )  each. 

Seventh.    That  the  whole  amount  of  said  capital  stock,  to-wit, 

( )   shares,  is  actually  subscribed,  and  the  following  are  the  names 

of  the  persons  by  whom  the  said  capital  stock  has  been  subscribed,  and  is 

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held,  and  the  amounts  subscribed  and  held  respectively  by  each  of  them  at 
the  date  hereof,  to-wit: — 

In  Witness  Whereof,  The  undersigned,   a 

Corporation,  organized  and  existing  under  the  laws  of  the  State  of 

having  its  place  of  business  at ,  in  said  State,  and  being  a 

present  subscriber  and  holder  of  capital  stock  of  said  Corporation,  has  here- 
unto this  day  of   ,  A.  D caused  its  name  to 

be  subscribed  and  its  corporate  seal  to  be  affixed  by  its  President  and  its 
Secretary,  being  hereunto  authorized  by  its  Board  of  Directors  by  resolution 
duly  passed  and  adopted;  and  we,  the  other  undersigned,  all  of  whom  are 

residents  of  the  State  of   ,  and  present  subscribers  and  holders 

of  the  capital  stock  of  said  Corporation,  have  hereunto,  the  said 

<^Jay  of ,  set  our  hands  and  seals ;  and  the  said  Corporation 

and  other  undersigned,  comprising  more  than  two-thirds  of  all  of  the  holders 

of  the  capital   stock  of   said    ,   do   hereby   respectively   signify 

our  assent  to  the  Amended  Articles  of  said  Incorporation,  as  hereinabove 
set  forth. 

'The  following  is  an  example  of  form  of  Amendment  to  By-Laws: 

Whereas,  An  assent  in  writing,  bearing  date 

signed  by  the  holders  of  more  than  two-thirds  of  the  capital  stock  of  this 
Corporation,  consenting  to  an  amendment  to  the  By-Laws,  being  an  amend- 
ment to   Section    of  Article    relating  to    , 

and  is  now  on  file  in  the  office  of  this  Corporation : 
Now,  Therefore,  Be  it 

Resolved,  That  the  Board  of  Directors  and  Secretary  of  this  Corpora- 
tion certify  to  said  amendment,  and  the  Secretary  is  hereby  directed  to  copy 
said  amendment,  so  certified,  in  the  Book  of  By-Laws  immediately  following 
the  original  By-Laws  of  this  Corporation 

(93 70)     agreements  (subcription). 

An  agreement  embodying  the  terms  of  subscription  to  the  stock  of  a 
corporation.  The  following  is  a  form  of  subscription  agreement  suitable 
for  the  organization  of  a  railroad  company: 

This  agreement  made  and  entered  into  this day  of 

A.   D.,  by  and  between  the  parties   whose  names  are  hereunto  subscribed,' 
witnesseth,  that, 

WHEREAS,  it  is  the  purpose  of  the  undersigned  to  construct  a  con- 
tinuous line  of  railroad  to  extend    from  the  City  and 

County  of ,  or  some  convenient  point  on  the 

State  of   by  way  of   \^y 

a  convenient  and  practicable  route  hereafter  to  be  determined  upon,  to  some 

P°"^*  '"    ;  and,  whereas,  it  is  proposed  and  intended 

for  that  purpose  to  organize  under  the  laws  of  the  State  of 

a  Corporation  to  be  called  the    .^v-ith   a'  capital 

'^°^^^^  dollars  ( ),  for  the  purpose  of 

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constructing  such  railroad,  so  as  to  insure  for  the  pubhc  benefit  the  existence 
and  operation  of  a  continuous  competing  hne  of  railroad  from  the  City  and 

County  of through  the ,  to  such 

a  point  in  the  County  of   ;  and,  whereas,  the  parties 

hereto,  as  busmess  men,  as  shippers  and  consumers  of  freight,  and  as  individ- 
uals, as  citizens  of  the  State  of ,  and  as  property-holders, 

will  be  directly  and  indirectly,  jointly  and  severally,  benefited  by  the  construc- 
tion of  said  railroad,  and  by  the  maintenance  and  operation  of  the  same  as 
a  continuous  and  competing  local  line  of  railroad ; 

Xow,  therefore,  this  agreement  witnesseth:  That  for  the  purpose  of 
aiding,  promoting,  and  forwarding  the  construction  of  said  line  of  railroad, 
and  for  maintaining  the  same  as  a  boua-fidc  competing  line,  and  for  and  in 
consideration  of  the  premises,  and  for  the  sum  of  $1.00  by  each  of  the  under- 
signed to  the  other  in  hand  paid,  the  receipt  whereof  is  hereby  by  each  acknowl- 
edged, the  undersigned  parties  hereto  do  hereby  mutually  covenant  and  agree, 
and  bind  themselves  unto  the  other,  and  each  to  and  w'ith  the  said  proposed 
Corporation,  ^  ^s  follows,  to  wit:— 

I. 

Each  of  the  undersigned  hereby  subscribes  the  sum  set  opposite  his  name 
to  the  capita!  stock  of  the  said  proposed  Corporation 

The  subscriptions  of  the  undersigned,  and  each  of  them,  are  made,  how- 
ever, upon  the  express  condition  precedent  that,  unless  within '.   days 

from  and  after  the  date  hereof,  there  shall  be  subscribed  to  the  capital  stock 

ot  the  said ,  sums  of  money  aggregating  in  all  the 

amount  of   ,  the  subscriptions  of  the  undersigned  and  each  of 

them  shall  be  null  and  void;  provided,  however,  that  the   Executive   Com- 
mittee of  the  Traffic  Association  of   shall  have  the 

power,   by  vote  duly  passed   and   recorded   in   their  minutes,   to  extend   the 
time  within  which  said  amount  may  be  subscribed,  but  such  extension  shall 

not  exceed    ,  and  if  the  said  sum  of   

shall  be  subscribed  within  days,  or  within  the  time  so  extended, 

then  these  subscriptions  shall  be  in  full  force  and  effect.    ' 

II. 

The  undersigned  hereby  further  agree  that  said  proposed  Corporation 
may,  for  the  purpose  of  convenience,  be  organized  by  other  persons  than  the 
undersigned,  or  any  of  them,  or  by  any  number  less  than  all  of  them,  and 
that  the  Articles  of  Incorporation  of  said  railroad  company  need  not  set 
forth,  in  the  list  of  subscribers  to  its  capital  stock,  all.  or  any  particular  one, 
of  the  names  of.  or  the  amounts  subscribed  by.  the  undersigned,  and  this 
covenant  shall  be  deemed  to  have  been  made  expressly  for  the  benefit  of  said 
proposed  Corporation,  and  shall  be  irrevocable:  and  the  subscriptions  of  the 
undersigned  shall  be  valid  and  binding  upon  the  undersigned,  and  the  sub- 
scriber   shall    be    liable    thereon    to    the    said    proposed    Corporation,    the 

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,  whether  the  amount  subscribed  by  the 

undersigned,  and  by  whom  subscribed,  be  set  forth  by  the  Articles  of  Incor- 
poration of  said  proposed  Corporation  or  not. 

III. 

Each  of  the  parties  hereto  further  covenants  and  agrees  to  and  with 
the  others,  and  with  said  proposed  Corporation,  that  the  said  shares  of  stock 
of  the  said  proposed  Corporation,  and  each  and  all  of  them,  subscribed  for 

by  him  may  be  issued  in  the  names  of   Trustees   (pledged  to 

maintain  the  road  as  a  competitive  line),  who  shall  be  selected  as  hereinafter 
provided,  and  that  said  Trustees,  their  survivors  or  survivor,  and  successors. 

shall  for  the  term  of  ... .    (....)  years  after  the day  of 

have  the  exclusive  right  and  power  to  vote  such  stock  in  such  manner  as  the 
majority  of  the  Trustees  shall  determine  at  any  and  all  meetings  of  the 
stockholders  thereof,  and  for  any  and  all  purposes,  and  to  sign,  execute  and 
acknowledge  as  stockholders  any  and  all  documents,  papers,  written  assents. 
by-laws,  or  amendments  to  by-laws,  contracts,  acts  or  deeds  which,  in  the 
opinion  of  a  majority  of  said  Trustees  it  may  be  necessary,  desirable  or 
expedient  to  so  sign,  execute  or  acknowledge :  and  the  power  herein  conferred 
upon  the  said  Trustees  by  the  respective  parties  hereto  is.  and  shall  be  irre- 
vocable, for  the  said  term  of   ( )   years,  and  shall  be 

deemed  to  be  coupled  with  an  interest  in  the  stock  of  the  respective  parties 
hereto,  so  held  in  trust,  which  interest  the  said  Trustees  shall  hold  for  the 
benefit  of  all  other  parties  hereto. 

And  it  is  further  covenanted  and  agreed  that  the  said  

Trustees  shall  be  elected  by  the  subscribers  to  the  capital  stock  whose  aggre- 
gate  subscriptions,   in   order  of   time  of   subscription,   shall   first   amount   to 

the  sum  of :  and  the  said  election  shall  be  conducted  upon 

the  system  of  

And  it  is  further  covenanted  and  agreed  that  in  the  event  of  a  consoli- 
dation of  the  said  proposed  Corporation  with  any  other  corporation,  and  as 
often  as  any  consolidation  shall  be  made,  it  shall  be  in  the  discretion  of  the 
said  Trustees  to  surrender  to  such  consolidated  Corporation  the  certificates 
of  stock  held  by  them  as  aforesaid,  and  receive  in  exchange  therefor  new 
certificates  in  such  consolidated  Corporation  or  corporations,  to  be  held  on 
the  same  trusts  as  those  herein  expressed. 

And  it  is  further  understood  and  agreed  that  the  said  Trustees  shall 
cause  to  be  issued  Trustees  certificates  for  stock,  which  certificates  shall 
respectively  set  forth  the  number  of  shares  of  stock  in  the  said  Corporation, 
held  in  trust  for  each  subscriber  or  his  successor  in  interest,  and  shall  also 
specify  that  the  said  stock  is  held  subject  to  the  following  irrevocable  trusts, 
to  wit : — 

Said  Trustees,  their  survivors,  survivor,  successors  and  successor,  shall 
hold  said  shares  with  full  power  to  fill  from  time  to  time  each  and  every 
vacancy  in  their  number  upon  the  joint  written  nomination  «)f  a  majority  of 

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the  surviving  Trustees,  approved  in  writing  by  the  holders  of  a  majority  of 
the  Trustees'  certificates  issued  hereunder. 

Each  new  Trustee  shall,  from  and  after  the  filing  of  said  nomination  so 
approved  m  the  office  of  the  said  railroad  company,  be  as  fully  vested  with 
said  trust  as  if  he  was  one  of  the  original  Trustees  above  named. 

Second :  Said  Trustees  above  named,  their  survivors,  survivor,  successors 
and  successor,  shall,  as  stockholders  and  owners,  vote  said  shares  for  all 
purposes  whatsoever,  upon  every  question  raised  at  each  and  every  meeting 
of  said  Company,  whether  annual  or  special,  and  at  any  and  all  stockholders' 
elections,  as  the  majority  of  them  shall  in  their  discretion  from  time  to 
time  determine,  and  shall  also  sign,  execute  and  acknowledge  as  stockholders 
any  and  all  documents,  consolidation  papers,  written  assents,  by-laws  amend- 
ments to  by-laws,  contracts,  acts  or  deeds  which,  in  the  opinion  of  a  majority 
of  said  Trustees  it  may  be  necessary,  desirable  or  expedient  to  so  sign,  execute 
or  acknowledge. 

Such  Trustees'  certificates  shall  further  set  forth  respectively  that  the 
shares  represented  thereby,  are  transferable  only  upon  surrender  of  such 
certificates  by  a  conveyance  in  writing  signed  by  the  person  to  whom  the  same 
IS  issued,  or  his  attorney  thereunto  lawfully  authorized  and  registered  in 
the  Trustees'  transfer  book  therefor  kept  by  the  parties  designated  by  the 
Trustees  for  that  purpose,  and  that  every  person  accepting  any  transfer 
thereof  declares  by  so  doing  that  he  receives  said  shares  subject  to  said  trust, 
and  that  such  certificate  is  not  valid  until  signed  by  two  of  said  Trustees  and 
registered  as  aforesaid. 

The  said  certificates  shall  be  transferable  by  indorsement  and  registration 
as  above  provided,  in  the  same  manner  as  shares  of  stock  ordinarily  are. 

Shares  of  stock  each  may  be  transferred  by  the  Trustees  to,  and  allowed 
to  stand  in  the  names  of  the  persons  selected  as  Directors  of  the  proposed 
railroad  company  to  qualify  them  as  such. 

And  it  is  further  covenanted  and  agreed  that  in  the  event  of  any  con- 
solidation of  the  said  proposed  Corporation  with  any  other  corporation,  after 
such  certificates  have  been  issued,  and  also  in  the  event  of  any  consolidation 
of  such  consolidated  Corporation  thereafter  with  any  other  corporation,  then 
said  Trustees  shall  have  the  power  at  any  time,  by  a  majority  vote,  to  call 
in  such  issued  certificates  and  exchange  the  same  for  other  Trustees'  certifi- 
cates similar  in  form,  but  representing  stock  in  such  new  or  consolidated 
corporation. 

This  agreement  shall  be  binding  upon  the  heirs,  executors,  administra- 
tors, successors  and  assigns  of  the  respective  parties  hereto,  and  all  parties 
thereto,  and  all  parties  who  shall  subscribe  their  names  to  this  agreement, 
or  to  other  agreements  substantially  identical  herewith,  shall  be  deemed  parties 
to  this  agreement,  and  each  and  every  subscriber  hereto  affixing  his  name 
thereby  covenants  and  agrees  to  and  with  such  parties  as  subscribe  their 
names  to  agreements  identical  or  substantially  identical  herewith,  with  the 
same  force  and  eflfect  as  if  the  names  of  such  other  parties  were  hereunto 
subscribed. 


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It  is  further  understood  that  no  call  shall  be  made  until  the  amount  of 

shall  have  been  subscribed,  and  subscriptions  shall  be 

then  payable  in  installments,  extending  through ,  or  more, 

as  the  Board  of  Directors  of  said  proposed  Corporation  may  determine. 


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CONTENTS  OF  VOL.   V 


MAXUFACTURIXG.   746. 

Harness  Factory.  74fiD. 

Machinery  Manufacturing  Business,  746E. 

Steel   Industries.   746F. 

Carriage    Manufacturing    Establishment. 
746G. 

Electric  Light  Company.  74(>H. 

Steam  Railroad,  7461. 

Large  Shoe  Manufactory.  746j. 

Bituminous  Coal  Mine.  746K. 

Factopy^Expense   Distribution,   747. 

Machine   Expense.   748. 

Machinery    and     Building    Depreciation 
Tables.  748A. 

Should  the  Factory  Make  a  Profit,  749, 

Business  Fluctuations,  750. 

Manuscript    Record,    751. 

Margin.   752. 

Market  Value,  75.3. 

Maturity  Record,  754. 

Merchandise,  755. 

Metric  System,  756, 

Mulinery   Business  Accounting,  756A. 

Minimum   Rent.   757. 

MiXTXG  ACCOUXTIXG,  758. 

Daily   :vl?n;n«jr  Costs,  759. 
Minute  •  Book.  760. 

Monetary  Table.  701. 

Monthly   Statement,   762. 
Mortgage,  76.'{. 
Multiplication,  764. 
MIJXICIPAL  ACCOUXTIXG.  765. 
Uniform   System  of  Municipal   Account- 
ing, 766. 
City  Appropriation  Record.  767. 
Xavigation  Business  Accounting,  768. 
Xet,    769. 
Xet   Capital.   770. 
Xet  Profit.  771. 

X'omenclature    (Accounting),  772. 
Xominal  Partner.  77:J. 
XOTF.   774. 

Xote  Book  (Audit).  774 A. 
Notes — Accomodation,  775. 


Xotcs   Discounted,  776. 

Xotes   Payable,  777. 

Xotes — Promissory.   778. 

Xotes  Receivable,  779. 

Xote — Renewal,   779A. 

Restrictive   Endorsement,  779B. 

Xovation.   780. 

Xumerical   Reference,  781. 

Obsolescence,   782. 

On  Sale,  IS?,. 

Open  Account.  784. 

Opening  Books  and  Entries,  785. 

Open  Endorsement,  786. 

Operating  Capital.  787. 

Operating  Expense,  788. 

Option,  789. 

Order,  790.    • 

Order  Blank.  791. 

Order  Blank  System,  792. 

Order  Book,  793. 

Order  Register,  794. 

Organization   Expense,  795. 

Original  Entry.  796. 

Outstanding  Discounts,  797. 

Overcharge,  798. 

Overdraft.  799. 

Paging.  800. 

Paid- Up    Capital,   801. 

Par.  802. 

Par  of  Exchange,  SO?,. 

Partially    Manufactured    Goods,   804. 

Partnership.  80.V 

Partnership— Purchase  of,  Xecessary  In- 

vestigation.  805 .\. 
Pass  Books,  806. 
Patents.  807, 
Patterns.  808. 
PAY-ROLL.  809. 
Department  Store  Pay-Roll,  810. 
PERCEXTAGES.  811. 
Percentages  on  Turnover,  812. 
Permanent  .Assets.  813. 
Personal  E.state.  814. 
Petty  Cash,  815, 


Piece   Work,   817, 

Plant,  818. 

Point,  819, 

Pool.  820. 

Posting.  821. 

Preferred   Creditors.  822. 

Preferred   Dividends.  82.3. 

Preliminary  Expense.  824. 

Premium.    825. 

Premiums  to  Customers.  826. 

Present   Worth.  827. 

Pricing,  828. 

Prime  Cost,  829. 

Principal,   830. 

PRIXTERS'  BUSIXESS  ACCOUXT- 
I.VG.  831. 

Printers'   Cost    Record.  831  A. 

Printing  Job  Office,  8.32. 

Produce  Business — Wholesale — Account- 
ing Methods  for,  832 A, 

PROFIT,  8.33. 

Profit  Undistributed.  834. 

Profits   in    Business,  835. 

Proof.  836. 

Proof  Book.  837. 

Purchase,  838. 

Purchase  Account,  839. 

Purchase  Journal.  840. 

Purchase  Ledger,  841. 

Purchase  Record,  842. 

Quotation  Record.  843. 

Railroad    Accounting,    844. 

Raw    Material.   845. 

REAL  ESTATE.  846. 

Real    Estate  Systems.  847. 

Real    Estate   Installments,  847A. 

Flat  Buildings,  848. 

Residence   Property   Record,   849. 

Real   Estate   Business.  849A. 

Ofiice    Building — Management   of,   849B. 

Rebate.  850. 

Recapitulation.    851. 

Recapitulating  Postings,  852. 

Receipt.  853. 

Receipts  and  Payments  Account,  854. 

Receivers'  Accounts.  855. 

Reconciliation  of  Bank  .\ccount,  856. 

Record   Book   or   Blank,  857. 

Redemption  Fund.  858. 

Reduction   of  Capital.  859, 

Remittance  Sheet.  860. 

Rent   Accrued   Due.   861. 

Repairs.  Renewals  and  Replacements,  862. 

RESERVE.  863. 

Reserve    Account.   863. 

Reserve   Fund.  864. 

Redemption   Fund,  865. 


Sinking   I'und.  866. 

Redemption   of   Bonds.  867. 

Secret  Reserves.  868. 

Surplus,  869. 

Resources,    870. 

RETAIL    BUSIXESS    ACCOUXTIXG, 

871. 
Envelope   Statement   System.   872. 
Pass-Book   System.  873. 
Pass- Book — vs. — .Statements.    874. 
Synthetic  System.  875. 
Ledgerette   System.   876. 
Retail     Tailoring     Business    Accounting. 

877. 
Retail    Inventories,    878. 
Returns,   879. 
Revenue.   880. 

Revenue  E.xpenditures,  881. 
Revenue    Items,   882. 
Revenue   Receipts.  883. 
Reverse  Posting  System,  884. 
Royalty.  885. 

Safe  Deposit  Company  .Accounting.  886. 
Sales  Books.  887. 

Sales  Records,  slips,  or  tickets,  888. 
Salesmen's  Commissions,  889. 
Secret  Reserves.  890. 
Sectionalization.    891. 
Security.  892. 
Selling  Expense.  893. 
Average  Cost  of  Selling,  894. 
Ship  .Accounting.  895. 
Shipping  Records.  896. 
Sleeping  Partner.  897. 
Statement.  898. 
Statement  of  .Affairs,  899. 
Statistical    Records.   900. 
STEAM    RAILROAD   ACCOUXTIXG. 

901. 
Classification   of   Expenditures   for   Road 
■  and  Equipment,  901. 
Steam  Railroad  Cost  Accounting.  901. 
Stock  (Merchandise).  902. 
STOCK  (CORPORATIOX).  903. 
Allotment  of  Stock.  904. 
Bonus,  905. 
Capital   Stock,  906. 
Capital   Stock   L'nsubscribed,  907. 
Clandestine  Stock.  908. 
Common  Stock.  909. 
Corporation   Stock    Accounting   Records, 

910. 

Cumulative  Preference  Stock.  911 
Xon-cumulative  Preference  Stock.  912. 
Delinquent  Stock.  913. 
Forfeited   Stock.  914. 
Guaranteed  Stock.  915. 


I 


Installment  Stock  Record,  916. 

Installment  Dividend,  917. 

Installment  Scrip,  918. 

Non-assessable  Stock,  919. 

Preferred  Stock,  920. 

Preferred  Stock  Dividend,  921. 

Reduction  of  Capital  Stock,  922. 

Scrip   Dividend,  923. 

Stock  Certificate,  924. 

Stock  Certificate  Record,  925. 

Stock  Discounted,  926. 

Stock  Dividend,  927. 

Stock  Donated,  928. 

Stockholder,  929. 

Stock  Ledger  or  Account  Book,  930. 

Stock    Record,   931. 


Stock  Register  and  Transfer  Book,  932. 

Stock  Subscription,  933. 

Stock  Transfer,  934. 

Subscription   Stock,   935. 

Treasury  Stock,  936. 

Watered   Stock,   937. 

Market  Value  of  Capital  Stock,  937A. 

What  is  Watered  Stock  When  It  is  Not 

Sof,  937B. 
Corporation,  937C. 
Articles  of  Incorporation,  937D. 
Articles  of  Association,  937E. 
Amendment  to  Articles  of  Incorporation 

937F. 

Agreements   (Subscription),  937G. 


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American 
Business  and  Accounting 

Encyclopedia 


REVISED  EDITION 


A  Standard  Reference  Book  for  Accountants  and  Business  Men, 
profusely  illustrated  with  hundreds  of  special 

forms  and  plates 


VOL.  VI. 


COMPLETE  IN  SIX  VOLUMES 


The  Business  Man's   Publishing  Company,  Limited 

DETROIT.  MICHIGAN 


938 


American  Business  and  Accounting  Encyclopedia 


St. 


Entered  according  to  Act  of  Congrew 

in  tlie  year  I909»by 

Tfe  Business  Man's  Publishing  Company,  Lto. 

detroit,  michigan 

In  the  office  of  Che  Librarian  of  Congre«». 

All  rights  reserved. 


(938)     STONE  QUARRY  ACCOUNTING. 

There  are  two  general  divisions  of  the  granite  industry — ^the  monumental 
and  the  building  trades.  This  article  has  to  do  with  a  system  of  cost-keeping 
employed  by  a  company  supplying  building  stone,  mostly  on  large  contracts. 

The  quarry  of  the  company  described  is  located  some  20  miles  from 
the  cutting  sheds,  and  connected  with  the  latter  by  a  railroad.  This  separation 
of  raw  material  and  finishing  shops  is  a  common  feature  with  granite  concerns 
in  New  England,  due  to  the  difficulty  of  securing  stone-cutters  in  out-of-the- 
way  towns  such  as  those  in  which  quarries  are  usually  located.  The  books 
used  are  an  inter-leaved  purchase  journal,  containing  columns  for  all  the 
expense  and  contract  accounts,  a  journal,  a  cash  book,  and  a  loose-leaf  ledger. 
The  voucher  system  is  used,  but  no  vouchers  are  made  out  until  bills  are  paid. 
All  bills  and  journal  vouchers  (except  closing  entries)  are  entered,  after 
approval  by  the  proper  officials,  directly  in  the  purchase  journal.  Closing 
entries  are  made  in  an  ordinary  journal,  this  method  being  used  for  conveni- 
ence of  reference,  and  for  the  purpose  of  economizing  in  the  use  of  the 
purchase  journal. 


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1243 


St. 


American  Business  and  Accounting  Encyclopedia 


938 


938 


American  Business  and  Accounting  Encyclopedia 


St. 


The  ledger  is  divided  into  five  subdivisions :— Capital,  Expense,  Contract, 
Sundry  and  Accounts  Payable  and  Receivable.  The  Expense  section  is 
further  subdivided  into  Quarry  Expense,  Administration  Expense,  Cutting 
Department  Expense,  and  Draughting  Room  Expense. 

Capital  Accounts — 
Capital  Stock. 

Real  Estate,  Good  Will  and  Fixtures. 
Profit  and  Loss. 
Quarry  Buildings. 
Cutting  Department  Buildings. 
Quarry  Machinery,  Tools  and  Fixtures. 
Cutting  Department,  Tools  and   Fixtures. 
Horses,  Wagons  and  Harness. 
Farming  Tools  and  Equipment. 
Surplus. 

Expense  .Accounts — 
Quarry  Expenses: 
Q  Superintendence. 

Q  Labor   (foreman,  drillmen  and  quarrymen). 
Q  .Attendant  Labor  (tool  carriers,  strippers,  etc.). 
Q  Blacksmith  Labor. 
Q  Blacksmith  Supplies. 
Q  Tools  and  Supplies. 
Q  Power,  Labor  and  Supplies. 
Q  Machinery  Repairs. 
Q  Powder  and  Fuses. 
Q  Incidental  Expense. 
Q  Stable. 
Transportation  to  Cutting  Department. 


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Officers'  Salaries. 
Office  Salaries. 
General  Expense. 
Stationery  and  Postage. 
Telegraph  and  Telephone. 
Traveling  Expense. 
Interest,  Discount  and  Exchange. 

1244 


Form  3. 

Samples  and   Estimates. 
Advertising. 
Insurance. 

Depreciation  of  Quarry  Plant. 
Depreciation  of  Cutting  Plant. 
Cutting  Department  Expenses: 
C.  D.  Superintendence. 
C.  D.  Cutters'  Labor. 
C.  D.  Attendant  Labor. 
C.  D.  Blacksmith  Labor. 
C.  D.  Blacksmith  Supplies. 
C.  D.  Cutters'  Tools  and  Supplies, 
C.  D.  Power  Labor  and  Supplies. 
C.  D.  Machinery  Repairs. 
C.  D.  Incidental  Expenses. 

C.  D.  Rent  of  Property. 
Draughting  Room  Expenses: 

D.  R.  Labor. 

D.  R.  Supplies  and  Expense. 
Sundry  Accounts — 
Cash. 

Quarry  Pay  Roll. 

Bills  and  Notes  Payable  and  Receivable. 
Cutting  Department  Pay  Roll. 
Unclaimed  Wages.     *         .  » 

Quarry  Material  and  Supplies. 
C.  D.  Materials  and  Supplies. 
Farms — Supplies  and  Expense. 
Under  the  heading  of  Contract  Accounts  a  separate  account  is  opened 

for  each  contract  undertaken. 

1245 


St.  American  Business  and  Accounting  Encyclopedia  938 

In  the  draughting  room,  which  is  the  birthplace  of  all  stone  contracts 
estimates  are  prepared  on  all  work  to  be  bid  upon  based  on  the  number  of 
cubic  feet  of  stone  in  the  building  being  estimated,  and  the  cost  of  cuttmg 
same  See  Form  1.  On  small  buildings,  when  sketch  plans  are  furnished  in 
sufficient  detail,  this  estimate  is  often  figured  so  closely  that  after  a  contract 
is  taken,  it  is  possible  to  pick  from  the  estimate  the  cost  of  each  stone  in  he 
building  The  estimate  is  then  finished  in  the  general  office  by  figuring  the 
cost  of  quarrying  the  granite,  a  unit  figure  being  used  based  on  the  condition 
of  the  quarry  and  the  cost  of  output  as  figured  from  the  books.  As  m  all 
contracting  businesses,  the  peace  of  mind  of  the  officers  of  a  granite  company 
depends  on  their  being  able  to  ascertain  at  any  time  the  standing  of  a  g  ven 
contract  To  aid  in  securing  this,  the  company  has  made  it  a  rule  that  all 
estimates  shall  be  filed  with  the  book-keeper  in  the  following  form. 

ESTIMATES. 

« 

Quarry,  cubic  feet,  at        cts * 

Cutting,  cubic  feet  

Attendant  expense    

Freight  to  destination   

Hauling  at  destination •"*• 

Setting    ; 

Profit  and  Reserve  for  contingencies 

Total  contract  price  ^ 

The  attendant  expense,  which  corresponds  in  the  granite  business  to  the 
term  "  factory  expense,"  is  figured  as  a  certain  percentage  on  the  "^""'"g  l^*^/' 
this  percentage  also  being  based  on  the  actual  percentage  as  figured  from  the 

\  contract  secured,  setting  diagrams  are  prepared  showing  each  stone  in 
a  building,  which  diagrams  are  usually  submitted  to  the  architect  for  approval 
From  thL  completed  setting  diagrams  quariy  schedules  are  prepared  (see 
Form  2)  for  a  guide  to  the  quarry  superintendent  in  getting  out  the  tone, 
and™  rving  as  hi!  authority  for  the  work.  These  schedules  are  made  in  trip  . 
cate  one  copy  going  to  the  quarry,  one  to  the  cutting  department,  and  the  third 
W  retained  Daily  reports  are  sent  from  the  quarry  to  the  cuttmg  plant. 
S^^g  the  marks  and  cube  of  all  stones  quarried  during  the  day.  At  the  cutting 
plant  these  reports  are  verified  by  checking  with  the  copy  of  the  quarry  schedule 
filed  in  that  office,  and  from  these  checked  reports  the  '«^°'^:'^7^[.  ^7?"'^  ^' 
quarrv  output  for  the  month.  Daily  reports  are  also  made  in  duplicate  from  he 
quarry  of  all  shipments  of  stone,  one  copy  going  to  the  superintendent  of  the 
cutting  plant  and  one  to  the  book-keeper.  These  shipping  reports  also  are 
checked  with  the  quarry  schedule,  so  that  by  referring  to  it  a  complete  history 
of  anv  stone  can  be  obtained  at  a  glance^when  ordered  from  the  quarry,  when 
quarried,  when  shipped.  All  records  used  by  this  company  are  designed  for 
filing  in  loose-leaf  binders,  which  system  is  essential  to  any  business  requinng 

SO  much  detail.  .    ,      «•  •         ^u^a 

While  the  quarry  is  at  work  getting  out  stock  of  the  dimensions  called 

for  on  the  quarry  schedule,  the  draughting  department  makes  a  separate 

1246  ' 


938 


American  Business  and  Accounting  Encyclopedia 


St. 


Nflr 

CDTTERS     RECO 

F 

RD 

~ron 

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e. 

OrAer^a 

Marks 

Cop)r«)«r)crd 

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4. 

diagram  (sec  Form  3)  of  each  and  every  stone  in  the  building,  using  a  hekto- 
graph  wherever  possible.  These  diagrams,  after  being  verified  with  the  setting 
plans,  are  delivered  to  the  superintendent  of  the  cutting  plant,  who  distributes  to 
the  foremen  of  the  various  sheds  the  diagrams  for  the  stones  on  each  car 
delivered  from  the  quarr)\  When  the  foreman  assigns  a  cutter  to  a  particular 
stone,  he  fills  in  the  upper  left-hand  corner  with  the  name  of  the  workman 
and  the  hour  at  which  he  commences.  On  a  workman's  finishing  with  a  stone 
the  record  is  completed  by  inserting  the  time,  and  his  record  on  the  next  dia- 
gram issued  to  him  begins  with  the  time  of  quitting  work  on  the  old  stone, 
thus  avoiding  any  lapses  in  time-keeping. 

On  the  completion  of  a  stone  its  dimensions  and  cutting  are  checked  with 
the  sketch  on  its  diagram  by  the  foreman,  who  signs  his  name  to  show  that 
the  stone  is  finished  and  correct.  At  the  close  of  each  day's  work,  the  foreman 
fills  in  the  total  column  on  all  diagrams  completed  during  the  day  with  the 
number  of  hours  spent  by  each  cutter  engaged  on  the  stone  and  turns  in  the 
diagram  to  the  office,  where  the  superintendent  marks  the  estimated  price 
of  the  stone,  and  his  clerk  figures  the  actual  cost  of  cutting,  enters  it  on  a  daily 
report  sheet,  and  the  diagram  is  filed  away. 

By  means  of  a  card  catalog  a  record  is  kept  of  the  work  of  each  cutter, 
(See  Form  t.)  His  diagram  losses  and  gains  are  charged  against  him,  and 
this  catalog,  is  found  of  great  service  to  the  superintendent  in  times  of  slack 
work  or  in  settling  claims  for  increases  in  pay.  Granite  cutters  are  a  most 
independent  class.  They  are  strongly  unionized,  it  being  practically  impossible 
for  a  company  doing  a  large  business  to  maintain  an  open  shop.  As  the  eight- 
hour  day  prevails,  with  practically  a  $3  minimum  wage,  it  is  no  small  part 
of  the  economy  of  a  granite  concern  to  watcn  its  cutting  gangs  in  order  that 
the  proportion  of  cutters  unable  to  do  sufficient  work  to  earn  the  minimum  pay 
shall  be  kept  low  enough  to  enable  the  company  to  cut  stone  inside  its  esti- 
mated figures,  which  are  usually  based  on  the  production  of  an  average  man. 
This  card  catalog  and  daily  report  make  perhaps  the  best  form  of  check  upon 
possible  loss  in  this  direction. 

At  the  close  of  each  month  the  book-keeper  subdivides  the  Quarry 
Expense  against  the  contracts  under  way  on  the  basis  of  the  number  of  cubic 
feet  of  stock  quarried  for  each  contract  during  the  month. 

1247 


St. 


AmKRICAN   lUsiNKSS  AXl)  ACCOUNTING  EnCYCLOI'KDIA 


938 


939 


The  total  cost  of  all  diagrams  completed  during  the  month  is  used  as  the 
basis  of  charging  off  the  cutters'  pay  against  the  work  in  hand.  In  practice 
the  diagram  total  rarely  equals  the  amount  of  the  pay  rolls,  on  account  of  the 
luicompleted  work  in  the  shoi)s,  b\it  by  averaging  the  unaccounted-for  time 
this  difference  is  fairly  adjusted. 

The  remainder  of  the  expenses  of  the  cutting  department  is  then  sub- 
divided against  the  contracts  on  the  basis  of  the  amounts  of  cutter's  time 
charged  against  each  contract  during  the  month.  These  other  expenses  go 
to  make  up  part  of  the  allowance  made  in  estimating  under  the  head  of 
"  Attendant  Expense."  The  balance  of  this  figure  covers  the  Administration 
Expense,  which  is  not  subdivided  against  the  various  contracts — that  method 
tending  to  confuse  too  much  the  actual  cost  of  doing  a  particular  contract — 
but  are  closed  out  at  stated  periods  against  profit  and  loss. 

The  granite  business  is  a  rare  example  among  the  larger  industries  of 
the  country  that  has  persisted  in  obsolete  methods  of  accounting,  and  it  was 
with  a  desire  to  work  out  an  elective  system  of  granite  cost-keeping  that  the 
alx)ve  method  was  designed.  That  it  accomplishes  the  result  for  which  it  is 
planned,  viz.,  giving  a  true  and  prompt  statement  of  the  condition  of  the 
company  and  of  its  various  contracts,  will  be  seen  from  the  following  state- 
ment, which,  in  addition  to  a  detailed  balance  sheet  and  profit  and  loss  account, 
is  prepared  for  each  contract  within  two  days  after  the  close  of  a  month. 

HARWICH  hil:.  manor. 

Estimate. 

Quarrying,  20,000  cu.  ft.  at  $1.00 •$  20.000.00 

Cutting    «)2..500.00 

Attendant  Expense    :<  1 .250.00 

Freight  to  Harwich  Hill  at  20c 4,000.00 

Setting  20.000  cu.  ft.  at  25  cents 5,000.00 

Profit    5.000.00 

Total  contract  price    .$127,750.00 

Statement   to   July    1st,    1908— 

Cost.  Estimate. 

Quarrying   10.000  cu.   ft $  <;.80().00  $10,000.00 

Cutting  8.000  cu.  ft 21,000.35  2:^,580.89 

.Attendant   expense    7.43.3.82  11,790.45 

Freight,   6,000   cu.    ft 1,170.00  1,200.00 

Setting  2,513  cu.  ft 914..32  628.25 

Profit     (based    on    Vio    of    contract 

completed)    500.00 

$37,318.49  .$47,599.59 

37,318.49 

Apparent    profit    to    date    (.Administration    Expenses 

not  included)    $10,281.10 


— G.  James. 


American  Business  and  Accounting  Encyclopedia 
(939)     STORAGE  BUSINESS  ACCOUNTING. 


St. 


1248 


The  form  of  Storage  Register  illustrated  is  designed  to  overcome  the 
difficuhies  experienced  in  shewing  the  amount  of  storage  earned  each  month. 

receiving  record. 

The  Receiving  Department  must  necessarily  be  in  charge  of  a  man  having 
a  thorough  knowledge  of  the  business,  and  also  familiar  with  the  various  tricks 
perpetrated  by  parties  who  use  warehouse  receipts  for  the  purpose  of  obtain- 
ing money  from  banks  and  individuals  under  false  pretenses.  In  receiving 
canned  goods  great  care  must  be  exercised  in  the  inspection  of  same.  A  num- 
ber of  cans  must  be  taken  indiscriminately  from  the  cases  and  opened  in 
order  to  be  sure  that  the  contents  of  same  are  in  accordance  with  the  specifica- 
tion on  the  label,  or  if  not  labeled,  to  see  that  the  contents  are  as  specified  by 
the  party  storing  same.  Cans  that  have  swelled  are  immediately  removed  from 
the  cases  as  soon  as  discovered,  and  the  warehouse  receipt  is  issued  for  the 
number  of  dozen  cans  apparently  in  good  condition. 

Perishable  goods,  after  being  inspected,  are  stored  in  the  refrigerating 

room. 

The  handling  of  the  business  will  be  greatly  facilitated  by  having  the 
floors  divided  into  suitable  spaces  or  rooms.  The  first  floor  should  be  reser\ed 
for  perishable  goods  and  goods  stored  for  a  short  period.  The  cost  of 
handling  the  goods  must  be  kept  down  as  low  as  possible,  and  much  depends 
on  the  judgment  of  the  party  having  charge  of  this  end  of  the  business.  For 
convenience,  the  spaces  on  the  floors  will  be  numbered,  those  on  the  first 
floor  being  prefixed  "  A,"  on  the  second  floor  by  "  P.,"  etc. 

After  the  goods  have  been  tallied  and  inspected,  an  entry  is  made  in 
the  receiving  record  showing  the  date,  name  of  party,  address,  quantity, 
class  and  condition  of  goods  stored,  and  the  location  of  same  in  the  warehouse. 
A  suitable  form  should  be  drawn  up,  the  book  printed  in  duplicate  and  the 
receipts  consecutively  numbered,  also  the  copies. 

The  original  is  signed  by  the  receiving  clerk  and  handed  in  at  the  ofiice. 
where  a  warehouse  receipt  is  issued.  Each  day  the  receiving  tickets  must  be 
arranged  numerically  in  the  office  to  insure  that  none  are  missing. 

STORAGE    register. 

The  entries  in  this  book  are  taken  from  the  counterfoil  of  the  warehouse 
receipt.  The  form  is  self-explanatory  and  only  such  remarks  will  be  made  as 
are  necessary  to  explain  the  method  of  keeping  same.  Sufficient  space  must 
be  set  aside  in  the  storage  register  for  large  consignments  where  the  deliveries 
are  apt  to  be  numerous.  This  will  save  the  transferring  of  items.  Entries  are 
to  be  made  in  the  order  in  which  the  warehouse  receipts  are  issued. 

deliveries. 
Goods  will  only  be  delivered  upon  presentation  of  the  warehouse  receijit 
and  the  amount  of  goods  delivered  nnij-t  be  indorsed  on  the  back  of  same. 

1249 


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American  Business  and  Accounting  Encyclopedia 


939 


storage  receipt 


No.  21327 


Shank  Furniture  and  Storage  Company 


No.  339  E.  Washington  Street  and  332  to  336  E.  Pearl  Street 
Mr.  John  Jones  Indianapolis,  March  17,  1906 

Address  from  1762  Oak  Ave.  5  floor  East  side.  Row  B 

We  have  received  in  oar  storage  houses  at  339  E.  Washington  Street  and  332  to  336  E. 
Pearl  Street,  foi  your  account  and  subject  to  return  of  this  receipt  the  following  described  goods, 
to-wit: 


6  dining   chairs 

2  dresser   mirrors 

1  ex.  table 

.  2  wash    stands 

5  rockers,   1   broken 

3  center   stands 

1  chiffonier 

2  rolls  carpet 

1  side  board  base 

1  bdl.    brooms 

1  side  board  mirror 

1  bdl.   w.   shades 

1  china  closet 

1  bench   wringer 

1  buffet 

2  wash  tubs  and 

1  book   case 

1  box  and  c. 

2  dresser  base 

1  barrel  and  c. 

Transfer  $.3.00 

These  goods  are  stored  at  owner's  risk  against  loss  or  damage  by  fire,  rust,  leakage,  war  or 
insurrection,  and  acts  of  God.  Shank  Furniture  and  Storage  Company,  however,  obligates 
itself  to  use  diligence  in  protecting  said  property  while  in  its  custody.  The  goods  here  will  be 
held  subject  to  return  of  this  receipt,  but  will  be  delivered  to  owner  on  his  sworn  statement  be- 
fore a  notary  public  in  case  of  loss  of  receipt,  providing  all  charges  for  storage  at  the  rate  of 
$2.00  for  each  month  or  fractional  part  are  paid. 


T)flte 
Received 


NoV.  I  a 


Rect* 


Naf^e 


QfHihiof^Co 


be  script)  01)  |    LocoTioi)     I  Moi)T^ly 
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RenvarKs 


Ka^iaiCry.Mc.  \l<ibhhh.Cll>j)lei 


a^io 


\is<in>bii^t^o. 


\li  '  ^heafte'- 


Haufi'nQ  CjiJijeJ  ^  Qo 


Ct^gtofd 


Nov.  20-  Oi 


'nroi'ce  No.  T  (>2- 


belivcries 

5torfl^e  Eflrped.                                                     | 

bote 
rqo3 

Invoice 
'no. 

.  2 

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iqo3 

o 

I 

• 

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o 

tr 

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o 

I 

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ir 

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1250 


939 


American  Business  and  Accounting  Encyclopedia 


St 


STORAGE    REGISTER. 

A  delivery  ticket  similar  in  form  to  the  receiving  ticket  is  made  out  and 
handed  in  at  the  office,  the  duplicate  being  retained  in  the  delivery  book.  The 
delivery  ticket  must  show  the  warehouse  receipt  number  so  as  to  save  time  m 
the  office.  The  delivery  entries  are  made  from  the  delivery  tickets  after  same 
have  been  numerically  arranged  in  order  to  detect  missing  tickets.  When 
through  with  the  receiving  and  delivery  tickets  same  should  be  filed  in  folders 
on  the  face  of  which  only  the  warehouse  receipt  number  need  be  noted.  The 
warehouse  receipt  must  also  be  filed  in  the  folder  as  soon  as  same  has  been 
taken  up  on  completion  of  the  final  delivery. 


NOT  NEGOTIABLE 


ATLAS   STORAGE    COMPANY 

2029  to  2035  Market  Street 

Philadelphia 


IRecefveb  from — — ~: 

the  merchandise  described  hereon  to  be  held  on  monthly  storage  from,  receipt,  (subject  to  the  condi- 
tionrendorsed  hereon)  and  to  be  deUvered  only  upon  return  of  this  receipt  and  payment  of  all  charges 
dne.  Atlas  Storage  Company 

Per 

DETAIL  INVENTORY  OF  GOODS  ON  STORAGE 


Albm. 

Chaia  Jtnck.  Oirpcb 

/ar. 

•-^ 

KndlToaa, 

ChaalorDrawtia. 

Ker 

/ 

•led. 

t 

Awning. 
Awning  tnmm. 
Aze. 

i 

China  Claaet. 

Cblflbnlen  (eosL  ■nkaovn). 

Cloacl. 

£|C 

Keulai. 

Kitchen  Dtemllb 
Ladders. 

Sofas. 

SUada, 

Stair  Boa*  (talBdlt^ 

1 

•kbrO»irti«M. 

BaCK  (coDlenU  imkiMvn). 

Clocks 
aathca  Hooka. 

I.addcfi,BMf>, 

•UlrlMa 
Store  Flttun^ 

Bale*                    ■* 

OatbeaHoiae. 

Uaipa 

\ 

StoeesaodHfiL 

BuTCto     " 

CMtiei  Pra^  (kudia). 

UpBou«i. 

~     Oaa. 

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/ 

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Lathe. 

BnkM  (»K7). 

OdU. 

/ 

U«n  Mom* 

Sword. 

H 

(contenu  unkcown). 
BiiUi  Tu(». 

Couch. 
Cernlcei. 

/ 

LallarPraai. 
LOUBca. 

i 

TaUa^  Ext  end  ktMtk 

3 

BtdMctds. 

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h 

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•■      MatblaTi^ 

3 

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Bcnchai. 

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Cfiba. 

u 

Mala. 

MittUw  PnltMl 

/ 

••       Kitchen. 

BicTCtaa. 

CraOa. 

¥ 

Mtflil— 

FoMlaf 

Bird  Cat*. 

Crockerr. 

Mthora. 

X 

Taboreuaa 

/ 

WaeklnffBoS. 

Onboard. 

Matie  Back. 

Tuba. 

Blackboard. 

Caitelna. 

Muiic  CaMaet 

TankL 

/ 

Book  Caaca  (coot  uBkaowa). 

c 

Curtain  Polaa. 

Omce  FonatONk 

Towel  Haretak 

BookShalTCi. 

1 

••      BtiaidUH. 

Oilcloth. 

TV- 

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Boxei  (conteoiiuoknowD). 

CDipadore. 

Or(aa. 

3 

Tree  Holder. 

Bolurn. 

Dem|)obaa(00Dk  vakMM). 

Oreu. 

Trunks  (oooteall  UllSUtt  -, 

Board*.  Pie. 

/ 

Ocaki. 

Packatca. 

Tray. 

Boafdt,  ln»li« 

Dlvaa. 

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TreadciL 

/ 

BoUaiB. 

DoUrwaMn*. 

Palli,  empty. 

Tricyel*. 

Booka 

Dooca. 

Paper  Boxes. 

Tjpe  WrtMa. 

BrackcHi 
Bric-abrM. 

OraMrom. 
DrOBlncTabtat. 

/ 

Pedei.tai._    -  _  _. 
Piano.  S^Gf25i^ 

Umbcella. 
Umbrella  Stand. 

Broomi. 

DuBVkaUa. 

Piano  Xaaip. 

Values  (ooulanMuakaMrafe 

Bmsbea. 

Eaaela. 

"      SMOL 

Vasen. 

3 

Bureaus  (oontanli  aaknown) 

FeaUicrBadl 

"    Coyer. 

VIoUa. 

Bundlca        "              " 

Flgutaa. 

■ 

PUiaraa 

Viae. 

Buckeu  and  Com. 

niteit. 

PiUewa^ 

WofOO. 

CaUnela. 

FireSeiceaf 

Walleia. 

Camp  Chain  and  Stoota, 

Flan. 

Praia. 

X 

Wall  rocket. 

K 

Carpel*  (twndlea). 

nasHataik 

QniUk 

Wordrubea. 

"       Wood  (taoBdMa). 

FtowetSluiA. 

Bake.      . 

WasbBoaida. 

Carpet  Paper. 

Psot  Rcau. 

KeMgeiaMa  (eotf.  luikaitn) 

Wubiiw  MachlaB 

Carrliae. 

FoldincBad. 

RiWL 

3 

Wash  Stands. 

CclUr  Staelrca. 

/ 

Go*  Fiztonfc 

aeftw 

Water  CouletB, 

Ckcral  Qlaa. 

UasOrao. 

' 

•a*. 

WbotlTou. 

Ctanta  (conienli  anknown) 

Oroup. 

Bealea.  . 

Woodeu  P«tKf» 

Cliesta.  Ice.  "             " 

GuUar. 

Screen  Dear. 

WorkBaakak 

S 

Chalta,  Upbolalercd. 

Oun*. 

ScreensL 

Wrtngen. 

i0 

Cane  Seat 

HallStandiL 

Scuttles. 

Zinc  (rolls). 

a 

"       Wooden. 

HampeiB. 

Sdlee. 

Sine  (iheaU): 

Carpet. 
■'      DeniaL 
-      Foldliv. 

/ 

Hawocka. 

Hat  Raekb 

/ 

6e»inc  MaehloM^/lKlfl 

(feadaa  (butti4>              ^ 

1 

CHARGES 1 ^ 

•      High. 
-      LeaUMft 
"      Morrla. 

Hoe. 

Hoim. 

Hoae. 

Shovela. 
Shelves. 
ShamhoM«, 

Storage,  per  montil.  ^O-* 
Cattins,  *8- 

•     ■ock.UphtMlMl. 

lea  CMua  FHHMii 

BboarOaaa. 

Piickiin.f6 
InsuraKC.  JUSSXO 

m        ..     oaneSaal 
Vtaa4^ 

taatfc 

/ 

Bide  Boa<d  (Mat.  oakaovn). 

1251 


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American  Business  and  Accounting  Encyclopedia 


CALCULATING    EARNED    fTORAGE. 


•M) 


939 


American  Business  and  Accounting  Encyclopedia 


St. 


This  is  tlie  most  important  feature  of  warehouse  accounting,  as  these 
figures  show  immediately  whether  the  concern  is  operating  at  a  profit  or  a 
loss  for  the  period  under  consideration.  Turning  to  the  entries  made  on  the 
storage  register  we  will  show  the  process  of  calculating  the  earned  storage. 
Under  the  heading  "  Number  of  Packages  in  Storage  "  is  entered  on  the  first 
line  the  total  number  of  barrels  stored,  198.  November  being  the  first  month 
to  earn  a  portion  of  the  storage  on  this  lot,  "  Nov."  is  entered  behind  the  198  to 
indicate  the  fact.  These  notations  are  valuable  and  save  time  in  making  up 
the  figures  of  future  months.  While  it  is  true  that  one  month's  storage 
is  due  whether  the  goods  remain  a  whole  month  or  only  one  day,  yet  we  cannot 
anticipate  the  withdrawal  of  the  goods  and  must  credit  the  unearned  portion 
calculated  at  the  end  of  each  month  to  the  next  succeeding  month. 

From  the  illustration  we  find  on  calculating  the  storage  as  of  November 
30,  1903,  that  198  barrels  are  in  storage  at  the  rate  of  loc.  per  barrel  for  the 
first  month,  or  $29.70.  From  November  18  to  30  is  two-fifths  of  a  month, 
consequently  two-fifths  of  $29.70  or  $11.88  is  earned  for  November,  and 
three-fifths  or  $17.82  is  earned  for  December  up  to  the  18th.  The  proportion 
of  two-fifths  of  the  monthly  charge  for  the  latter  portion  of  the  month  and 
three-fifths  for  the  first  portion  of  the  succeeding  month  remains  the  same 
in  this  particular  case,  no  matter  what  the  charge  in  dollars  and  cents 
amounts  to.  Thirty  days  to  the  month  are  used  for  these  calculations  and 
odd  days  need  not  be  considered  where  they  cannot  be  divided  into  30 
without  a  remainder.  Goods  received  on  the  fifth  of  the  month  would  earn 
five-sixths  of  the  monthly  charge  for  the  current  month  and  one-sixth  for  the 
succeeding  month,  etc. 

Continuing  the  calculations  shown  on  the  storage  register  we  find  that 
35  barrels  were  delivered  on  December  10,  1903,  within  the  period  covered  by 
the  first  month.  leaving  1G3  barrels  on  which  to  figure  as  of  December  31,  1903  ; 
103  barrels  @  12c  =  $19.56,  of  which  amount  two-fifths,  or  $7.83,  is  credited 
to  December,  and  three-fifths,  or  $11.73,  is  a  credit  to  January. 

Fifty  barrels  delivered  on  January  1«,  1904,  leave  113  barrels  to  be  figured 
on  as  of  January  31,  1904;  113  barrels  @  12c  =  $13.56;  two-fifths  Cr.  to 
January  =  $5.43,  and  three-fifths  Cr.  to  February  =  $8.13. 

Ninety-four  barrels  delivered  on  February  15,  1904.  leave  19  barrels  to  be 
figured  on  as  of  February  18,  the  expiration  of  the  month:  19  barrels  @ 
12c.  =  $2.28.  As  the  19  barrels  were  delivered  on  February  23,  1904  the  trans- 
action is  now  closed.  Care  must  be  taken  not  to  overlook  these  closing  trans- 
actions. The  total  earned  storage  is  found  and  entered  in  the  "  Total  Earned 
Storage  "  column. 

billing  goods  delivered. 

Invoices  covering  the  deliver}'  of  goods  on  storage  are  made  from  the 
delivery  tickets.    The  invoices  are  in  duplicate,  consecutively  numbered,  the 

1252 


original  being  forwarded  to  the  party  storing  the  goods,  and  the  duplicate 
retained  in  the  office.  Either  a  binder  or  a  vertical  file  could  be  used  to 
advantage  for  preserving  the  duplicate  invoices. 

The  invoice  numbers  must  be  entered  in  the  storage  register,  so  as  to  insure 
all  deliveries  being  charged. 

Should  the  warehouse  operate  its  own  teaming,  bills  for  such  charges 
will  be  made  on  similar  forms  except  that  the  letter  T  will  precede  the 
invoice  numbers.  Notations  of  teaming  charges  will  be  made  in  the  storage 
register  as  shown. 

customers'  ledger. 

This  book  will  be  on  the  loose-leaf  plan.  An  ordinary  ruling  showing  a 
balance  column  will  suffice.  The  account  numbers  will  correspond  with  the 
floor  spaces,  the  ledger  being  subdivided  by  tabs  "  A,"  "  B,"  *'  C,"  etc.,  accord- 
ing to  the  tnnnber  of  floors.  The  headings  of  the  accounts  will  show  the 
name  and  address  of  the  party,  and  the  warehouse  receipt  number. 

Postings  to  the  customers'  ledger  are  made  from  the  storage  and  teaming 
books,  the  respective  totals  being  charged  to  the  controlling  account  in  the 
general  ledger,  crediting  storage  account  and  teaming  account  respectively. 

The  receipts  from  storage  and  teaming  must  be  credited  to  the  respective 
accounts,  the  total  being  credited  to  the  controlling  account  in  the  general 
ledger.  The  individual  items  will  be  posted  to  the  accounts  in  the  customers' 
ledger. 

On  completion  of  the  final  delivery,  the  amount  of  storage  charged  to  the 
customer  is  compared  with  the  total  of  "  earned  storage "  in  the  storage 
register,  and  if  same  agrees  the  party  making  the  comparison  places  his 
initial  in  the  column  "  Audited  by."    Any  discrepancy  can  be  immediately  found. 

At  the  end  of  the  month,  the  "  earned  storage "  is  calculated  as  pre- 
viously explained,  and  a  journal  entry  made: 
Storage  Account 

To  Earned  Storage. 

closing  the  rooks. 

After  the  posting  of  the  items  outlined,  as  well  as  the  sundr}^  expense 
charges  have  been  made,  the  books  are  ready  to  be  closed,  and  the  profit  and 
loss  statement  made  up.  A'ery  little  time  is  required  to  close  the  books  and 
this  should  be  done  each  month. 


1253 


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American  Business  and  Accounting  Encyclopedia 


939 


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939-940         American  Business  and  Accounting  Encyclopedia 


St. 


PROFIT    AND    LOSS    STATEMENT. 

Credits. 

Storage — Earned. 

Teaming. 

Sale  of  Goods. 


Charges. 
Warehouse  Expense — 

Labor. 

Cartage. 

Light  and  Water. 

Miscellaneous. 

General  Expense — 
Officers'  Salaries. 
Office  Salaries. 
Rent. 
Phone. 

Stationery  and  Printing. 
Advertising. 

Incidentals.  .  . 

Insurance. 
Net  Profit. 

Every  book-keeper  is  familiar  with  the  journal  entries  for  closing  the 
books,  which  in  this  case  are  very  simple.  The  insurance  should  be  pro-rated 
over  a  period  of  twelve  months,  or  at  least,  each  month  should  bear  its  share 
of  the  amount. 

At  frequent  intervals  the  goods  in  storage  should  be  counted  as  on  a 
certain  date,  and  the  balances  compared  with  the  amounts  in  the  storage 
register.  This  would  prevent  any  of  the  clerks  holding  up  the  delivery  ticket 
and  keeping  the  remittance  of  a  customer.  The  entering  of  the  invoice  nunrn 
bers  in  the  storage  register  must  be  insisted  on  in  order  to  facilitate  the  auditing 
of  the  accounts. 

(940)     COLD  STORAGE. 

Each  package  of  poultry  is  identified  by  a  number  and  sold  on  its  merits; 
consequently  the  package  number  as  well  as  the  invoice  and  storage  numbers 
must  follow  the  package  from  start  to  finish  on  its  career. 

Loans  are  negotiated  and  handled  in  "  round  numbers,"  which  necessitates 

separate  balance  columns. 

If  a  salesman  wishes  to  show  goods  of  a  certain  shipper  an  index  of 

this  shipper's  invoice  numbers  will  locate  them. 

Column  4,  number  of  birds,  and  Column  8,  net  weight,  shows  average 
size  of  birds  in  each  package. 

Footing  amount  columns  under  released  will  show  at  a  glance  the  balance 

due  the  bank  on  the  lot. 

Sometimes  more  goods  are  released  than  are  taken  out  the  same  day: 
the  out  column  footing  compared  with  the  released  column  footing  shows  how 
this  may  be  determined. 

1255 


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941-943 


(941) 


storage  of  household  goods. 


When  the  goods  come  in,  they  are  checked  by  the  receiving  clerks  on  the 
sheets  printed  in  black.  The  Warehouse  Receipt  is  then  made  out  from  this 
original,  and  a  letter  press  copy  taken,  so  that  if  the  Warehouse  Receipt  should 
be  lost,  an  exact  duplicate  can  at  any  time  be  furnished. 

By  having  the  names  of  all  articles  of  furniture  printed  on  the  receipt  in 
alphabetical  order,  one  can  see  at  a  glance  just  what  the  goods  consist  of. 
It  also  keeps  a  uniformity  about  the  papers,  which  is  very  desirable. 

another   method. 

The  man  in  charge  of  the  storage  warehouse  has  a  blank  book  in  which 
he  lists  each  article  as  it  is  taken  from  the  wagon  and  placed  on  the  elevator. 
After  the  lot  of  goods  are  listed,  this  book  is  brought  to  the  office,  where  a 
storage  receipt  in  duplicate  is  made  out  with  typewriter.  The  storage  receipt 
is  given  to  the  owner  of  the  goods,  and  the  duplicate,  which  is  made  on  back 
of  loose-leaf  ledger  is  kept  in  office. 

When  goods  are  taken  out  of  the  warehouse  the  Storage  receipt  is 
turned  in  to  the  office  and  goods  are  checked  out  from  the  receipt,  the  receipt 
and  ledger  page  duplicate,  are  then  filed  in  the  transfer  binder. 

(942)     TABULAR  STORAGE  RECORD— PROVISIONS. 


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(943)     STREET  RAILWAY  ACCOUNTING. 


BALA^XE  SHEETS  OR  INDICANT  ACCOUNTS. 

CAPITAL  ACCOUNTS. 

Capital  Defined. — As  the  term  is  used  herein,  by  capital  of  a  corporation 
IS  meant  all  the  property  devoted  to  the  rendering  of  the  services  or  production 
of  the  commodities  which  are  within  the  purposes  of  the  corporation. 

Fixed  Capital  Defined. — Capital  which  has  an  expectation  of  life  in  ser- 
vice of  more  than  one  year  (exception  being  made  of  hand  and  other  small  port- 
able tools  liable  to  be  lost  or  stolen)  is  called  fixed  capital. 

Floating  Capital  Defined. — Capital  other  than  fixed  capital  is  called 
boating  capital. 

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General  Capital  and  Department  Capital  Defined. — Fixed  Capital 
may  be  sub-divided  into  General  Capital  and  Departmental  Capital.  General 
capital  includes  all  that  pertains  to  the  property  in  general  while  Departmental 
capital  refers  to  matters  covered  exclusively  in  departmental  accounts. 

Landed  Capital  and  Non-landed  Capital  Defined. — Fixed  capital 
is  also  divisable  into  landed  capital  and  non-landed  capital.  Landed  capital 
includes  all  interests  in  land  (exclusive  of  improvements  thereon)  the  term 
of  which  is  more  than  one  year.  All  other  fixed  capital  is  herein  called 
non-landed  capital. 

Tangible  and  Intangible  Capital  Defined. — Non-landed  capital  is 
divisible  into  intangible  and  tangible.  Intangible  capital  comprises  organiza- 
tion, franchises,  patent-rights,  and  all  other  intangible  property  within  the 
definition  of  fixed  non-landed  capital  as  above  stated.  Tangible  capital  com- 
prises structures  and  equipment  having  an  expectation  of  life  and  service  of 
more  than  one  year.  Because  of  their  liability  to  loss  or  theft,  hand  and  other 
small  portable  tools  are  excepted  from  tangible  capital,  and  the  cost  of  such 
tools  when  issued  is  required  to  be  treated  as  a  part  of  the  operating  ex- 
penses. 

Further  Classification  of  Capital. — Capital  is  also  divisible  into 
original  capital,  additions,  betterments,  renewals,  and  replacements,  as  de- 
fined below.  Charges  to  capital  accounts  shall  show  these  divisions  as  set 
forth  under  "  Particulars  of  Entries." 

Original  Capital  Defined. — Original  capital  is  that  put  into  service 
at  the  outset  of  an  enterprise. 

Additions  Defined. — Additions  include  additional  structures,  facilities, 
or  equipment  not  taking  the  place  of  anything  previously  existing. 

Betterments  Defined. — Betterments  include  the  enlargement  or  im- 
provement of  existing  structures,  facilities,  and  equipment. 

Renewals  Defined. — Renewals  include  all  extensions  of  terms  of  years 
in  land  and  tangible  fixed  capital,  and  all  extensions  of  the  hfe  period  of 
franchises  and  other  intangible  fixed  capital. 

Replacements  Defined. — Replacements  include  all  substitutions  for  capi- 
tal exhausted  or  become  inadequate  in  service,  the  substitutes  having  substan- 
tially no  greater  capacity  than  the  things  for  which  they  were  substituted. 
When  a  substitute  has  a  greater  capacity  than  that  for  which  it  is  substituted, 
the  cost  of  substitution  of  one  of  the  same  capacity  as  the  thing  replaced 
should  be  charged  as  a  replacement,  and  the  remaining  portion  of  the  cost 
of  the  actual  substitute  should  be  charged  as  a  betterment. 

Repairs  Defined. — ^When  through  wear  and  tear  or  through  casualty  it 
becomes  necessary  to  replace  some  part  of  any  structure,  facility,  or  unit  of 
equipment,  and  the  extent  of  such  replacement  does  not  amount  to  a  substan- 
tial change  of  identity  in  such  structures,  facility,  or  unit  of  equipment,  the 
replacement  of  such  part  is  to  be  considered  a  repair,  and  the  cost  of  such  repair 


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IS  to  be  treated  as  an  operating  expense  and  must  not  be  charged  as  a  replace- 
ment in  any  capital  account. 

Hand  and  other  small  portable  tools  liable  to  be  lost  or  stolen  shall,  when  first 
acquired  and  before  issued  for  use,  be  carried  in  a  suitable  Materials  and  Supplies 
account;  when  issued  they  shall  be  charged  to  the  appropriate  expense  account. 
Portable  tools  and  apparatus  of  special  value  may,  however,  be  charged  to  the  appro- 
priate tangible  capital  account,  and  remain  therein  as  long  as  record  is  kept  of  the 
persons  to  whom  such  tools  and  apparatus  are  issued  and  such  persons  are  made 
responsible  therefor. 

First  Entries  Must  Enable  Identification. — Throughout  all  capital  ac- 
counts, the  first  entry  in  respect  of  any  particular  thing  shall  describe  it  with 
such  particularity  as  to  enable  its  identification,  and  shall  give  it  a  distinguishing 
name,  number,  or  other  designation  by  which  it  shall  thereafter  be  designated 
m  every  entry  in  any  capital  account  which  in  any  way  concerns  it.  In  the 
case  of  continuous  structures  like  railroad  tracks,  or  electric  line,  or  pipe  line, 
such  structures  shall  be  itemized  to  the  extent  that  no  item  shall  contain  more 
than  one  operating  division  or  more  than  one  type  of  construction,  and  the  entry 
in  relation  to  any  item  shall  describe  the  size,  weight,  type,  and  other  principal 
physical  characteristics  of  the  chief  constituent  parts,  together  with  their  spac- 
ing if  discontinuous. 

Costs  of  New  Capital  to  be  Actual  Money  Costs. — All  charges  made  to 
capital  or  other  accounts  on  or  after  January  1,  1909,  shall  be  the  actual  money 
cost  of  the  things  in  respect  of  which  they  are  made.  When  the  consideration 
actually  given  for  the  thing  in  respect  of  which  a  charge  to  a  capital  account 
is  made  is  anything  other  than  money,  the  actual  consideration  shall  be  described 
in  the  entry  with  sufficient  fullness  and  particularity  to  identify  it,  and  the 
amount  charged  shall  be  the  actual  money  value  of  such  consideration  at  the 
time  of  the  transaction. 

Discounts  upon  Securities  not  to  be  Charged  to  Capital  Accounts. — 
Discounts  upon  securities  and  other  commercial  paper  issued  in  payment  for 
capital  are  to  be  provided  for  in  other  accounts  and  must  in  no  case  be  charged 
to  the  capital  accounts. 

Cost  of  Labor,  Material,  and  Supplies. — Cost  of  labor  includes  not  only 
wages,  salaries,  and  fees  paid  employees,  but  also  such  personal  expenses  of 
employees  as  are  borne  by  the  corporation.  Cost  of  materials  and  supplies  con- 
sumed in  construction  is  the  cost  at  the  places  where  they  enter  into  construction, 
including  cost  of  transportation  and  inspection  when  specifically  assignable.  If 
such  materials  and  supplies  are  passed  through  storehouses,  their  cost  entered 
in  the  account  may  include  a  suitable  proportion  of  store  expense. 

Withdrawals  or  Retirements. — When  anything  is  withdrawn  or  retired 
from  service,  the  amount  at  which  such  thing  stood  charged  in  the  capital  ac- 
count shall  be  credited  to  the  capital  account  in  which  it  stood  charged  at  the 
time  of  withdrawal,  and  the  entry  of  such  credit  shall  cite  by  name  and  page 
of  book  or  other  record  the  original  entry  of  cost  of  the  thing  withdrawn.  If 
there  is  no  such  original  entry,  that  fact  shall  be  stated  in  connection  with  the 
credit  entry,  and  the  actual  amount  originally  charged  shall  be  credited.     If 

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such  amount  is  not  known,  it  shall  be  estimated,  the  facts  upon  which  the  esti- 
mate is  based  shall  be  shown,  and  the  amount  thus  estimated  to  be  the  origmal 
charge  in  respect  of  such  thing  withdrawn  shall  be  credited. 

Particulars  Required  to  be  Shown  in  Entries.— Every  charge  made  to 
a  capital  account  on  or  after  January  1,  1909,  shall  show  whether  the  thing  in 
respect  of  which  the  charge  is  made  is  original  capital,  or  an  addition,  a  better- 
ment, a  renewal,  or  a  replacement.  If  the  thing  is  a  betterment,  the  entry  shall 
designate  the  thing  enlarged  or  improved  and  shall  cite  by  name  and  page  of 
book,  or  other  record  the  original  entry  of  cost  of  such  thing  enlarged  or  im- 
proved. If  the  thing  to  which  any  charge  hereafter  made  relates  is  a  renewal  or 
a  replacement,  the  entry  made  in  respect  thereof  shall  designate  the  thing  re- 
newed or  replaced  and  shall  cite  by  name  and'  page  of  book  or  other  record 
the  orignial  entry  or  entries  of  cost  of  such  thing  renewed  or  replaced.  If 
there  is  no  entry  in  the  accounts  of  the  corporation  showing  the  cost  (to  the 
corporation)  of  the  thing  bettered,  renewed,  or  replaced,  that  fact  shall  oe 
stated  in  the  entry  describing  the  betterment,  renewal,  or  replacement,  and  the 
original  cost  of  such  thing  to  the  corporation  shall  be  stated.  Such  cost  shall 
be  estimated  if  not  known,  and  when  estimated  the  basis  of  such  estimation 
shall  be  shown. 

Betterments  Involving  Partial  Destruction  of  Thing  Bettered. — If 
any  betterment  involves  the  partial  destruction  or  partial  reconstruction  of  the 
thing  bettered,  only  such  portion  of  the  cost  of  the  change  shall  be  charged 
as  a  betterment  as  will  when  added  to  the  original  cost  (estimated  if  not 
known)  of  the  thing  bettered  give  the  cost  of  reconstruction  or  replacement 
of  the  thing  as  bettered,  and  the  remainder  of  the  cost  of  the  change  (account 
being  taken  of  any  salvage)  shall  be  charged  to  the  appropriate  repair  account. 
E.  g.,  a  building,  original  cost  unknown  but  estimated  to  be  $15,000,  is  bettered 
by  the  construction  of  an  elevator  shaft,  and  its  stairways  are  modified  so  as  to  be 
fireproof;  the  actual  expenditure  for  these  changes  is  $3,000;  the  estimated  cost  of 
replacement  of  the  building  (as  modified)  with  one  equally  serviceable  and  with  an 
equal  expectation  of  life  is  $16,000;  the  charge  to  capital  account  as  a  betterment 
should  be  $1,000  and  the  remainder  ($2,000)  of  the  expenditure  should  be  charged  to 
the  appropriate  repairs  account. 

Road  and  Equipment  and  Other  Capital  Purchased. — ^When  any 
road  or  other  fixed  capital  in  the  form  of  a  going  or  completed  plant  is 
purchased,  an  appraisal  of  such  capital  so  acquired  shall  be  made,  and  the 
different  constituent  elements  of  the  road  (and  equipment,  if  any)  or  other 
capital  acquired  shall  be  appraised  at  their  structural  value;  that  is  to  say 
at  the  estimated  cost  of  replacement  or  reproduction  less  deterioration  to  the 
then  existing  condition  through  wear  and  tear,  obsolescence,  and  inadequacy. 
If  the  actual  money  value  of  the  consideration  given  for  the  road  or  other 
capital  was  at  the  time  of  the  acquisition  in  excess  of  such  appraised  value, 
the  excess  shall  be  charged  to  the  account  "Other  Intangible  Street  Rail- 
way Capital,"  and  the  appraised  values  of  the  constituent  elements  shall  be 
charged  to  the  appropriate  accounts  as  designated  in  the  following  definitions 
of  accounts  for  expenditures  for  road  and  equipment  and  other  fixed  capital. 
If  the  actual  money  value  of  the  consideration  given  was  not  in  excess  of 

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s-iich  appraised  value,  such  actual  money  value  shall  be  distributed  through 
the  said  accounts  in  proportion  to  the  said  appraised  value  of  the  constituent 
elements  appropriate  to  the  respective  accounts.  Full  report  of  the  contract 
of  acquisition,  the  consideration  given  therefor,  the  determination  of  the 
actual  money  value  of  such  consideration,  the  appraisal,  and  the  amounts 
charged  to  the  respective  accounts  for  each  road  or  other  such  fixed  capital 
purchased,  will  be  required  to  be  made  to  the  Public  Service  Commission,  and 
the  purchaser  will  be  required  to  procure  in  connection  with  the  acquisition  of 
any  such  road  or  other  fixed  capital  all  existing  records,  memoranda,  and  ac- 
counts in  the  possession  or  control  of  the  grantor  relating  to  the  construction 
and  improvement  of  such  road,  and  to  preserve  such  records,  memoranda, 
and  accounts  until  authorized  by  law  to  destroy  or  otherwise  dispose  of  them. 

fixed  capital. 
Right  of  Way, 
Other  Street  Railroad  Land, 
Organization, 

Franchises   (Street  Railroad), 
Patent-rights  (Street  Railroad), 
Other  Intangible  Street  Railroad  Capital, 
Grading, 
Ballast, 
Ties, 

Rails,  Rail  Fastenings  and  Joints, 
Special  Work, 
Underground  Construction, 
Track  Laying  and  Surfacing, 
Paving, 

Roadway  Tools, 
Tunnels, 

Elevated  Structures  and  Foundations, 
Bridges,  Trestles  and  Culverts, 
Crossings,  Fences,  and  Signs. 
Interlocking  and  Other  Signal  Apparatus, 
Telephone  and  Telegraph  lines, 
Poles  and  Fixtures, 
Underground  Conduits, 
Transmission  System, 
Distribution  System, 
Dams,  Canals  and  Pipe  Lines, 
Power  Plant  Buildings, 
Sub-station  Buildings, 
General  Office  Buildings  and  Equipment, 
Shops  and  Car  Houses. 

Stations,  Waiting  Rooms,  and  ]\Iiscellaneous  Buildings, 
Docks  and  Wharves, 
Park  and  Resort  Properties, 

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F'urnaces,  Boilers,  and  Accessories, 

Steam  Engines, 

Turbines  and  Water-\Mieels, 

Gas  Power  Equipment, 

Power  Plant  Electric  Equipment, 

Miscellaneous  Power  Plant  Equipment, 

Sub-station  Equipment, 

Cable  Power  Equipment, 

Shop  Equipment, 

Locomotives, 

Revenue  Cars, 

Electric  Equipment  of  Cars, 

Other  Rail  Equipment, 

Miscellaneous  Equipment, 

Engineering   and    Superintendence,  * 

Law  Expenditures  During  Construction,  * 

Injuries  during  Construction, 

Taxes  during  Construction, 

^liscellaneous  Construction  Expenditures, 

Interest  during  Construction, 

Land  in  other  Departments, 

Franchises  in  Other  Departments, 

Patent-rights  in  Other  Departments, 

Other  Intangible  Capital  in  Other  Departments, 

Tangible  Capital  in  Other  Departments, 

Materials  and  Supplies, 

Cash, 

Bills  Receivable, 

Accounts  Receivable, 

Interest   and   Dividends   Receivable, 

Other  Current  Assets. 

INVESTMENTS. 

The  cost  of  the  corporation's  title  to  any  property  held  as  an  investment 
shall  be  charged  to  an  account  entitled  "  Investments". 

XoTE. — In  the  annual  reports  to  be  made  to  this  Commission  by  the  corporations 
and  other  persons  engaged  in  street  railway  operations,  investments,  whether  bound 
or  free,  will  be  required  to  be  classified  with  at  least  the  following  detail: 

Bond  investments  will  be  required  to  be  divided  into  three  classes:  "Mort- 
gaged or  Pledged  Investments,"  "  Contractual  Fund  Investments,"  and  "  Other 
Bond  Investments."  Each  of  these  three  classes,  and  the  class  "  Free  investments," 
will  be  required  to  be  subdivided  into  the  following:  Funded  Debt  of  Controlling 
Corporations,  Funded  Debt  of  Affiliated  Corporations,  Funded  Debt  of  Controlled 
Corporations,  Stocks  of  Controlling  Corporations.  Stocks  of  Affiliated  Corporations, 
Stocks  of  Controlled  Corporations,  Advance  to  Controlled  Corporations,  Funded 
Debt  of  other  Corporations,  Stocks  of  other  Corporations,  Land,  Improvements  on 
Land,  and  other  Investments. 

Special  Deposits  Defined. — By  special  deposits,  as  here  used,  are  meant 
amounts  of  money  and  bank  credits  in  the  hands  of  fiscal  agents  of  the  cor- 

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poration  and  others  for  the  payment  of  coupons,  dividends,  or  other  special 
purposes.  Credits  at  banks  subject  to  check  of  the  corporation  or  its  agents 
for  general  purposes,  deposits  at  banks  whether  withdrawable  at  pleasure  or 
after  a  specified  time,  amounts  of  money  in  safety  deposit  vaults,  etc.,  so 
long  as  they  are  available  for  general  purposes  of  the  corporation,  shall  be 
excluded  herefrom. 

coupon  special  deposits. 

Charge  to  this  account  all  moneys  and  bank  credits  specially  deposited  in 
the  hands  of  fiscal  agents  or  other  agents  of  the  corporation  for  the  payment 
of  interest  coupons  when  presented.  Such  coupons  when  paid  from  such 
deposits  shall  be  credited  to  this  account  and  charged  to  the  appropriate 
matured  interest  account.  Payments  to  trustees  (or  other  agents)  of  the 
holders  of  bonds  or  other  securities  of  the  interest  accrued  thereon  which 
operate  under  the  terms  of  the  securities  (or  of  mortages  supporting  such 
securities)  as  a  release  of  the  paying  corporation  from  further  liability  for 
such  interest  shall  not  be  charged  to  this  account,  but  to  the  appropriate 
"  Interest  Accrued  "  account. 

dividends  special  deposits. 
Charge  to  this  account  all  moneys  and  bank  credits  specially  deposited  in 
the  hands  of  fiscal  agents  or  other  agents  of  the  corporation  for  the  payment 
of  dividends  upon  the  corporation's  stocks.  Such  dividends  when  paid  from 
such  deposits  shall  be  credited  to  this  account  and  charged  to  the  appropriate 
dividend  account. 

other  special  deposits. 

Charge  to  this  account  all  moneys  and  bank  credits  deposited  in  the  hands 
of  fiscal  agents  or  other  agents  of  the  corporation  for  other  special  purposes 
than  the  payment  of  interest  coupons  and  dividends.  Charges  to  this  account 
shall  specify  the  purpose  for  which  'the  deposit  is  made.  When  such  purposes 
are  satisfied  this  account  shall  be  credited  with  the  amount  specially  deposited 
to  provide  such  satisfaction. 

(944)     PREPAYMENTS. 

When  Davments  'for  taxes,  insurance,  rents  and  the  like  are  made  in 
advance  of  the  actual  accrual  thereof,  the  amount  of  the  advance  payment  shall 
be  charged  to  the  appropriate  account  in  this  group.  As  such  taxes,  etc.,  accrue, 
the  appropriate  prepayment  account  shall  be  credited  and  the  appropriate 
expense  or  other  income  account  shall  be  charged. 

Note. — By  the  accrual  of  taxes,  insurance,  rent,  etc.,  is  meant  their  accumulation 
when  considered  as  spread  uniformly  over  the  period  to  which  they  apply.  Thus: 
if  the  rent  fixed  by  contract  of  lease  for  a  certain  property  is  $600  for  a  calendar 
year,  this  accrues  at  the  rate  of  $50  each  month  (unless  it  is  desired  to  base  the 
accrual  on  days,  when  of  course  the  varying  lengths  of  the  months  would  require  to 
be  considered),  regardless  of  the  actual  times  when  the  rent  matures;  $50  should 
thus  (if  the  rent  has  been  prepaid)  be  credited  each  month  to  the  account,  "  Prepaid 
Rents,"  and  concurrently  charged  to  the  appropriate  account  in  the  "  Income  "  ac- 
count.   Similarly  in  the  case  of  other  prepayments. 

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prepaid  taxes. 
When  taxes  are  paid  in  advance  of  their  accrual,  the  amount  prepaid  shall 
be  charged  to  this  account.  As  the  taxes  thus  prepaid  accrue  they  shall  be 
credited  at  monthly  intervals  to  this  account  and  charged  to  the  appropriate 
taxes  account.  This  account  must  not  include  any  so  called  taxes,  like  water 
taxes,  drainage  taxes,  fire  taxes,  etc.,  which  are  payments  for  special  benefits 
received.  Such  payments  for  special  benefits,  where  finally  chargeable  to 
operating  expenses,  must,  when  prepaid,  be  charged  to  the  account  "  Other 

Prepayments". 

prepaid  insurance. 

When  premiums  on  insurance  policies  are  paid  in  advance  of  their  accrual, 

the  amount  prepaid  (whether  paid  in  cash  or  by  the  issue  of  notes  or  other 

negotiable  paper)  shall  be  charged  to  this  account.    As  such  premiums  accrue 

they  shall  be  credited  at  monthly  intervals  to  this  account  and  charged  to  the 

appropriate  expense  account. 

prepaid  rents.. 
When  rents  are  paid  in  advance  of  the  enjoyment  of  the  term,  the  amount 
prepaid  (whether  paid  in  cash  or  by  the  issue  of  notes  or  other  negotiable 
paper)  shall  be  charged  to  this  account.  As  the  term  is  consumed,  this  ac- 
count shall  be  credited  at  monthly  intervals  and  the  appropriate  rent  account  in 
the  income  account  shall  be  charged. 

OTHER  PREPAYMENTS. 

When  prepayments  are  made  for  any  other  thing  than  taxes,  insurance, 
and  rents,  above  provided  for,  such  prepayments  shall  be  charged  to  this  ac- 
count ;  and  as  the  purpose  of  the  prepayment  is  satisfied,  proportionate  amounts 
shall  be  credited  monthly  to  this  account  and  charged  to  the  appropriate  expense 
or  income  account. 

SUSPENSE. 

When  any  expenditure  is  made,  the  appropriate  disposition  of  which  is 
not  yet  determinable,  or  when  any  loss  occurs  which  under  the  rules  of  the 
Public  Service  Commission  may  be  spread  over  a  period  of  time,  or  when  any 
debit  made  for  any  other  reason  may  be  amortized  through  charges  made  to 
expense  or  other  income  accounts  at  intervals  over  a  period  of  time,  such  ex- 
penditure, loss,  or  other  debit  shall,  except  as  herein  otherwise  directed,  be 
charged  to  an  appropriate  account  in  this  group  of  accounts. 

Note— By  "amortization"  of  any  charge  or  credit  is  meant  its  gradual  extmc- 
tion  The  word  is  broader  than  the  word  "  depreciation,"  since  the  latter  is  restricted 
ordinarily  to  tangible  property.  The  word  "depreciation"  also  imports  more  of  the 
idea  of  fluctuating  value  and  is  complicated  somewhat  with  the  question  of  cost  of 
replacement  at  market  prices.  Because  it  is  considered  unnecessary  in  connection 
with  the  gradual  consumption  or  expiration  of  life  of  capital  to  consider  the  question 
of  cost  of  replacement  until  the  replacement  is  actually  made,  at  which  time  the 
cost  of  replacement  is  duly  charged  to  the  appropriate  account,  and  because 
provision  is  necessary  for  the  gradual  extinction  of  certain  charges  (such  as  those 
for  some  kinds  of  capital,  those  for  extraordinary  casualties,  for  discount  on  debt 
etc),  to  which  the  term  "depreciation"  does  not  well  apply,  it  is  considered 
advisablf  to  use  the  term  "  amortization  "  in  connection  with  the  extinction  of  such 
charges,  and  of  certain  corresponding  credits,  such  as  premiums  on  debt  outstanding. 

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WTien  funded  debt  securities  and  other  evidences  of  indebtedness  are 
disposed  of  for  a  consideration  whose  cash  value  is  less  than  the  sum  of 
the  par  value  of  the  securities  or  other  evidence  of  indebtedness  and  the 
interest  thereon  accrued  at  the  time  the  transfer  takes  place,  the  excess  of 
such  sum  of  the  par  value  and  accrued  interest  over  the  cash  value  of  the 
consideration  received  shall  be  charged  to  this  account.  To  this  account 
shall  also  be  charged  all  expense  connected  with  the  issue  and  sale  of  evi- 
dence of  debt,  such  as  fees  for  drafting  mortgages  and  trust  deeds,  fees  and 
taxes  for  recording  mortgages  and  trust  deeds,  cost  of  engraving  and  print- 
ing bonds,  certificates  of  indebtedness,  and  other  commercial  paper  having  a 
life  of  more  than  one  year,  fees  paid  trustees  provided  for  in  mortgages  and 
trust  deeds,  fees  and  commissions  paid  underwriters  and  brokers  for  market- 
ing such  evidence  of  debt,  and  other  like  expense.  At  or  before  the  close  of 
each  fiscal  period  thereafter,  a  proportion  of  such  discount  and  expense  based 
upon  the  life  of  the  security  to  maturity  shall  be  credited  to  this  account  and 
charged  to  the  account  "  Amortization  of  Debt  Discount  and  Expense  "  in 
"  Income  "  account.  Such  discount  and  expense  may,  if  desired,  be  amortized 
more  rapidly  through  charges  of  all  or  any  part  of  it,  either  at  the  time  of 
issue  or  later,  to  the  account  of  "  Other  Deductions  from  Surplus." 

OTHER   suspense. 

To  this  account  shall  be  made  all  debits  not  elsewhere  provided  for 
and  the  proper  final  disposition  of  which  is  uncertain.  This  will  include 
all  such  matters  as  expense  of  preliminary  surveys,  plans,  investigations,  etc., 
made  for  determining  the  feasibility  of  projects  under  contemplation.  Should 
any  such  project  later  be  carried  to  completion,  such  amount  should  be 
credited  to  this  account  and  charged  to  the  proper  capital  account;  should  it 
be   abandoned,   such   amounts   shall   be   charged   to   "  Corporate    Surplus   or 

Deficit." 

When  the  proper  disposition  of  any  matter  charged  to  this  account  is  deter- 
mined, it  shall  be  credited  to  this  account  and  charged  to  the  appropriate  ac- 
count. 

(945^     SECURITIES. 

Securities  Actually  Issued  and  Later  Re-acquired. — For  the  case 
of  securities  actually  issued  by  the  corporation  and  later  re-acquired  by  it, 
the  following  account  is  provided: 

re-acquired  securities. 

\\'hen  securities,  whether  funded  debt  or  stocks,  have  been  actually 
issued  to  bona  fide  holders  for  value  (or  after  such  issue  by  another  cor- 
poration have  been  assumed  by  the  accounting  corporation),  and  after  such 
issue  (or  assumption)  have  been  acquired  by  the  corporation  under  cir- 
cumstances which  require  that  they  should  not  be  treated  as  paid  or  retired, 
they  shall  be  charged  at  face  values  to  this  account. 

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Debt  DEFINED.-The  word  debt,  as  here  used,  covers  all  absolute  obli- 
eations  to  pav  money  at  a  definite  time  or  times,  or  at  a  time  or  times 
which  are  capable  of  being  made  definite  by  demand  or  other  act  of  the 
creditor  It  does  not  cover  contingent  obligations,  such  as  obligations  to 
pay   rent   for   future   enjoyment  of   the   term,   liabilities   of   indorsers   upon 

paper  not  yet  defaulted,  etc. 

Debt  is  divided  into  Funded  Debt  and  Unfunded  Debt.  ,  .  ^  ^      . 

Funded  Debt  DEFiNED.-Funded  Debt  comprises  all  debt  which  by  the 
terms  of  its  creation  does  not  mature  until  more  than  one  year  after  date 
of  creation. 

FUNDED  DEBT  ACCOUNTS. 

Funded  Debt  AccouNTS.-Funded  debt  shall  be  divided  in  the  accounts 
into  classes,  such  classes  being  determined  by  the  four  ^^'^"^'^'^J^ 
mortgage  or  other  lien  security  therefor,  (2)  rate  of  "Uteres  ,  (3)  interest 
dates  and  (4)  date  of  maturity.  A  separate  sub-account  shall  be  raised  for 
each  such  class  of  funded  debt,  and  no  two  amounts  of  debt  not  agreeing  m 
respect  of  all  four  of  the  characteristics  above  named  shall  be  included  m 
the  same  sub-account.  The  title  of  each  sub-account  of  funded  debt  shall 
express  the  four  characteristics  above  stated,  that  is  to  say:  mortgage  or 
other  lien  or  security,  rate  of  interest,  dates  of  maturity  of  "iterest,  and 
date  of  maturity  of  principal :  as  e.  g.,  "  First  Mortgage  0%  QF  10,  Aug.  10, 
1928"  which  means  funded  debt  secured  by  the  company  s  hrst  mortgage, 
bearing  interest  at  the  rate  of  5  per  cent,  per  annum,  interest  maturing 
quarterly  on  February  10th,  May  10th,  August  10th,  and  ^ovember  10th  of 
each  year,  principal  maturing  ^lay  10,  19-28.  ,        ,-,     r 

Where  anv  portion  of  the  funded  debt  rests  only  on  the  general  credit  of 
the  corporation  and  is  not  specially  secured  or  supported  by  hen  of  any 
character,  it  shall  for  the  purposes  of  these  accounts  be  known  as  a  "  deben- 
ture ".  "  Debentures  "  thus  include  promissory  notes  unsecured  by  mortgage 
or  other  lien,  also  those  securities  commonly  known  as  "  plain  bonds  ". 

To  the  appropriate  sub-account  in  ''  Funded  Debt "  shall  be  credited  when 
issued  the  par  value  of  the  amount  of  evidence  of  funded  indebtness  issued. 
The  entry  shall  show  not  onlv  amount  issued  but  the  purpose  for  which 
issued,  and  shall  make  intelligible  reference  to  the  book,  page,  and  account 
whereon  are  shown  any  discounts  or  premiums  realized  on  the  amount  issued. 
If  the  corsideration  received  for  the  issue  is  anything  else  than  money,  the 
entry  shall  show  further  the  principal  to  whom  issued,  and  shall  describe 
with  sufficient  particularity  to  identify  it  the  actual  consideration  received 
for  the  issue.  If  the  issue  in  any  case  is  to  an  agent  of  an  undisclosed  prin- 
cipal, the  name  and  business  address  of  such  agent  and  the  fact  of  his  agency 
shall  be  shown  in  the  entry. 

unfunded  debt  accounts. 
Unfunded  Debt  Defined.— Unfunded  Debt  comprises  all  debt  which  by 
the  terms  of  its  creation  matures  one  year  or  less  after  the  date  of  creation 
or  after  demand. 

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Unfunded  Debt  Accounts. — The  accounts  for  Unfunded  Debt  are 
defined  as  follows: 

taxes  accrued. 
Credit  to  this  account  at  the  close  of  each  month  the  taxes  accrued  during 
the  month,  and  make  corresponding  charges  to  the  appropriate  "  Taxes " 
account.  Credits  to  the  account  "  Taxes  Accrued  "  will  necessarily  be  based 
upon  estimate  until  the  amount  of  tax  levied  for  the  tax  period  is  known; 
such  estimates  shall  be  based  upon  the  best  data  available,  and  as  soon  as 
the  amount  of  tax  for  the  period  is  known  the  account  involved  shall  be 
adjusted  to  conform.  When  any  tax  is  paid  it  shall  be  charged  to  this 
account  and  credited  to  "  Cash  "  or  other  suitable  account. 

judgments  unpaid. 

interest  accrued. 

dividends  declared. 

ACCOUNTS  payable. 
RESERVES. 

Reserves. — ^Reserves  shall  be  classified  as  Permanent  and  Temporary. 

Permanent  Reserves  Defined. — By  Permanent  Reserves  are  meant 
those  that  must  be  maintained  intact  during  the  life  of  the  corporation. 
Permanent  reserves  shall  be  classified  into  two  classes:  Premiums  on  Stocks, 
and  Other  Permanent  Reserves. 

premiums   on    STOCKS. 

Premiums  on  stocks  shall  be  sub-classed  with  respect  to  the  several 
classes  of  stocks,  for  definitions  of  which  see  the  accounts  under  the  head 
"  Stocks  ".  A  sub-account  shall  be  kept  for  each  particular  class  of  stocks, 
and  such  sub-accounts  shall  be  severally  entitled: 

Premiums  on  Debenture  Stocks. 

Premiums  on  First  Preferred  Stocks. 

Premiums  on  Second  Preferred  Stocks,  etc.,  and 

Premiums  on  Common  Stock. 

When  a  premium  is  realized  upon  an  issue  of  any  particular  class  of 
stock,  such  premium  shall  be  credited  to  the  sub-account  above  provided  for 
such  class  of  stock,  and  such  credit  shall  remain  in  such  account  so  long 
as  such  stock  remains  outstanding.  By  a  premium  realized  (as  the  words 
are  above  used)  is  meant  the  excess  of  the  actual  money  value (  at  the  time  of 
issue  of  the  stock)  of  the  consideration  received  for  such  issue  over  the  par 
value  of  the  amount  of  stock  issued.  If  the  stock  is  issued  by  the  corporation 
to  its  treasurer  or  other  agent,  the  excess  of  the  actual  money  value  of  the  con- 
sideration obtained  by  such  agent  in  exchange  for  such  stock  over  the  par  value 
thereof  shall  be  considered  the  premium  realized. 

OTHER  permanent  RESERVES. 

Credit  to  this  account  all  reserves  not  above  provided  for  created  to 
remain    intact   until   the   dissolution   of   the   corporation.      A    separate    sub- 

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account  shall  be  created  for  each  particular  purpose  for  which  a  reserve  is 
raised,  and  the  purpose  of  the  reserve  shall  be  designated  in  the  title  of  the 
account  thereof  and  shall  be  expressed  in  full  in  the  first  entry  of  such  ac- 
count. 

Temporary  Reserves  Defined. — By  Temporary  Reserves  are  meant  those 
that  are  not  intended  to  remain  intact  during  the  life  of  the  corporation. 
Temporary  Reserves  shall  be  classified  as  Contractual  Reserves  and  Non-con- 
tractual Reserves. 

Contractual  Reserves  Defined. — Contractual  Reserves  are  reserves 
necessitated  by  contracts  of  the  corporation,  as  e.  g.,  reserves  to  cover  sinking 
funds  provided  for  in  mortgages,  etc.  A  separate  sub-account  shall  be  raised 
for  each  particular  contractual  reserve,  and  to  such  account  shall  be  credited 
all  appropriations  and  accumulations  made  in  accordance  with  the  contract 
provisions  under  which  such  reserve  is  created.  The  purpose  of  the  reserve 
shall  be  designated  in  the  title  of  the  account  thereof  and  shall  be  expressed  in 
full  in  the  first  entry  in  such  account. 

Non-contractual  Reserves  Defined. — Non-contractual  Reserves  are 
such  temporary  reserves  as  are  raised  without  being  required  under  any 
contract.     Non-contractual  Reserves  are  divided  into  Required  and  Optional. 

Required  Reserve  Accounts. — Required  Reserves  are  provided  for  in  the 
following  accounts : 

ACCRUED  amortization   OF  CAPITAL. 

Credit  to  this  account  such  amounts  as  are  charged  from  time  to  time  to 
"  Operating  Expense,"  or  other  accounts  to  cover  depreciation  of  way  and 
structures,  depreciation  of  equipment,  and  other  amortization  of  capital.  When 
any  capital  is  retired  from  service,  the  original  money  cost  thereof  (estimated 
if  not  known,  and  where  estimated,  that  fact  and  the  facts  upon  which  the 
basis  is  estimated  shall  be  stated  in  the  entry),  less  salvage,  shall  (except  as  pro- 
vided in  the  account  "  Fixed  Capital,  December  31,  1908  ",)  be  charged  to  this 
account.  The  amount  originally  entered  or  contained  in  the  charges  to  any 
capital  account  in  respect  of  such  capital  so  going  out  of  service  shall  be 
credited  to  appropriate  sub-account  under  the  account  "  Corporate  Surplus  or 
Deficit ". 

UNAMORTIZED    PREMIUM    ON    DEBT. 

When  funded  debt  securities  or  other  evidences  of  indebtedness  are  dis- 
posed of  for  a  consideration  whose  cash  value  is  greater  than  the  sum  of 
the  par  value  of  such  securities  or  other  evidences  of  indebtedness  and  the 
interest  thereon  accrued  at  the  time  the  transfer  takes  place,  the  excess  of 
the  cash  value  of  such  consideration  received  over  the  sum  of  the  par  value 
of  the  securities  or  other  evidence  of  indebtedness  and  the  accrued  interest 
shall  be  credited  to  this  account.  At  monthly  intervals  thereafter  a  propor- 
tion of  such  premium  based  upon  the  life  of  the  security  or  other  evidence 
of  indebtedness  to  maturity  shall  be  charged  to  this  account  and  credited  to 
"  Amortization  of  Premium  on  Debt,"  in  "  Income  "  account ;  or  at  the  option 
of  the  corporation  the  charge  to  this  account  may  be  delayed  to  a  time  not 
later  than  the  date  of  maturity  of  the  debt,  in  which  case  the  proportion  appli- 

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cable  to  the  period  covered  by  the  current  income  account  shall  be  credited 
to  the  account  "  Amortization  of  Premium  on  Debt,"  and  the  remainder  of 
the  credit  shall  be  the  account  "  Other  Additions  to  Surplus." 

OTHER  REQUIRED  RESERVES. 

Credit  to  this  account  all  required  reserves  not  elsewhere  provided  for.  The 
first  entry  of  a  credit  to  this  account  with  respect  to  any  particular  reserve 
shall  show  the  purpose  of  the  reserve  and  every  subsequent  entry  with  respect 
to  that  reserve  shall  designate  the  reserve  to  which  it  relates. 

Optional  Reserve  Accounts. — Optional  Reserves  are  those  the  creation 
of  which  is  solely  within  the  discretion  of  the  corporation.  For  such  reserves 
the  following  two  accounts  are  provided : 

casualties  and  insurance  reserve. 

When  any  admitted  liability  arises  because  of  loss  or  damage  to  the  prop- 
erty of  others,  or  of  injuries  to  employees  or  other  persons,  the  amount  of 
the  liability  may  (if  not  previously  provided  for  by  insurance  or  self-insur- 
ance) be  charged  to  the  appropriate  operating  expense  or  other  accounts  and 
credited  to  this  account,  against  which  (in  such  case)  the  actual  cost  of  satis- 
faction of  the  liability  shall  be  charged  when  the  matter  is  determined.  If 
the  extent  of  the  liability  can  not  be  ascertained  promptly  after  the  liability 
arises,  it  may  be  estimated  as  accurately  as  practicable  for  the  purpose  of 
determining  the  immediate  charge  to  the  expense  or  other  appropriate  account, 
in  which  case  the  matter  shall  be  adjusted  when  the  extent  of  the  liability 
is  definitely  ascertained.  If  the  loss  is  of  such  character  that  it  is  in  whole 
or  part  indemnifiable  under  any  contract  of  insurance  carried  by  the  corpora- 
tion, the  indemnifiable  portion  of  the  loss  shall  be  charged  to  the  insurer  and 
credited  to  "  Casualties  and  Insurance  Reserve."  Also  credit  to  this  account 
the  amounts  charged  to  the  operating  expense  account  "  Insurance  "  to  cover 
self-carried  risks. 

other  optional  reserves. 

A  sub-account  shall  be  raised  for  each  particular  reserve,  and  its  title  shall 
designate  the  purpose  of  such  reserve  and  the  first  entry  therein  shall  express 
in  full  such  purpose. 

Stocks  Defined. — By  Stocks  of  a  corporation,  as  the  term  is  here  used, 
are  meant  those  securities  which  represent  permanent  interest  in  the  corpo- 
ration or  interests  which,  if  terminable,  are  so  only  at  the  option  of  the  cor- 
poration. 

Stocks  Classified. — Stocks  are  classified  as: 

Debenture  Stocks, 

First  Preferred  Siocks, 

Second  Preferred  Stocks,  etc.,  and 

Common  Stocks. 

Debenture  Stocks  Defined. — Debenture  Stocks  are  those  issued  under  a 
contract  to  pay  absolutely  thereon  at  specified  intervals  a  specified  return. 

First  Preferred  Stocks  Defined. — First  Preferred  Stocks  are  those 
which  have  the  first  claim  upon  such  dividends  as  may  be  distributed.    They 

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may  be  cumulative  or  noncumulative,  participating  or  nonparticipating.  If 
cum  Illative,  the  amount  by  which  the  dividend  at  any  dividend  period  fails  to 
reacli  the  stipulated  rate  is  caried  forward  to  continue  as  a  claim  upon  divi- 
dends until  satisfied;  if  noncumulative,  such  amount  lapses.  If  a  first 
])referred  stock  is  participating,  it  is  not  limited  to  the  stipulated  rate  in  the 
amount  of  dividends  which  it  may  receive,  but  is  entitled  to  participate,  in 
accordance  with  the  tenns  of  the  contract  under  which  it  is  issued,  in  further 
dividends;  if  nonparticipating,  it  is  limited  to  the  stipulated  rate. 

Second  Preferred  Stocks  Defined. — Second  Preferred  Stocks  are  those 
whose  claim  in  the  distribution  of  dividends  are  next  after  those  of  first  pre- 
ferred stocks.  These  stocks  may  also  be  cumulative  or  noncumulative,  partici- 
pating or  nonparticipating. 

Common  Stocks  Defined. — Common  Stocks  are  those  whose  claims  in 
the  distribution  of  dividends  are  subordinate  to  the  claims  of  all  other  stocks. 

\'oTiNG  Powers. — Stocks  differ  also  in  regard  to  the  voting  powers  inci- 
dent to  ownership  of  them. 

Retirement  of  Stocks. — Stocks  are  sometimes  issued  under  contracts 
wherein  the  issuing  corporation  reserves  to  itself  the  right  to  retire  them  at 
its  option,  either  absolute  or  subject  to  conditions  expressed  in  the  contracts 
whereunder  the  stocks  are  issued. 

IXCO^IE  ACCOUNT. 

Divisions  of  Income  Account. — The  principal  divisions  of  this  group  of 
accounts  are  the  "  Revenue  "  accounts,  the  "  Revenue  Deduction  "  accounts,  the 
*' Income  Deduction"  accounts,  and  the  "Appropriation"  accounts. 

Revenues  Defined. — By  Revenues,  as  the  word  is  used  herein,  are 
meant  all  amounts  of  money  which  the  corporation  receives  or  becomes 
lawfully  entitled  to  recover  for  services  rendered,  for  products  sold,  as 
gross  profits  on  merchandise  sold,  or  as  a  return  uix)n  its  property  (or 
interests  in  property).  Revenues  are  classified  as  Operating  Revenues  and 
Non-Operating  Revenues. 

Operating  Revenues  Defined. — Operating  Revenues  are  those  derived 
from  the  sale  of  products  and  merchandise,  from  services  rendered,  and 
from  return  on  property  by  the  person  or  corporation  in  its  operations. 

Non-operating  Revenues  Defined. — Non-operating  Revenues  are  those 
derived  as  a  return  upon  the  property  of  the  corporation  in  the  hands  of  others 
or  from  its  interest  in  property  in  the  hands  of  others.  They  may  be  sub- 
classified  as  Rents,  Interest,  Dividends,  and  Miscellaneous. 

Revenue  Deductions  Defined. — Revenue  Deductions  include  Expenses, 
Taxes,  and  Uncollectible  Bills. 

Expenses  Defined. — Expenses  arc  those  outgoes  (including  capital  con- 
sumed) necessary  to  the  production  of  the  commodities  sold  and  the  services 
rendered,  and  to  the  collection  of  the  revenues.  They  are  divided  into  Operat- 
ing Expenses  and  Non-operating  Expenses.  Operating  Expenses  are  those 
incident  to  the  operating  revenues. 

1269 


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945 


Taxes  Defined. — ^Taxes  are  those  annual  or  other  payments  exacted 
by  governments  for  the  purpose  of  raising  funds  for  pubHc  uses. 

Uncollectible  Bills  Defined.— When  a  corporation  is  engaged  regu- 
larly in  rendering  to  general  consumers  a  service,  or  in  supplying  to  such 
consumers  a  commodity  (as  e.  g.,  electric  energy  or  gas  for  light,  heat,  or 
power),  current  accounts  or  claims  against  such  consumers  for  such  service 
rendered  or  commodity  supplied  which  are  incapable  of  collection  by  the 
exercise  of  reasonable  diligence  are  included  under  the  name   Uncollectible 

Bills. 

Gross  Income,  Income  Deductions,  and  Net  Corporate  Income  De- 
fined.— Revenues,  diminished  by  expenses,  taxes,  and  uncollectible  bills, 
give  an  amount  called  Gross  Income,  which  is  applicable  to  corporate  and 
leased  properties.  Gross  income  is  subject  to  several  compulsory  deductions, 
mostly  contractual,  like  rent,  interest,  etc.,  and  the  remainder  after  these  are 
made  is  called  Net  Corporate  Income,  which  being  subject  only  to  the  dis- 
cretion of  the  corporation  is  most  conveniently  carried  directly  to  the  corpo- 
rate surplus.  The  accounts  covering  the  compulsory  deductions  from  gross 
income,  as  above  defined,  are  called  the  Income  Deductions  accounts. 

Appropriation  Accounts  Defined.— The  accounts  covering  the  yearly 
changes  in  the  corporate  surplus  are  called  the  Appropriation  accounts,  since 
practically  all  of  the  matters  covered  by  them  are  within  the  discretion  of  the 
corporation,  although  they  also  include  certain  adjustments  made  because  of 
facts  of  previous  years  imperfectly  accounted  for  at  the  time  (whether  through 
error  or  through  lack  of  information)  and  certain  other  minor  matters  like 
extraordinary  expenses  not  chargeable  as  deductions  from  revenues ;  also  such 
matters  as  profits  on  the  sale  of  capital,  and  profits  and  losses  on  the  sale  of 
investments. 

OPERATING  REVENUE  ACCOUNTS. 

Revenue  from  Transportation 

(451)     Passenger  Revenue 

(453)  Freight  Revenue 

(454)  Mail  Revenue 

(455)  Express  Revenue 

(459)  Other  Car  Earnings 
(a)     Baggage  Revenue. 

(h)     Chartered  Car  Revenue. 

(c)  Parlor  and  Chair  Car  Revenue. 

(d)  Milk  Revenue. 

(e')     Switching  Revenue. 
(/)     Miscellaneous  Transportation  Revenue. 
Other  Street  Raihvay  Operating  Revenues. 

(460)  Advertising 

(461)  Other  Car  and  Station  Privileges 

(462)  Rent  for  Buildings  and  Other  Property 

(463)  Rent  of  Equipment 

(464)  Rent  of  Tracks  and  Terminals 


945  American  Business  and  Accounting  Encyclopedia  St. 

(465)  Sale  of  Power. 

(466)  Joint  Electric  Power  Revenue. 
(468)     Miscellaneous  Receipts. 

(a)  Parcel  Room  Receipts. 

■   (b)  Storage. 

(c)  Car  Service. 

(d)  Telephone  and  Telegraph  Service. 

(e)  Park  and  Resort  Revenue. 
(/)  Miscellaneous. 

Revenues  from  Outside  Operations. 

Condensed  Classification  of  Operating  Expense  Accounts  for  Small  Carriers 
and  Extended  Classification  for  Large  Carriers. 


ACCOUNTS  for  SMALL  CARRIERS. 


corresponding    ACCOUNTS    FOR    LARGE 
CARRIERS. 


I.  Maintenance    of    Way    and    Struc-        I.  Maintenance    of    Way    and    Struc- 
tures—  TURES — 


I.  Superintendence. 


2.  Maintenance    of    Roadway    and. 
Track. 


3.  Maintenance    of    Track    Struc- 
tures. 


4.  Maintenance        of        Buildings, 

Docks,  and  Wharves. 

5.  Injuries  to  Persons. 

6.  Other  Maintenance  of  Way  and 

Structures    Expenses. 

7.  Maintaining        Joint        Tracks, 

Yards,    and   other    Facilities 
—Dr. 


{ 


1.  Superintendence. 

2.  Ballast. 

3.  Ties. 

4.  Rails. 

5.  Other  Track  Material. 

6.  Roadway  and  Track. 

7.  Removal    of    Snow,    Sand,    and 

Ice. 

8.  Tunnels. 

9.  Bridges,  Trestles,  and  Culverts. 
ID.  Over  and  Under  Grade  Cross- 
ings. 

11.  Grade  Crossings,  Fences,  Cattle 

Guards  and   Signals. 

12.  Snow    and    Sand    Fences    and 

Snowsheds. 

13.  Signals  and  Interlocking  Plants. 

14.  Telegraph  and  Telephone  Lines. 

15.  Electric   Power  Transmission. 

16.  Buildings,  Fixtures  and  Grounds. 

17.  Docks  and  Wharves. 

19.  Injuries  to  Persons. 

18.  Roadway  Tools  and  Supplies. 

20.  Stationery   and   Printing. 

21.  Other  Expenses. 

22.  Maintaining  Joint  Tracks,  Yards, 

and  Other  Facilities — Dr. 


1270 


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945 


8.  Maintaining  Joint  Tracks, 
Yards,  and  Other  Facilities 
— Cr. 

II.  Maintenance  of  Equipment — 


23.  Maintaining  Joint  Tracks,  Yards, 
and  Other  Facilities — Cr. 


II.  Maintenance  of  Equipment — 


9.  Superintendence. 


10.  Locomotives — Repairs. 


{ 


II.  Cars — Repairs, 


12.  Floating  Equipment — Repairs. 


13.  Work  Equipment — Repairs. 


14.  Equipment — Renewals. 


15.  Equipment — Depreciation. 


' 


16.  Injuries  to  Persons. 


17.  Other    Maintenance    of    Equip- 
ment Expenses. 


1272 


24.  Superintendence. 


25.  Steam   Locomotives — Repairs. 
28.  Electric  Locomotives — Repairs. 


31.  Passenger-train    Cars — Repairs. 
34.  Freight-train   Cars — Repairs. 
Z7.  Electric  Equipment  of  Cars — Re 
pairs. 


40.  Floating  Equipment — Repairs. 

43.  Work   Equipment — Repairs. 

26.  Steam  Locomotives — Renewals. 

29.  Electric  Locomotives — Renewals. 

32.  Passenger-train  Cars — Renewals. 

35,  Freight-train   Cars — Renewals. 
^.  Electric    Equipment    of    Cars- 
Renewals. 

41.  Floating  Equipment — Renewals. 

44.  Work  Equipment — Renewals. 

27.  Steam      Locomotives — Deprecia- 

tion. 

30.  Electric  Locomotives — Deprecia- 

tion. 

33,  Passenger-train  Cars — Deprecia- 

tion. 

36.  Freight-train  Cars — Depreciation, 
39,  Electric    Equipment    Cars — De- 
preciation. 

42.  Floating     Equipment — Deprecia- 

tion. 

45.  Work  Equipment — T>  "^reciation. 

48.  Injuries  to  Persons. 


46,  Shop  Machinery  and  Tools. 

47.  Power  Plant  Equipment. 

49.  Stationery  and  Printing. 

50.  Other  Expenses. 


945 


American  Business  and  Accounting  Encyclopedia 


St. 


18.  Maintaining  Joint  Equipment  at 
Terminals — Dr. 


19.  Maintaining  Joint  Equipment  at 
Terminals — Cr. 


III.  Traffic  Expenses— 


aa  Traffic  Expenses. 


IV.  Transportation  Expenses — 

21.  Superintendence   and   Dispatch- 
ing Trains. 


22.  Station  Service. 


51.  Maintaining  Joint  Equipment  at 
Terminals — Dr. 


52.  ^Maintaining  Joint  Equipment  at 
Terminals — Cr. 


III.  Tr.\ffic  Expenses — 

$Z'  Superintendence. 

54.  Outside  Agencies. 

55.  Advertising. 

56.  Traffic  Associations. 

57.  Fast  Freight  Lines, 

58.  Industrial       and       Immigration 

Bureaus. 

59.  Stationery  and  Printing. 

60.  Other  Expenses. 


IV.  Transportatiox  Expenses — 

61.  Superintendence, 

62.  Dispatching   Trains. 


63,  Station  Employes. 

64.  Weighing  and  Car  Service  Asso- 

ciations. 
d^.  Coal  and  Ore  Docks. 
66.  Station  Supplies  and  Expenses. 


23.  Yard  Enginemen. 


24.  Other  Yard  Employes. 


2S  Fuel  for  Yard  Locomotives. 


{ 


26.  All  Other  Ya-d  Expenses. 


2T.  Operating     Joint     Yards     and 
Terminals — Dr. 


71.  Yard  Enginemen. 


67,  Vardmasters  and  their  Clerks. 

68,  Yard  Conductors  and  Brakemen. 

69,  Yard  Switch  and  Signal  Tenders. 


"JZ-  Fuel  for  Yard  Locomotives. 


70.  Yard  Supplies  and  Expenses. 
72.  Enginehouse  Expenses — Yard. 

74,  \\ater   for  Yard   Locomotives. 

75,  Lubricants    for    Yard    Locomo- 

tives. 

76,  Other  Supplies  for  Yard  Loco- 

motives. 


TJ.  Operating  Joint  Yards  and  Ter- 
minals— Dr. 


1273 


1      ! 


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945 


d45-946 


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St. 


It 


28.  Operating  Joint  Yards  and  Ter- 
minals— Cr. 


29.  Road    Enginemen    and    Motor- 
men. 


30.  Fuel  for  Road  Locomotives. 


31.  Other    Road    Lccomotive    Sup- 
plies and  Expenses. 


32.  Road  Trainmen. 


33,  Train   Supplies  and  Expenses. 


34.  Injuries  to  Persons. 


35.  Loss  and  Damage. 


! 


36.  Other  Casualties. 


37.  All    other    Transportation    Ex- 
penses. 


38.  Operating     Joint     Tracks     and 
Facilities — Dr. 


1274 


78.  Operating  Joint  Yards  and  Ter- 
minals— Cr. 


80,  Road  Enginemen. 
79.  Motormen. 


82.  Fuel  for  Road  Locomotives. 


83.  W'ater  for  Road  Locomotives. 

84.  Lubricants    for   Road   Locomo- 

tives. 

85.  Other  Supplies  for  Road  Loco- 

motives. 
81.  Enginehouse  Expenses — Road. 

86.  Operating  Power  Plants. 

87.  Purchased  Power. 


88.  Road  Trainmen. 


89.  Train  Supplies  and  Expenses. 


103.  Injuries  to  Persons. 


99.  Loss   and   Damage — Freight. 
100.  Loss  and  Damage — Baggage. 


93.  Clearing  Wrecks, 
loi.  Damage  to  Property. 
102.  Damage  to  Stock  on  Right  of 
Way. 


90.  Interlockers     and     Block     and 

Other  Signals — Operation. 

91.  Crossing  Flagmen  and  Gatemen. 

92.  Drawbridge   Operation. 

94.  Telegraph  and  Telephone — Oper- 

ation. 

95.  Operating    Floating    Equipment 

96.  Express  Service. 

97.  Stationery  and  Printing. 

98.  Other  Expenses. 


104.  Operating  Joint  Tracks  and  Fa- 
cilities— Dr. 


39.    Operating    Joint    Tracks    and 
Facilities — Cr. 


V.  General  Expenses— 


4a  Administration. 


41.  Insurance. 


42.  Other  General  Expenses. 


43.  General  Administration  Joint 
Tracks,  Yards,  and  Terminals 
—Dr. 


44.  General  Administration  Joint 
Tracks,  Yards,  and  Terminals 
-Cr. 


105.  Operating  Joint  Tracks  and  Fa- 
cilities— Cr. 


V.  General  Expenses— 

10(5.  Salaries  and  Expenses  of  Gen- 
eral Officers. 

107.  Salaries  and  Expenses  of  Qerks 

and  Attendants. 

108.  General  Office  Supplies  and  Ex- 

penses. 

109.  Law   Expenses. 

no.  Insurance. 


111.  Relief  Department  Expenses. 

112.  Pensions. 

113.  Stationery  and  Printing. 

114.  Other  Expenses. 


115.  General     Administration     Joint 

Tracks,  Yards,  and  Terminals 
■    —Dr. 

116.  General     Administration     Joint 

Tracks,  Yards,  and  Terminals 
— Cr. 


(946)     CLASSIFICATION  OF  CAR-MILES,  CAR  SEAT-MILES 

AND  CAR-HOURS. 

Definitions  of  Car-miles  and  Car  Seat-miles  Accounts. 

passenger  car-miles — active. 

This  account  includes  miles  run  by  revenue  earning  cars  for  the  transporta- 
tion of  passengers  (including  comhination  passenger  and  baggage,  mail  or 
express  cars)  between  the  termini  of  regular  routes  or  over  portions  of  such 
routes. 

The  record  of  passenger  car-miles — active,  shall  be  kept  for  each  car 
route,  and  shall  show  for  each  route  the  length  of  the  route  in  miles  and  hun- 
dredths of  a  mile,  and  for  each  day  the  number  of  cars  operated  full  time,  the 
number  of  trippers,  and  the  number  of  trips.  The  cars  shall  be  divided  into 
classes  according  to  their  seating  capacities,  and  the  seating  capacity  of  each 
class  multiplied  into  the  number  of  miles  run  by  that  class  on  the  particular 
route,  the  resultant  being  the  "  seat-miles  "  on  each  such  route  for  a  given  day. 

1275 


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American  Business  and  Accounting  Encyclopedia 


PASSENGER  CAR-MILES IDLE. 


946 


This  account  includes  miles  run  by  revenue  earning  passenger  cars  (or 
combination  passenger  and  baggage,  mail  or  express  cars)  between  the  car 
house  and  the  initial  route  terminal.  This  record  shall  be  kept  for  each  car 
house. 

SPECIAL  PASSENGER  CAR-MILES. 

This  account  includes  miles  run  by  chartered  passenger  cars  over  regular 
or  special  route,  reckoning  from  the  time  such  cars  leave  the  car  house  until 
they  complete  the  trip. 

MAIL   CAR- MILES. 

This  account  includes  miles  nm  by  cars  to  transport  mail,  when  not  carry- 
ing passengers,  reckoning  from  the  time  such  cars  leave  the  car  house. 

XoTE. — This  account  must  not  include  any  miles  run  by  combination  cars  for  the 
purpose  of  carrying  passengers,  even  though  such  cars  also  carry  mail.  Miles  run 
by  such  cars  are  provided  for  in  accounts  "  Passenger  car-miles— Active,"  and 
"  Passenger   Car-miles — Idle." 

EXPRESS  CAR-MILES. 

This  account  includes  miles  run  by  cars  in  the  express  service,  reckoning 
from  the  time  such  cars  leave  the  car  house.  The  account  shall  show  the 
numbers  of  miles  run  under  load  and  miles  run  empty. 

FREIGHT  CAR-MILES. 

This  account  includes  all  miles  run  by  cars  in  freight  service,  loaded  and 
empty  car-miles  being  separately  recorded. 

MIXED  CAR-MILES. 

This  account  includes  all  miles  run  by  combination  mail,  express,  and 
freight  cars,  shown  separately  for  loaded  and  empty  cars. 

NON-REVENUE   CAR-MILES. 

This  account  includes  miles  run  by  company  service  cars,  including  work 
cars,  sand  cars,  sprinklers,  snow-plows,  sweepers,  wrecking  cars,  etc. 

ELECTRIC  LOCOMOTIVE-MILES. 

This  account  includes  all  miles  run  by  electric  locomotives,  whether  revenue 
or  non-revenue,  loaded  or  light. 

2.  Classification  of  Car-hours. — A  record  of  the  time  that  cars  are  in 
service  shall  be  kept  for  the  following  classes  of  cars,  corresponding  to  the 
Classification  of  car-miles : 

Passenger  Cars  {Active  and  Idle),  on  each  car  route. 

Special  Passenger  Cars, 

Mail  Cars,  and 

Express,  Freight  and  Mixed  Cars. 

1276 


947-951         American  Business  and  Accounting  Encyclopedia       Su.-Te. 

(947)     SUBSIDIARY  BOOKS. 

Books  not  of  original  entry,  or  the  contents  of  which  are  not  posted  to  the 
main  books  of  account,  such  as  order  books,  advertising  records,  statistical 
records. 

(948)     SURPLUS. 

The  excess  of  assets  over  liabilities. 

The  credit  balance  of  a  profit  and  loss  account. 

See  Reserve. 


(949)     SUSPENSE. 


See  Suspense  Account. 
See  Suspense  Ledger. 
See  Doubtful  Accounts. 


(950)     bad  debts. 


Debts  uncollectable  and  on  which  there  appears  to  be  no  prospect  of 
collection. 

In  preparing  financial  statements  a  provision  should  always  be  made, 
not  only  for  debts  which  are  known  to  be  bad,  but  to  ofifset  a  probable  loss  which 
at  the  time  of  calculating  profits  cannot  be  anticipated. 

(951)     TELEPHONE  BUSINESS  RECORDS. 

A  system  of  accounting  every  month  for  all  business  done  each  month  at 
each  station  and  between  stations  must  be  made,  and  a  system  of  reports,  audited 
at  the  main  office,  while  making  a  large  amount  of  clerical  work,  is  absolutely 
necessary.  Each  day  the  number  of  toll  messages  exchanged  with  other  points 
is  recorded  in  a  ledger,  which  is  ruled  separately  for  each  day  and  each  station. 
At  the  end  of  the  month  the  totals  are  drawn  off  on  a  report  sheet,  showing 
separate  totals  of  business  done  with  all  other  stations,  and  forwarded  to  the 
auditor.  The  auditor's  office  compares  the  reports  from  all  the  different 
stations,  and  if  found  to  agree — which  they  should  do,  as  messages  received  at 


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1277 


Th. 


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951 


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1278 


951-952         American  Business  and  Accounting  Encyclopedia 


Te. 


B  from  A  should  agree  with  those  sent  from  A  to  B — each  exchange  manager 
charges  up  the  toll  messages  on  his  ledger,  and  the  bills,  including  rental 
charges  for  exchange  service,  are  given  to  the  collectors.  It  is  common  practice 
to  make  out  checks  or  tickets  for  toll  messages  in  duplicate  for  every  toll  con- 
nection, the  originals  being  presented  to  the  subscriber,  showing  all  details  of 
his  toll  charges  and  thus  doing  away  with  many  disputes.  All  money  collected 
is  deposited  to  the  order  of  the  exchange  manager,  and  after  the  collections 
are  made,  the  manager  forwards  to  the  main  office  a  detailed  statement,  showing 
amount  uncollected  at  time  of  previous  month's  report,  amount  accrued  in 
rentals  and  tolls  for  the  current  month,  amount  collected,  and  amount  uncol- 
lected and  carried  over  to  next  report.  Some  companies  require  a  report 
showing  the  condition  of  each  individual  account,  and  others  require  a  special 
report  showing  amounts  of  all  uncollected  accounts  and  reasons  for  non- 
collections.  Accompanying  these  reports  is  the  manager's  check  for  amount 
collected,  and  as  the  money  is  deposited  to  the  manager's  order,  he  is  generally 
required  to  give  a  bond,  large  enough  to  cover  a  month's  business.  Current 
expenses  are  handled  by  vouchers  and  charged  to  the  proper  department  or 
expense  account. 

But  in  order  that  patrons  will  be  satisfied  to  pay  for  the  service  they  are 
receiving  and  the  company  prosper,  the  lines  and  instruments  must  be  ready 
to  do  their  work  at  all  times.  The  wire  chief  is  responsible  to  the  manager 
for  locating  any  breaks  in  the  service,  and  the  superintendent  is  responsible 
for  the  repairs  and  general  maintenance  of  the  plant.  Records  of  all  "  trouble  '* 
are  kept  by  the  wire  chief,  showing  time  and  manner  of  receiving  information, 
nature  of  trouble,  time  repaired  and  by  whom,  and  remarks.  Let  us  suppose 
that  a  little  cross-road  several  miles  from  an  exchange,  and  connected  to  it 
by  a  toll  Hne,  is  unable  to  be  called.  The  wire  chief  immediately  starts  to 
determine  with  his  testing  apparatus  the  nature  of  the  trouble,  and  at  once  dis- 
patches a  man  to  drive  over  the  line  to  the  station.  The  man  takes  a  portable 
"  test  set "  or  telephone  with  him,  and  after  going  a  short  distance,  connects  to 
the  line  and  calls  the  wire  chief  for  a  test,  making  these  tests  at  short  distances, 
until  he  runs  down  the  trouble,  which  may  be  anything  from  a  couple  of 
twisted  wires  to  a  section  of  poles  a  half  mile  long  laid  flat  by  hghtning. — 
H.  W.  Dehong. 

(952)     telephone  material  and  supplies. 

Briefly  stated,  the  benefits  of  the  system  outlined  herein  are  as  follows: 
First,  it  affords  a  perpetual  inventory  of  all  the  materials  and  supplies  owned 
by  the  company  at  their  several  stations,  and  the  value  of  same  in  dollars  and 
cents.  Second,  it  gives  at  all  times  an  absolute  check  on  all  supplies  bought  and 
used,  keeping  track  of  them  from  the  time  they  are  delivered  to  us  until  they 
are  used,  or  other  disposition  is  made  of  them.  Third,  it  enables  us  to  see 
just  what  supplies,  and  the  cost  of  the  same,  have  been  used  any  day,  week, 
month  or  year  in  the  construction  or  maintenance  of  any  exchange  or  toll  line. 

This  department  is  handled  by  one  man,  termed  the  "  supply  manager," 
who  is  held  at  all  times  directly  responsible  for  all  materials  owned  by  the 

1279 


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company,  and  who  in  turn  holds  responsible  to  him  the  division  managers  at 
the  several  telephone  exchanges.  A  warehouse  is  established  at  each  exchange, 
and  a  general  warehouse  is  located  at  the  company's  general  offices. 


Nft        SU-b 


SOUTHEAST  MISSOURI  TELEPHOME  COMPAMY. 

REQUISITION 
bvpp\y  V\c\t)C^tr  Mnldtn.  Mo.,Mflrc|-  22Pd  1903- 

Pkflse  Furijisl)  At  Or^cc  TJ^e  pollowip^  Supplies: 
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When  a  bill  of  supplies  is  purchased  from  a  dealer,  the  invoice  for  same 
goes  first  to  the  book-keeping  department,  which  charges  the  amount  of  the 
invoice  to  the  supply  manager.    The  supply  department  then  takes  charge  of 


N^-^^^ Southecist  Missouri  Telephone  Co. 

-^              5t)ippi9p  Order 

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Cbnrpes  PrVp'<:i^d,~$-''--^9P?-  --t)r<iy<i6e  ^__L5^.  . (5.f,.d) 

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the  invoice,  and  sends  a  duplicate  of  same  to  the  division  manager  at  the 
exchange  where  the  supplies  were  shipped,  or  to  the  store-keeper  at  the  gen- 
eral warehouse.  The  supplies  being  received,  the  receipt  for  supplies  attached 
to  the  (hiplicate  invoice  is  properly  filed  and  returned  to  the  supply  department. 
The  material  is  then  charged  to  either  the  general  warehouse,  or  division 
warehouse,  as  the  case  may  be. 

For  each  division  warehouse,  and  also  for  the  general  warehouse,  we  have 
a  supply  ledger  (Form  1).  These  ledgers  are  small  loose-leaf  books,  holding 
sheets  ."i^/o  x  8  inches,  so  made  as  to  fit  into  pigeon  holes  in  a  small  wooden 
cabinet,  labeled  to  show  which  division  or  warehouse  is  included  therein.  One 
sheet  is  used  for  each  article,  the  sheets  being  indexed  alphabetically  in  the 
ledgers. 

No  orders,  shipments  or  transfers  of  supplies  are  made  until  a  requisition 
is  received,  as  shown  by  Form  2.  The  re(|uisition  shows  merely  what  is 
wanted,  quantity  wanted,  and  quantity  on  hand.  Re(|uisitions  being  received 
from  a  division  station,  the  material  wanted  is  ordered  shipped  from  the 
general  warehouse  if  on  hand  there,  or  in  case  of  a  "  rush  "  order,  from  the 
nearest  division  warehouse  which  has  on  hand  the  material.  Order  for  Ship- 
ment to  cover  requisition  being  mailed  the  manager  at  point  from  which  sup- 
plies are  to  be  shipped.  The  requisitions  as  received  are  numbered  consecu- 
tively, and  the  shipping  order  (Form  3)  is  given  the  same  number.  Shipment 
having  been  made,  the  manager  at  shipping  point  forwards  to  the  supply  depart- 
ment a  Transfer  Sheet  (Form  4)  covering  same,  and  the  supply  department 
in  turn  forwards  to  the  station  making  requisition  an  invoice  covering  the 
shipment,  with  receipt  for  the  supplies  to  be  filled  out  and  returned. 

It  will  be  noted  that  on  both  the  transfer  sheet  and  the  invoice  are  columns 
for  amount  of  material  in  dollars  and  cents.  On  the  transfer  sheet  the  amounts 
are  filled  in  when  the  sheet  is  received  by  the  supply  department.  On  the 
invoice,  amount  is  taken  from  the  transfer  sheet,  a  carbon  copy  of  the  invoice 
being  made.  The  transfer  sheet  is  entered  directly  to  the  different  sheets 
in  the  Supply  ledger  of  the  warehouse  furnishing  the  supplies,  in  column 
"  Transferred."  Invoice  is  entered  to  sheet  of  warehouse  receiving  the  goods, 
in  column  "  Received ;"  the  balance  "  On  Hand  "  and  amount  of  same  being 

1281 


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filled  in  after  each  entry.  The  papers  covering  the  transactions  are  stapled 
together  and  filed  away  according  to  number.  As  the  "  Rec.  No."  on  the  Supply 
ledger  shows  the  number  of  each  transaction,  access  can  be  made  to  the  papers 
very  easily. 

The  manager  of  each  warehouse,  and  foreman  of  each  crew  makes  out 
•every  working  day  a  report  of  "  Labor  and  Supplies  Used,"  showing  what  has 
been  done  at  his  exchange  or  on  his  toll  line  division  that  day,  and  what  sup- 
plies were  used  in  doing  it.  This  daily  report  is  made  up  in  a  form  of  six 
reports,  lasting  one  week.  The  reports  also  show  any  supplies  which  he  has 
bought  from  local  dealers  and  used  or  put  into  his  stock,  and  "  Supplies  put 
back  into  stock,"  such  as  telephones  taken  out,  etc.  From  this  report  it  is  an 
easy  matter  to  tell  whether  the  supplies  used  were  for  construction  or  for 
maintenance  of  the  toll  line  or  exchange,  and  they  are  entered  accordingly  on 
the  supply  ledgers.  This  report  also  forms  a  record  of  the  time  of  each  line- 
man or  laborer,  and  aflfords  an  accurate  outline  of  the  progress  of  any  con- 
struction work. 

One  more  form  is  used  in  this  department,  a  "  Report  of  Supplies  On 
Hand,"  which  is  simply  an  inventory  of  supplies.  This  is  made  up  at  each 
warehouse  the  last  day  of  every  month,  and  is  checked  over  with  the  supply 
ledger.  In  case  of  discrepancies,  the  division  manager  is  held  responsible  for 
amount  of  same. 

At  the  end  of  each  month  the  supply  manager  makes  out  for  the  book- 
keeping department  a  report  of  all  supplies  used  during  the  month,  showing 
where  used,  and  the  amount  used  for  construction  work,  or  for  maintenance. 
The  supply  department  is  given  credit  on  the  general  ledger  for  the  amount 
of  this  report,  which  is  charged  on  the  general  ledger  to  the  different  divisions, 
— E.  C.  Blomeycr. 

(953)       TELEPHONE  CONSTRUCTION. 

While  almost  all  telephone  companies  have  a  system  of  keeping  a  record 
of  the  cost  of  construction,  few  are  of  value  in  estimating  the  cost  of  future 
construction. 

Most  of  the  systems  are  designed  for  the  auditing  department,  so  that 
vouchers  may  be  checked  and  charged,  and  expenditures  for  plant  renewals, 
displacements  and  additions  entered  as  required  by  the  exigencies  of  book- 
keeping. 

The  only  data  for  future  estimating  that  may  be  gleaned  from  such  systems 
are,  for  example,  the  labor  and  material  cost  of  erecting  a  mile  of  pole  line  com- 
posed of  a  certain  number  of  poles  of  various  sizes,  a  certain  number  of 
anchors,  cross  arms  and  miles  of  wire ;  or,  in  the  case  of  a  run  of  underground 
conduit,  the  labor  and  material  cost  of  installing  a:  number  of  lineal  feet  of 
conduit,  including  vaults,  perhaps  composed  of  several  different  conduit  cross 
sections  and  several  different  kinds  and  sizes  of  vaults. 

The  fluctuations  in  size  and  number  of  poles,  cost  of  setting  in  different 
kinds  of  soil,  number  of  miles  and  size  of  wire,  and  in  amount  of  equipment 
for  a  mile  of  pole  line;  or  the  fluctuations  in  size  of  conduit  cross  section. 


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in  percentage  of  vault  per  foot  of  con'iluit,  in  size  of  vault,  and  in  character 
of  soil  for  a  run  of  conduit,  make  any  attempt  to  use  such  data  in  estimating 

result  in  a  guess. 

As  it  is  the  custom  of  showing  on  a  work  order  to  a  construction  foreman 
the  lump  amounts  estimated  for  material  and  labor— this  custom  having  been 
found  advisable,  as  among  other  things,  it  tends  to  decrease  the  cost  of  con- 
struction by  placing  a  limit  on  expenditures — it  is  obvious  that  the  estimate 
must  be  more  than  a  guess,  to  have  the  desired  effect  of  limiting  and  reducing 
construction  cost. 

Construction  men  are  naturally  guided  by  the  estimate  and  they  believe 
the  result  of  their  work  depends  on  their  success  in  keeping  within  the  allowed 
amount.  They  have  a  tendency  to  lay  out  work  with  that  object  in  view,  and, 
therefore,  when  an  estimate  is  too  liberal,  it  generally  tends  to  increase  the 
cost.  On  the  other  hand,  an  estimate  which  is  too  small  causes  construction 
men  to  lose  interest  in  their  work,  knowing  that  the  over-running  of  an  estimate 
means  censure,  or  even  discharge  in  extreme  cases. 

Correct  estimating  presupposes  a  cost  system  for  the  collection  of  data, 
which  may  be  readily  used  for  figuring  the  cost  of  any  kind  of  telephone 
construction,  in  any  kind  of  soil,  and  for  any  size  job. 

A  few  systems  designed  for  this  purpose  have  been  used  by  different 
companies  and  proved  impracticable.  In  most  instances,  the  failure  may  be 
attributed  either  to  a  tendency  to  make  a  division  of  construction  for  each 
different  material  used,  or  to  an  absence  of  detail  and  a  lack  of  flexibility. 

A  system  devised  by  the  writer,  now  in  use  by  a  large  telephone  company, 
operating  in  a  great  city  and  in  the  surrounding  cities  and  towns  within  a 
radius  of  fifty  miles,  combines  flexibility  with  accuracy  and  practicability. 
The  divisions  and  subdivisions  of  construction  permit  the  costs  to  be  analyzed, 
while  avoiding  arbitrary  divisions.  Costs  taken  by  this  system  may  be  used 
for  estimating  future  construction  for  deciding  questions  of  expediency^  in 
adopting  new  methods,  or  for  determining  the  most  economical  of  two  or 
more  routes. 

On  account  of  the  space  required  to  give  all  details  and  explanations  of  a 
system  covering  so  large  a  field  as  telephone  construction,  only  an  outline  of 
this  system  is  given  in  this  article. 

This  system  takes  only  labor  costs  into  consideration,  as  there  is  little 
speculation  as  to  material,  quantities  or  prices— the  one  being  ascertained  from 
general  specifications  and  the  other  from  current  quotations. 

The  costs  are  taken  on  the  work  by  a  time-keeper,  an  inspector,  or  a 
special  cost  man. 

Memorandum  books,  ruled  like  the  sample  sheets  shown  in  Figs.  1  and  2, 
are  used  when  gathering  the  data,  and  on  completion  of  the  job  the  totals 
are  transferred  to  the  forms,  Figs.  3  to  9  inclusive. 

Sheets  like  that  shown  in  Fig.  1  are  used  for  each  division  of  construc- 
tions, when  gangs  are  composed  of  fifteen  men  or  less  as  in  line  work.  For 
conduit  or  other  work,  where  gangs  are  large,  sheets  on  the  style  of  Fig.  3 
are  used  for  each  subdivision  of  the  work,  and  data  is  taken  every  quarter 


1282 


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American  Business  and  Accounting  Encyclopedia 


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hour,  half  hour  or  hour,  depending  on  the  frequency  of  shifting  men  from  one 
subdivision  of  the  work  to  another. 

The  rates  of  men — except  supervisors — composing  conduit  gangs  being 
the  same,  it  is  only  necessary  to  enter  in  each  half  hour  column  the  number  of 
men  working  on  the  particular  subdivision  of  work.  The  cost  is  then  readily 
found  by  dividing  the  total  number  of  men  by  two  and  multiplying  by  the  rate 

per  hour. 

The  column  for  supervision  and  expense  (Forms  1  to  9  inclusive)  is  used 
to  enter  the  cost  of  foreman,  assistant  foreman,  time-keeper,  water  boy,  watch- 
man and  car  fare,  etc.  A  separate  form,  with  column,  for  entering  the 
cost  of  each  subdivision  of  the  work,  teaming,  supervision  and  expense,  total 
cost,  number  of  hours  worked,  and  remarks,  is  used  for  each  division  of  con- 
struction and  reconstruction,  c.  g.,  farm  lines,  toll  lines,  wire  stringing,  anchors, 
aerial  cable,  equipping  terminal  poles,  laterals,  vaults,  cable  splicing,  removing 
poles,  removing  cross  arms,  moving  poles,  replacing  cross  arms,  etc. 

In  cases  where  more  than  one  division  of  construction  is  worked  on  during 
the  day,  the  cost  of  supervision  and  expense,  teaming,  and  lost  time  getting 
to  work  or  between  jobs,  is  pro-rated.  In  the  case  of  lost  time,  after  finding 
the  proportion  to  be  charged  to  a  division  of  construction,  it  is  again  pro-rated 
and  added  to  each  subdivision. 

The  forms  (Figs.  3  to  9  inclusive)  are  totaled  and  averaged  by  the  cost 
men,  and  sent  to  the  main  office,  where  they  are  entered  in  books  having  spaces 
for  the  town  and  date  and  ruled  like  the  forms.  Special  pages  are  used  for 
each  division  of  construction,  and  the  data  is  separated  where  soil,  size  of 
poles,  or  other  important  conditions,  differ. 

These  books  are,  from  time  to  time,  averaged — each  previous  average 
being  included  ;  and  a  report  of  the  average  construction  cost  is  made  and  sent 
to  the  engineer,  the  construction  superintendents  and  foremen,  in  order  to 
call  attention  to  the  cost  with  the  object  of  inviting  improvements  in  methods 
and  materials,  which  will  cheapen  construction  without  lowering  its  standard. 

The  averages  shown  by  the  cost  books  are  used  by  a  construction  cost 
department  in  preparing  all  estimates.  When  any  new  method  or  new  material 
:<i  under  consideration,  it  is  referred  to  this  department  for  data. 

K  h.HS  iicen  found  that  by  the  initiation  of  this  system,  cost  records  may 
be  collected  which  makes  estimating  accurate  and  facile ;  and  construction  cost 
is  no  longer  dependent  I'.pcn  speculation  and  guess;  standard  methods,  long 
considered  economical,  have  bx-en  supplanted  by  less  expensive  methods,  and 
experiments  are  things  of  the  past. — C.  Mayo-' 

(954)       TELEPHONE     LEDCe;^^- 

(955)     A  CLASSIFICATION  OF  ACCOUNTS  FOR  A  TELEPHONE 

COMPANY. 

It  has  become  s  recognized  fact  that  success  in  any  business  is  very  largely 
due  to  a  proper  system  of  accc'in<:ing.    Such  c  system,  sbovid,  as  far  as  possible, 

1286 


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have  reference  to  the  various  important  phases  of  the  business,  so  that  the 
management  periodically  has  opportunity  for  comparison,  and  any  unusual 
change  in  figures  respecting  revenues  or  expenses  may  be  noted,  and  after 
being  noted,  an  investigation  be  made  of  the  causes  contributing  to  the  change 
and  a  remedy  applied  if  the  causes  are  not  deemed  natural  and  reasonable  under 
existing  conditions. 

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A  system  of  accounting  as  applied  to  a  telephone  company  is  divided 
into  four  im])ortant  groups,  one  representing  assets,  one  representing  liabilities, 
one  representing  revenue,  and  another  expense. 

The  asset  accounts  are  composed  of  two  classes,  one  class  being  known 
as  a  "  quick  "  asset  and  the  other  as  a  "  slow  "  asset.  Under  "  quick  "  assets 
may  be  found  cash  on  hand,  supplies  in  stock,  and  accounts  due  from  sub- 
scril)ers.  The  "  slow  "  assets  embrace  real  estate  and  the  cost  of  the  plant. 
The  plant  or  construction  account  of  a  telephone  company  should  represent 
the  plant  whether  purchased  or  built  by  the  company,  and  does  not  include 
real  estate.  It  is  composed  of  the  following  subdivisions,  in  accordance  with 
the  character  of  the  plant : 

1.     Exchange  Construction,  Right  of  Way. 

'i.     Exchange  Construction,   Pole   Lines. 

;J.     Exchange  Construction,  Aerial  Cable. 

4.  Exchange  Construction,  Aerial   Wire. 

5.  Exchange  Construction,  Underground  Conduits. 
0.     Exchange  Construction,  Underground  Cable. 

T.     Exchange  Construction.  Submarine  Cable. 

8.     Exchange  Equipment,  Central  Office. 

1).     Exchange  Equipment,  Subscribers'  Station. 

10.  Toll  Constniction,  Right  of  Way. 

11.  Toll  Construction,  Pole  Lines. 
I'i.     Toll  Construction.  Aerial  Cable. 

13.  Toll  Construction,  Aerial  Wire. 

14.  Toll  Construction,  L'nderground  Conduits. 

15.  Toll  Construction,  Underground  Cable. 
Ifi.     Toll  Construction,  Submarine  Cable, 

The  subdivision,  Right  of  Way  (1 ),  should  be  charged  with  the  amounts 
paid  for  permanent  right  of  way  for  exchange  lines ;  also  with  the  salaries 
and  expenses  of  the  Right  of  Way  Agent,  Assistants,  and  office  force  while 
engaged  in  obtaining  such  rights. 

The  account  Pole  Lines  (?),  embraces  the  cost  of  poles,  cross-arms,  pins, 
insulators,  guy  poles,  guy  wires  and  other  material  emi)loyed  in  the  con- 
struction of  the  line :  together  with  freight  and  drayage,  labor,  supervision, 
traveling  and  other  expense  incident  to  the  work. 

The  account  Aerial  Cable  ('^),  covers  the  cost  of  the  cable,  messenger 
strand,  clamps,  cable  clips,  cable  boxes  and  fittings,  potheads,  and  other 
material  used  in  hanging  cable,  with  charges  for  freight  and  drayage,  labor, 
supervision,  traveling,  etc. 

The  account  Aerial  Wire  (4),  is  charged  with  the  cost  of  wire  used  in 
stringing  the  circuit,  together  with  other  materials  used,  and  also  charges  for 
freight,  drayage,  labor,   supervision,  traveling,  incidentals,   etc. 

The  account  L'nderground  Conduits  (.5),  is  charged  with  the  cost  of 
conduit,  pipe  and  fittings,  cement,  brick  and  material  for  laying  and  for  man- 
holes, together  with  charges  for  freight,  drayage,  labor,  supervision,  traveling, 
incidentals,  etc. 


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The  account  Underground  Cable  ((>),  embraces  the  cost  of  cable,  cable 
boxes  and  fittings,  all  material  used  in  installation,  together  with  all  charges 
for  freight,  drayage,  labor,  supervision,  traveling,  incidentals,  etc. 

The  account  Submarine  Cable  (7),  covers  the  cost  of  cable,  cable  boxes 
and  fittings,  all  material  used  in  installation,  and  all  charges  for  freight,  dray- 
age, labor,  supervision,  traveling,  incidentals,  etc. 

The  account  Equipment,  Central  Office  (8),  is  charged  with  the  cost  of 
all  local  and  toll  switchboards,  wire  chief's  desks,  testing  equipment,  chief 
operator's  and  supervisory  desks,  main  and  intermediate  frames,  relay  and  coil 
racks,  power  plant  and  switchboards,  all  other  material  used  in  installation, 
installation  expense,  freight  and  drayage,  insurance,  on  the  equipment  while 
being  installed,  etc. 

The  account  Equipment,  Subscribers'  Station  (0),  is  charged  with  the 
cost  of  subscribers'  sets,  extension  sets  and  bells,  arrestors,  etc.  Also  any 
apparatus  for  subsidiary  or  private  branch  exchanges.  The  expense  of  instal- 
ling the  subscribers'  telephones  is  divided,  the  labor  and  material  for  the  outside 
work  being  charged  to  Construction,  Aerial  Wire  (4),  and  the  labor  and 
material  for  the  inside  work  being  charged  to  Construction,  Subscribers'  Station 
Equipment  ('9). 

The  accounts  for  Toll  Construction  (10.  11,  1'?,  13.  14,  1.5.  Ifi).  have  the 
same  principal  items  charged  to  each  as  those  for  exchange  construction  just 
described. 

These  accounts  (1  to  IG)  are  intended  to  represent  the  cost  of  the 
physical  plant,  and  the  Auditor  very  largely  makes  the  charges  to  these 
accounts  from  the  various  reports  prepared  by  the  managers.  It  is  most  impor- 
tant that  the  figures  in  the  plant  account  will  rest  upon  correct  information,  and 
while  including  all  items  properly  chargeable  to  the  plant,  will  exclude  any 
items  which  might  more  properly  be  charged  to  an  expense  account. 

The  liability  accounts  are  few  in  number,  consisting  of  capital  stock, 
surplus  indebtedness,  and  reserves  for  requirements  which  are  accruing. 

The  revenue  accounts  are  derived  from  three  sources,  (1)  revenue  from 
exchange  service,  (2)  revenue  from  toll  service,  and  (3)  revenue  from  private 
line  service.  The  revenue  from  exchange  service  embraces  all  fixed  rentals 
from  contracts  covering  exchange  telephone  service,  the  revenue  derived  from 
extra  calls  used  by  measured  service  subscribers,  and  for  tolls  from  pay  stations 
covering  local  communications.  The  revenue  from  toll  service  covers  revenue 
derived  from  communications  over  toll  lines.  The  revenue  from  private  line 
service  covers  revenue  from  instruments  leased  exclusively  for  private  line 
or  speaking  tube  purposes,  and  the  revenue  derived  from  private  lines  which 
may  be  furnished  or  maintained  by  the  telephone  company. 

The  expense  accounts  are  far  more  elaborate  in  their  character  than  the 
revenue  accounts.  These  expense  accounts,  as  far  as  they  relate  directly  to  the 
operation  of  the  telephone  business,  comprise  four  principal  sections,  each  sec- 
tion containing  a  number  of  sub-accounts  which  are  intended  to  convey  the 
character  of  the  expense. 


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The  first  of  these  sections  is  known  as  Maintenance,  Current  Repair,  and 
is  charged  with  the  cost  of  keeping  existing  telephone  property  in  good  working 
condition,  including  the  replacement  of  those  parts  of  the  plant  the  normal  life 
of  which  does  not  exceed  one  year.  This  section  has  the  subsidiary  accounts ; 
Salaries  and  Wages ;  Rent,  Heat  and  Light ;  Material ;  Traveling ;  Conduit ;  Pole 
and  Roof  Rent;  Insurance,  etc.  Some  of  the  items  coming  under  the  head 
of  Repair  are:  Repair  and  inspection  of  poles,  wires  and  cables;  repair  and 
inspection  of  central  office  apparatus;  renewal  of  batteries;  assembling  of 
instruments;  removing  and  replacing  instruments,  etc. 

Salaries  and  Wages  embraces  the  salaries  of  foremen,  linemen,  inspectors, 
cablemen,  splicers,  etc.,  while  engaged  upon  this  work. 

Rent,  Heat  and  Light,  takes  care  of  the  rent,  heat  and  light  of  the 
space  occupied  by  the  foremen,  linemen,  inspectors,  etc.,  engaged  on  this  class 
of  work,  including  storage  of  material  used  for  this  work. 

Material :  This  covers  the  cost  of  all  material  used  on  such  work,  including 
freight  and  cartage  thereon,  and  incidental  expense  connected  therewith. 

Traveling  covers  carfares,  meals  and  lodging  of  employes  while  engaged 
on  such  work. 

Conduit,  Pole  and  Roof  Rental  covers  sums  paid  for  attachments  main- 
tained on  poles,  etc.,  not  belonging  to  the  company,  as  on  bridges,  roofs,  etc. 

Insurance  covers  the  premium  on  insurance  covering  material,  switch- 
boards, and  other  telephone  property. 

The  next  section,  known  as  Maintenance,  Reconstruction,  or  Deprecia- 
tion, is  often  confused  with  maintenance  and  sometimes  with  construction,  and 
represents  the  expense  of  replacing  portions  of  the  plant  whose  normal  life 
is  more  than  one  year.  Depreciation  is  the  difference  between  the  first  cost  of 
the  construction  and  its  net  junk  value.  This  section  has  much  the  same  sub- 
sidiary accounts  as  Maintenance,  Current  Repair. 

The  next  section  is  known  as  Operating,  and,  as  the  name  indicates,  has 
to  do  with  the  operation  of  the  business.  This  section  has  the  sub-accounts, 
Salaries  and  Wages ;  Rent,  Light  and  Heat ;  Advertising  and  Canvassing ;  and 

Incidentals. 

The  sub-account  Salaries  and  Wages  embraces  the  salaries  and  wages  of 
telephone  operators,  including  all  persons  engaged  in  a  supervisory  capacity, 
such  as  exchange  managers,  chief  operators,  supervisors,  etc.,  as  well  as  the 
wages  of  toll  clerks  and  collectors,  and  the  commission  allowances  for  attend- 
ants at  pay  and  toll  stations. 

The  sub-account  Rent,  Light  and  Heat  takes  care  of  the  expenses  covering 
the  rent,  light  and  heat  of  the  space  occupied  by  these  forces,  and  when  the 
premises  occupied  are  in  a  building  owned  by  the  Company,  this  account  is 
charged  with  the  rent  of  such  building  and  the  Real  Estate  account  is  given 

credit. 

Advertising  and  Canvassing:  This  account  takes  care  of  the  expenses 
of  the  Contract  Department,  as  well  as  the  time  and  expense  of  all  managers  and 
others  while  engaged  in  soliciting  new  business  or  making  changes  in  telephone 
contracts  already  existing. 

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American  Business  and  Accounting  Encyclopedia       Te.-Th. 


Incidental:  To  this  account  are  charged  expenses  which  cannot  be  rea- 
sonably fixed  against  any  of  the  other  sub-accounts  just  mentioned,  and 
embraces  such  items  as  laundry,  ice  water,  and  other  supplies  contributing 
to  the  comfort  of  the  operators. 

The  last  section,  that  of  General  Expense,  covers  expenses  of  a  general 
character  which  cannot  be  absolutely  fixed,  and  has  eight  sub-divisions,  viz.: 
Salaries  and  Wages ;  Rent,  Light  and  Heat ;  Traveling ;  Postage ;  Printing  and 
Stationery;  Directory;  Taxes;  Legal  and  Incidental. 

The  sub-account  Salaries  and  Wages,  covers  the  salaries  of  the  President, 
Vice-President,  General  Manager,  Secretary,  Auditor ;  and  other  general  officers 
and  their  office  forces. 

The  account,  Rent,  Light  and  Heat,  is  charged  with  the  rent,  light  and 
heat  of  the  office  occupied  by  the  above  officers.  If  the  building  is  owned 
by  the  Telephone  Company,  rent  should  be  computed  on  portion  used  for 
officers  and  employes  names,  and  the  real  estate  account  be  given  credit. 

The  sub-account  Traveling,  covers  the  traveling  expenses  of  all  the 
general  officers  and  employes  while  engaged  upon  general  business  of  the 
Company. 

The  sub-account.  Postage,  Printing  and  Stationery,  is  charged  with  the 
cost  of  books,  printing,  stationery  and  postage  for  the  use  of  all  departments 
of  the  Company.  This  account  does  not  take  care  of  expense  for  directory 
and  advertising  for  new  business. 

Directory :  This  account  is  charged  with  the  salaries  of  the  Superintendent 
of  Directory  and  office  force,  rent,  light  and  heat  of  offices  occupied  by 
same,  and  the  cost  of  printing  and  distributing  directories. 

Taxes:    This  account  covers  all  taxes  paid  except  those  on  real  estate. 

Legal :  This  account  embraces  the  retainers  and  fees  paid  attorneys,  other 
than  the  regular  salaried  Counsel  of  the  Company. 

Incidental :  This  account  embraces  uncollectible  accounts,  and  other  items 
of  small  amount  pertaining  to  the  general  offices  which  can  not  otherwise  be 
properly  classified. 

(956)     THEATER  ACCOUNTING. 

The  important  items  which  a  theater  management  should  always  keep  a 
record  of  are  shown  at  the  top  of  the  first  illustration  as  it  tells  the  date,  the 
current  attraction  and,  what  is  of  the  utmost  importance,  the  recognized  oppo- 
sition, the  percentages  as  per  contract,  and  the  weather  conditions  which, 
except  in  rare  instances,  regulate  to  a  large  extent  the  patronage. 

For  illustrative  purposes  purely  the  form  has  been  filled  out  to  show  in  a 
general  way  the  working  of  the  system,  and  contains  all  of  the  data  mentioned 
above  as  well  as  the  total  receipts  at  each  performance  of  the  week,  and  both 
the  house  and  company  shares  according  to  the  terms  of  the  contract.  There 
is  also  a  place  for  the  traveling  manager  to  receipt  for  his  share  of  the 
gross  receipts  which  if  drawn  at  each  performance  at  the  time  of  the  "  count 
up,"  can  be  initialed  in  the  space  where  the  amount  appears  in  the  card,  the 
receipt  in  full  waiting  until  the  final  settlement  at  the  close  of  the  engagement. 

.   1291 


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American  Business  and  Accounting  Encyclopedia 


956 


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956 


American  Business  and  Accounting  Encyclopedia 


Th. 


As  the  company  manager  always  receives  from  the  house  treasurer  a 
statement  when  the  "  count  up  "  is  made  between  the  middle  and  the  close  of 
each  performance,  a  duplicate  card  containing  all  of  the  information  so  far 
mentioned  is  furnished  the  former.  In  some  cases  where  a  play  is  produced 
on  a  royalty  basis,  or  the  traveling  company  has  several  owners  (as  is  fre- 
quently the  condition),  the  company  manager  receives  a  copy  of  the  statement 
for  each. 

The  cards  or  leaves  may  be  made  in  loose-leaf  style  for  filing  in  book 
form  and  to  facilitate  the  mailing  of  them,  or  in  card  form  for  filing  in  boxes, 
but,  if  the  former,  the  grade  of  the  material  used  should  be  selected  with  the 
object  of  making  a  number  of  carbon  copies  at  the  one  writing. 

As  the  local  manager  and  the  company  manager  are  partners  in  the  busi- 
ness during  the  engagement  specified,  all  of  the  information  thus  far  recorded 
is  equally  the  property  of  both.  The  contract  stipulates  just  what  each  shall 
furnish,  so  that  those  items  are  of  interest  only  to  the  party  aflfected. 

The  rest  of  the  card  or  form  is  for  the  confidential  record  of  the  local  man- 
ager, .so  far  as  the  working  of  the  system  explained  is  concerned,  and  may 
be  filled  out  at  the  close  of  the  engagement  whether  it  be  for  a  single  perform- 
ance or  an  extended  period,  but  in  the  event  of  the  latter,  it  should  only 
include  the  data  for  each  week,  and  the  spaces  will  be  found  for  reference  data 
for  the  corresponding  time  of  the  previous  season. 

The  illustration,  for  example,  shows  that  last  season  the  "College 
Widow"  company  with  favorable  weather  conditions  played  to  $9,479.85 
on  the  same  week  that  "When  Knighthood  Was  in  Flower,"  the  current 
attraction,  brought  in  $8,333.95,  when  it  was  good  theatrical  weather  only  a 
part  of  the  week. 

As  an  evidence  of  how  strict  some  house  managers  are  about  the  condi- 
tions aflfecting  business,  reference  is  made  in  the  weather  column  of  the  first 
illustration  where  is  noted  the  first  fall  of  snow  and  as  it  occurred  on  a  matinee 
day.  the  exact  time  of  starting  is  noted  also.  The  manager  by  reference  to  that 
card  next  year  can  tell  why  the  patronage  did  not  come  up  to  the  regular 
business  of  the  Wednesday  matinees,  as  the  card  will  show. 

It  might  be  a  trifle  more  explanatory  here  to  state  that  the  reason  for 
entering  the  expenses  and  receipts  for  each  of  the  diflferent  attractions  is  to 
show  the  actual  profit  or  loss  on  each  contract,  and  for  the  further  reason 
such  bills  as  light,  stage  hands,  newspaper  advertising  and  even  the  orchestra 
varies.  In  the  presentation  of  some  productions  the  light  eflfect  makes  an 
increase  in  that  bill  over  others,  and  in  the  event  of  long  intermissions  or  waits 
between  the  acts,  the  house  lights  must  be  run  longer  and  the  bill  grows.  Then, 
again,  some  productions  need  more  newspaper  advertising,  and  where  the 
scenery  carried  is  heavy  or  more  elaborate,  more  stage  hands  are  required 
and  they  must  be  furnished  by  the  hou.se,  although  they  work  under  the  direc- 
tion of  the  company  stage  carpenter  for  the  rea.son  that  he  is  familiar  with 
the  "  settings  "  to  be  made  between  the  acts. 

Thus  the  second  illustration  shows  in  the  first  column  the  salaries  and 
in  the  second  the  other  expenses.     In  the  question  of  rent,  if  a  house  has 


I! 


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Th.-Tr.        American  Business  and  Accounting  Encyclopedia       956-959 


959 


American  Business  and  Accounting  Encyclopedia 


Tr. 


a  season  of  forty  weeks,  and  the  annual  rental  is  $15,000,  it  is  brought  down 
to  the  week's  productive  income,  which  in  this  case  averages  $375.  Of  course, 
that  item  can  easily  be  eliminated  if  the  house  management  does  not  desire 
to  go  into  such  detail,  and  be  charged  in  on  the  first  week  of  the  month  only, 
and  for  the  entire  month.  The  incidental  item  in  the  second  column  includes 
such  articles  as  are  used  by  the  cleaners  and  in  petty  repairs,  etc. 

The  third  and  last  top  column  of  the  second  illustration  needs  no  explana- 
tion, as  it  can  be  plainly  seen  it  is  for  receipts  of  employes  for  salaries,  when 
such  a  precaution  is  thought  necessary. — Z.  Wells. 

(957)     TICKLER. 

A  title  given  to  records  of  matters  to  be  attended  to  on  future  occasions, 
arranged  in  order  of  date  for  daily  reference. 
A  waiting  file. 

(958)     TOOLS  AND  SUPPLIES. 

See  Manufacturing  Accounts. 

(959)     TRAVELING  SALESMEN'S  RECORDS. 

In  a  wholesale  business,  it  is  frequently  important  to  know  where  to 
reach  a  traveling  salesman  by  wire  or  letter  in  order  to  notify  him  of  a 
change  in  prices,  to  see  a  prospective  customer,  or  to  attend  to  a  doubtful 
account.  The  system  here  illustrated  will  be  found  to  answer  all  requirements 
in  this  line.  Our  salesmen  cover  their  territor>'  in  two  or  three  weeks — in 
one  case  four  weeks — and  the  trips  are  designated  1,  3,  3,  etc.  For  each  trip 
of  every  salesman  we  have  a  card,  8  inches  by  2,  on  the  top  of  which  is 
written  the  salesman's  name  and  the  number  of  the  trip,  the  remaining  space 


OFFICE                                                                      SALESMAN 

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Commission 

Wl<.  or  Wo. 

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being  divided  into  five  equal  parts  for  the  days  of  the  week  from  Monday 
to  Friday  inclusive.  In  these  divisions  are  put  the  names  of  the  towns  in 
which  the  salesman  does  business  each  day  of  that  particular  trip.  A  rubber 
band  is  put  around  the  cards  for  each  man's  territory,  and  each  bunch  is  put 
in  a  frame,  the  card  for  the  current  week  being  placed  in  front.  (The  illus- 
tration also  shows  that  it  is  not  necessary  to  put  the  days  of  the  week  on  the 
cards,  as  this  information  is  given  on  the  sides  of  the  frame.)  E^ch  sales- 
man's territory  is  allotted  a  separate  section  of  the  ledger,  as  shown  on  top 
bar  of  the  frame.  The  frame  has  a  hinged  back,  which  is  opened  at  the 
close  of  each  week  and  the  cards  next  the  glass  transferred  to  the  back,  thus 
leaving  the  trips  for  the  following  week  exposed  to  view. 

To  guard  against  errors  in  charging  the  trip  card  (as  well  as  for  another 
purpose  explained  below)  we  have  a  small  framed  chart  showing  the  numbers 
only  of  the  salemen's  trips  for  several  months  ahead. 

When  the  clerk  who  changes  the  cards  say  for  week  commencing  May 
6,  compares  the  result  with  the  figures  shown  on  the  small  chart  and  finds 
that  they  agree,  he  draws  a  blue  line  through  the  figures  on  the  latter  to 
show  that  the  cards  in  the  larger  frame  have  been  changed,  and  correctly 
changed,  for  week  commencing  May  G. 

An  alphabetical  index  of  the  towns  named  on  the  cards  completes  the 
system.  The  list  has  four  columns  headed  respectively,  "  Town,"  "  Section," 
"  Trip,"  and  "  Day,"  the  entries  in  the  last  three  columns  being  made  in 
pencil  to  facilitate  changes  if  they  become  necessary.  Now,  if  the  clerk  is 
called  upon,  say  on  May  7,  to  answer  the  question  "  when  will  Brown  be  in 

1295 


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American  Business  and  Accounting  Encycloi'edia 


95y-om) 


960-962 


American  Business  a:n'd  Accounting  Encyclopedia       Tr.-Vo. 


Kansas?"  he  turns  to  the  alphabetical  index  and  reads  "  Kansas — 3-3-Ta." 
Glancing  at  the  small  chart,  he  sees  that  Brown  will  "make"  Trip  3  the 
week  commencing  May  '^Tth ;  so  he  readily  answers  the  question  by  saying, 
"  Three  weeks  from  to-day." — /.  J.  Elder. 

(960)     TRIAL  BALANCE. 

A  record  of  the  balances  drawn  off  from  ledgers  at  periodical  intervals 
for  ihe  purpose  of  ascertaining  the  accuracy  of  the  work  on  same  by  showing 
that  the  total  of  debit  and  credit  balances  agree- 

It  is  always  useful  to  the  book-keeper  who  desires  to  locate  errors 
made  in  posting  to  draw  off  not  only  the  balances  of  accounts,  but  also  the 
total  debits  and  credits,  especially  where  ledgers  are  sectionalized.  By  this 
means  he  can  compare  the  total  debits  and  credits  posted  in  any  section  with 
the  totals  called  for  by  the  books  from  which  the  postings  have  been  made. 

The  American  Accountants'  Manual  describes  a  trial  balance  as  "  a  list 
or  schedule  of  the  accounts  in  the  ledger  or  ledgers  of  a  business  remaining 
open,  as  at  the  end  of  a  day  specified,  showing  the  ledger  folio,  name,  and 
Dr.  or  Cr.  Balance  or  Dr.  and  Cr.  footings  of  each  account  in  turn  and  showing 
an  equal  aggregate  sum  of  debits  and  credits.  The  puq^ose  of  a  trial 
balance  is  primarily  to  test  and  demonstrate  the  equilibrium  of  the  ledger, 
which,  although  not  proving  the  absolute  correctness  of  the  ledger  in  all 
respects,  is  nevertheless  essential  to  such  correctness,  and  is  a  preliminary 
process  to  closing  the  books  and  preparing  the  business  and  financial  state- 
ments." 

The  definition  according  to  the  Century  dictionary  is,  "a  method  of 
testing  the  correctness  of  the  posting  of  the  ledger,  (1)  as  regards  the  sums 
posted,  and  (2)  as  regards  the  side  to  which  they  are  posted.  This  is 
effected  by  summing  the  debit  and  credit  balances  respectively  of  the  personal 
accounts  and  then  adding  to  the  credit  side  of  this  summation  the  difference 
between  the  two  sides.  If  the  debits  and  credits  of  this  final  summation  exactly 
balance  each  other,  the  presumption  is  that  the  ledger  has  been  correctly  posted 
as  regards  the  particuars  already  mentioned,  but  not  as  regards  the  individual 
items  being  posted  to  the  right  account." 

It  appears  from  the  foregoing  definitions  that  a  trial  balance  may  be 
intended  to  serve  one  or  several  purposes: 

1.     As  a  test  of  the  correctness  of  the  posting; 

•2.     As  a  preliminary  step  to  closing  the  ledger: 

3.  As  1  basis  from  which  to  formulate  the  necessary  final  business  and 
financial  statements. 

The  relation  of  the  Trial  Balance  to  the  Trading,  and  Profit  and  Loss 
Accounts,  and  Balance  Sheet,  deserves  attention,  and  we  therefore  append 
the  following  explanation : 

A  trial  balance  is  a  list  of  all  the  balances  in  a  set  of  books  drawn  off 
for  the  purpose  of  verifying  the  accuracy  of  the  work  therein  contained. 

1296 


A  trading,  or  manufacturing,  statement  contains  a  summary  of  material 
purchased  and  all  expenses  directly  relating  to  the  cost  of  production,  which 
deducted  from  the  total  sales  and  goods  on  hand,  exhibits  the  gross  profit 
on  the  turnover.  Experience  has  shown  that  it  is  best  to  include  in  this  account 
only  those  expenses  which  vary  in  proportion  to  the  volume  of  the  output 
or  trade  done.  Thus  rent  of  factory  should  be  carried  in  the  profit  and 
loss  account,  while  labor  should  be  an  item  in  the  trading  statement.  The 
percentage  of  gross  profit  on  turnover  will  then  be  sensitive  to  variations 
and  attract  attention  to  leakages,  excessive  cost  of  labor,  etc. 

A  balance  sheet  is  a  statement  of  actual  assets  and  liabilities  only. 

A  profit  and  loss  account  is  an  account  into  which  all  accounts  repre- 
senting income,  expenditure,  or  losses  are  closed,  the  balance  of  this  account 
showing  the  net  increase  of  assets  over  liabilities  for  the  period  covered. 

The  trial  balance  contains  all  the  items  which  appear  in  the  trading 
statement,  balance  sheet  and  profit  and  loss  account,  with  the  exception 
of  the  inventory  and  balances  representing  gross  and  net  profit. 

The  trading  statement  contains  an  account  of  manufacturing  expense, 
purchases  and  sales,  and  the  profit  and  loss,  an  account  of  general  and  admin- 
istrative expense  and  income.  The  gross  profit  from  the  trading  statement 
is  carried  to  the  credit  of  the  profit  and  loss  account,  and  the  surplus  shown 
by  the  profit,  and  loss  account  will  agree  with  the  surplus  shown  by  the  balance 
sheet. 

See  Balance  Sheet. 

(961)     TURNOVER. 

A  term  used  to  designate  the  cost  of  goods  sold.  The  turnover  of  a 
business  is  arrived  at  as  follows: 

Inventory,  Jan.  1,  1908   $18,972.45 

Purchases  of  material    32,.586.20 

Labor    12,979.50 

$64.5:^8.15 
Deduct  Inventory,  Jan.  1,  1909   21.465.89 

Turnover     . $43,072.26 

Sold    for    $62,985.80 

Gross    profit    $19,913.54 

(See  also  Percentages  on  Turnover.) 

(962)     VOUCHER. 

A  document  which  certifies  or  verifies,  the  correctness  of  charges   for 
values  paid  out  or  parted  with,  or  of  credits  for  values  received. 

1297 


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American  Business  and  Accounting  Encyclopedia 


963 


(963)     VOUCHER  CHECK. 

A  combination  check  and  statement. 

We  submit  the  following  forms  of  voucher  check,  which,  we  believe, 
have  exceptional  claims  to  simplicity  and,  at  the  same  time,  meet  with  the 
approval  of  bankers  and  the  requirements  of  any  business. 


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Form  1. 


In  explanation :  To  the  check  is  attached  a  stub  separated  by  perforation. 
Upon  this  stub  is  an  approved  voucher  form  identical  with  that  appearing 
upon  the  back  of  the  check  and,  when  folded,  the  form  of  one  coincides  with 
the  form  of  the  other. 

When  the  book-keeper  records  the  voucher  data  upon  the  stub  it  is  trans- 
ferred to  the  back  of  the  check  with  the  aid  of  a  piece  of  carbon  paper.  The 
check  is  then  turned  over  to  a  stenographer  who  writes  in  the  face.  You 
will  observe  the  voucher  form  is  complete  and  that  when  the  indorsement  is 
made,  it  also  constitutes  a  receipt  in  full. 


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After  the  check  is  typewritten,  it  is  examined  for  correctness,  the  stub 
is  detached,  and  after  entry  of  record  is  made,  it  is  then  placed  in  proper 
place  in  numerical  check  file. 


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American  Business  and  Accounting  Encyclopedia 


Vo. 


Now,  this  stub  is  made  longer  than  the  check  is  wide,  and  also  slightly 
longer  than  the  height  of  the  numerical  division  card  of  the  file,  so  that  when 
placed  therein  the  top  protrudes  above  all,  showing  number  plainly. 

The  object  of  this  is  to  facilitate  the  listing  and  determining  of  outstand- 
ing checks.  Each  stub  standing  represents  a  check  still  unreturned.  The  stubs 
can  all  be  removed  from  the  file,  listed  and  the  information  desired  obtained 
in  less  time  than  by  any  other  method  with  which  we  are  familiar. 

Of  course  it  is  understood  that  when  checks  are  returned  by  the  bank,  the 
stub  representing  each  check  is  removed  and  the  canceled  check  inserted  in  its 

place. 

A  voucher  check  of  this  form  answers  every  demand  placed  upon  it,  is 
simple,  neat  and  saves  an  inestimable  amount  of  time. — E.  A.  Francis 

Of  late  years  there  has  been  quite  a  discussion  as  to  the  proper  form  in 
which  voucher  checks  should  be  used  in  the  business  world.  Many  of  the 
forms  which  have  heretofore  been  used  have  been  very  complicated.  Some  of 
these  have  been  found  illegal  owing  to  the  fact  that  they  were  not  orders 
to  pay  according  to  the  negotiable  instruments  law.  A  great  many  have  been 
found  objectionable  on  account  of  the  fact  that  they  disclosed  information 
which  ought  to  have  been  kept  private.  Bankers  have  also  raised  objections 
to  some  of  these  forms  for  the  reason  that  they  were  too  bulky  to  be  con- 
veniently handled.  One  form  especially  was  found  objectionable  in  that 
the  same  entailed  a  great  deal  of  work  on  those  who  were  required  to  handle 
them.    The  form  which  I  have  reference  to  is  that  one  which  was  at  one  time 


THE    INTERNATIONAL     MANi^FACTyRlNG     CO. 

MILWAi^KEE      WIS. leo NO. 


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1299 


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American  Business  and  Accounting  Encyclopedia 


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American  Business  and  Accounting  Encyclopedia 


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Form  2. 

largely  used  by  those  using  voucher  checks.  It  is  the  form  which  at  the  bottom 
had  the  following  words:     ''If  properly  receipted,  this  voucher  becomes  a 

draft  payable  at  the  bank  for  the  above  named  amount."     In  the 

use  of  this  form  it  was  necessary  that  the  draft  be  first  presented  for  payment, 
and  there  have  been  frequent  instances  when  the  same  was  presented  for  pay- 
ment, there  being  no  funds  at  the  bank  for  the  payment  of  same,  it  was  obliged 
to  be  protested  for  non-payment. 

I  submit  herewith  two  forms  of  voucher  checks  which  I  think  overcome 
the  difficulties  which  have  thus  far  been  encountered  with  the  different 
forms  of  voucher  checks.  Form  1  is  to  be  filled  out  on  the  typewriter, 
the  carbon  sheet  being  placed  between  the  two  leaves.  As  the  check  is 
filled  out  on  the  top  half  of  the  upper  sheet  and  the  details  of  the  state- 
ment are  filled  in  on  the  lower  half  of  the  upper  sheet,  a  voucher  is  by 
the  same  impression  filled  out  on  the  sheet  below.  To  this  form  the  bills 
which  are  awaiting  payment  are  attached.  They  are  then  referred  to  the 
party  who  will  O.  K.  the  extensions  and  see  that  the  amounts  are  correct 
and  O.  K.  same  by  entering  his  initials  on  the  voucher  as  shown.  It  is 
then  referred  to  another  party  who  will  see  that  the  proper  accounts  have 
been  charged  and  credited,  as  shown  at  the  bottom  of  the  lower  sheet,  and 

13(^ 


is  Initialed  by  the  party  who  performs  that  duty.  The  voucher  and  bills 
are  then  referred  to  the  clerk  who  approves  them  for  payment,  and  if  he 
finds  them  correct,  he  initials  them  in  the  proper  space  for  that  purpose. 
After  this  the  check  is  to  be  signed  for  payment  by  the  president  and  counter- 
signed by  the  secretary.  Before  the  check  is  mailed  to  the  creditor  the 
voucher  clerk  makes  an  entry  of  same  on  the  voucher  record,  and  makes  a 
memorandum  on  the  voucher.    The  check  is  then  ready  for  mailing. 

The  process  of  checking  can  be  arranged  to  meet  the  requirements  of  the 
business,  %.  e.,  a  less  number  of  people  can  attend  to  the  checking  according 
as  the  size  of  the  business  demands.  Before  the  voucher  check  is  sent  to 
the  party  who  receives  same  as  payment,  the  check  with  statement  attached 
forming  the  upper  sheet  is  detached  from  the  lower  sheet  which  forms  the 
voucher.  The  voucher  with  the  bills  attached  is  then  filed  in  alphabetical  file 
under  the  creditor's  name,  while  the  check  with  the  statement  attached  is  sent 
to  the  creditor.  The  creditor  will  then  have  a  complete  statement,  with  check 
attached,  giving  detailed  information  as  to  what  the  check  is  in  payment  of, 
thereby  making  it  unnecessary  to  return  the  bills  to  the  creditor  to  be  receipted. 
Before  depositing  this  check  in  the  bank  the  creditor  detaches  the  statement,  as 
noted  in  Form  1,  "  Detach  this  statement  before  depositing  this  check,"  and 
keeps  same  for  his  files.  The  memorandum  on  the  reverse  side  of  the  check 
immediately  over  his  indorsement  shows  that  the  check  issued  is  in  full  for 
a  certain  voucher  as  shown  by  the  number  appearing  in  this  memorandum, 
a  statement  of  which  he  has  had  an  opportunity  to  examine  before  detaching 
same  prior  to  deposit.  His  indorsement  on  the  check  before  deposit  constitutes 
a  receipt  in  full  for  this  detached  statement.  You  will  see  that  with  this 
voucher,  the  bank  will  have  no  more  trouble  than  with  an  ordinary  check. 
The  creditor  will  have  no  opportunity  after  he  has  once  indorsed  and  deposited 
the  check  to  deny  knowledge  of  what  it  was  in  payment  of,  and  the  office 
issuing  the  check  has  an  exact  record  of  what  the  check  was  issued  for, 
together  with  a  carbon  copy  of  the  amount  of  the  check  issued,  thus  making 
as  perfect  a  scheme  as  possible  as  evidence  for  payments  made  without  disclos- 
ing any  knowledge  to  an  outsider. 

Form  2  is  a  form  of  voucher  check  used  in  a  similar  manner  to  that 
as  shown  by  Form  1,  but  Form  2  is  used  where  a  typewriter  is  not  desirable. 
This  form  is  to  be  filled  out  either  with  ink  or  with  copying  pencil,  the  same 
procedure  regarding  the  checking  of  extensions,  etc.,  being  followed  as 
described  in  Form  1  excepting  that  after  the  amounts  have  all  been  checked 
and  found  to  be  O.  K.  and  the  check  is  signed  for  payment,  this  form  being 
printed  entirely  with  copying  ink  can  be  copied  in  a  press  book  or  press 
roller  machine.  Before  mailing  this  check  to  the  creditor,  the  lower  stub  is 
detached  and  can  be  destroyed,  as  a  copy  has  been  taken  in  the  press,  the  value 
of  this  statement  being  only  to  the  extent  of  completing  the  record  in  the 
press  copy  so  that  proper  postings  can  be  made  from  the  copy.  The  press 
copy  is  attached  to  the  invoices  which  this  voucher  check  is  in  payment  of, 
and  filed  the  same  as  the  lower  leaf  of  Form  1,  described  above,  with  bills 
attached  in  an  alphabetical  file.     The  check  with  the  statement  attached  is 

1301 


Vo.  American  Business  and  Accounting  Encyclopedia         963-965 

mailed  to  the  creditor  as  described  in  No.  1.  I  would  greatly  prefer  this 
Form  2  for  the  majority  of  business  houses,  as  the  form  is  entirely  printed 
in  copying  ink,  all  blanks  are  filled  out  with  either  ink  or  copying  pencil,  and 
the  entire  form  is  copied  in  the  press,  making  it  very  difficult  to  change  after 
the  same  has  been  copied. — C.  A.  Seifert. 

THE    VOUCHER    CHECK    AS    AN    ELIMINATOR    OF    RECEIPTS. 

The  actual  old-fashioned  receipt  is  fast  going  out  of  date  when  checks  are 
used  in  making  payments,  and  a  receipt  as  such  is  a  superfluity  when  payment 
is  made  bv  check.  Hence,  we  would  print  on  the  bottom  of  the  statement 
"  Detach  check  and  keep  statement-no  receipt  required."  The  check  when 
returned  through  the  bank  is  ample  receipt  and  will  correspond  with  the 
amount  as  entered  in  the  cash  book,  as  the  account  apears  in  the  ledger  and  as 
shown  by  the  bills  on  file.  When  returned,  the  checks  should  be  kept  alpha- 
betically in  some  filing  device.     It  is  advisable  that  the  bank  account  be 


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"  settled  "  or  balanced  at  least  once  a  month  and  the  returned  checks  carefully 
checked  off  and  filed  at  once.  If  one  prefers  to  have  a  receipt  returned  in  the 
old  way  he  will  simply  make  that  request  at  the  bottom  of  the  statement 
instead  of  the  wording  given  above.  In  fact,  the  form  of  printing  as  well 
as  the  outlines  of  this  new  remittance  blank  can  be  varied  at  will  to  suit 
circumstances  or  fit  into  any  business  system.  Thus  it  may  be  arranged  as  a 
voucher,  ordinary  note  heading,  statement,  etc.  The  great  advantage  is  in 
having  the  check,  remittance  blank  and  envelope  combined  in  one  piece  in  such 
manner  as  to  be  quickly  and  easily  folded  and  sealed;  thus  making  one  printed 
blank  take  the  place  of  three  separate  articles.  Also  in  the  fact  that  m 
making  up  the  account  and  drawing  the  check,  the  whole  matter  is  in  plain 
view  and  on  one  piece  of  paper—reducing  errors  to  a  minimum. 

(9G4)       VOUCHER  RECORD. 
(965)      VOUCHER  REGISTER. 

A  book  of  record  in  which  are  entered  accounts  payable,  with  voucher 
numbers,  and  with  the  proper  distribution  to  the  accounts  to  which  the  items 
relate. 

1302 


905-966        American  Business  and  Accounting  Encyclopedia  Vo, 

A  purchase  record. 

An  accounts  payable  record. 

(966)     VOUCHER  record  for  cotton  manufacturing  business. 

The  purpose  of  the  Voucher  Record,  as  its  name  suggests,  is  to  record  the 
audited  vouchers,  their  numbers  and  amounts ;  and  to  distribute  these  amounts 
to  the  accounts  to  which  they  belong,  which  is  done  by  the  use  of  columns. 

The  arrangement  of  such  a  record  should  be  made  with  the  idea  to 
introduce  these  columns  for  such' expenditures  as  will  come  at  frequent  inter- 
vals during  the  month,  and  to  place  them  in  such  relation  as  will  bring  together 
those  accounts  belonging  to  separate  departments. 

In  order  not  to  encumber  the  form  with  unused  space,  columns  should  be 
provided  only  for  those  accounts  which  have  four  or  more  entries  per  month. 
For  those  entries  for  which  no  columns  have  been  established  a  "  Sundry  " 
column  should  be  arranged,  with  explanation  and  folio  columns  for  indicating 
the  accounts  to  which  they  are  to  be  charged. 

Careful  consideration  should  be  given  to  the  building  of  a  Voucher 
Record ;  for  by  proper  arrangement,  specific  disbursements  may  be  aggregated 
according  to  their  purposes,  so  that,  at  the  end  of  a  given  period  it  is  possible 
to  bring  together  the  expenditures  of  the  diflferent  departments  in  such  relation 
as  will  enable  a  statement  to  be  made,  which  is  easy  to  compile,  simple,  com- 
prehensive, and  at  the  same  time  is  absolutely  the  most  explicit  analysis  of  the 
disbursements  that  can  be  secured. 

In  devising  a  Voucher  Record  form,  it  will  be  found  that  a  loose-leaf 
sheet  will  give  the  best  results,  as  this  permits  current  work  to  be  carried  in  a 
temporary  binder,  which  when  completed  is  transferred  to  a  permanent 
holder.  This  method  will  reduce  the  size  and  weight  of  the  book  most  used 
to  a  minimum;  an  item  of  small  consideration  apparently,  but  one  that  will 
greatly  lighten  the  manual  labor  of  the  voucher  clerk. 


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The  Voucher  Record  submitted  is  intended  for  use  by  a  firm  engaged 
in  preparing  raw  cotton  for  spinning  purposes,  manufacturing  both  white 
and  colored  stock.  It  also  dyes,  twists  and  spools  cotton  yams  which  are  pur- 
chased in  a  finished  state. 

In  planning  this  record  I  have  endeavored  to  follow  the  rule  previously 

1303 


Vo. 


American  Business  and  Accounting  Encyclopedia 


9G6 


laid  clown ;  arranging  the  columns  so  that  accounts  are  brought  together  in 
their  proper  relation,  and  providing  them  only  for  those  which  have  four  or 
more  entries  per  month. 

The  distribution  columns  are  divided  into  five  general  heads ;  each  being 
subdivided  into  the  accounts  belonging  to  them,  the  ledger  headings  following 
the  subdivisions.  The  latter  must  follow  each  other  through  the  book  in 
the  same  order  as  given  in  the  record,  so  that  the  proper  grouping  may  be 
obtained  in  making  statements. 


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explanation  of  the  record. 

The  total  of  the  "  Voucher  Payable "  column  is  credited,  at  the  end 
of  the  month,  to  an  account  of  the  same  name  in  the  general  ledger. 

A'ouchers  are  entered  in  this  column  and  distributed  to  the  sections  to 
which  they  belong,  date  and  voucher  numbers  being  placed  in  the  columns 
provided  for  them. 

(When  vouchers  are  paid,  the  amount  of  their  checks  are  entered  in  the 
cash  book,  or  the  check  register,  in  a  column  representing  "  ^'ouchers  Payable," 
and  its  total  is  a  monthly  charge  to  same.  The  balance  of  the  account  repre- 
.sents  the  amount  of  vouchers  unpaid.) 

The  Discount  column  is  used  or  not.  according  as  the  firm  may  or  may 
not  care  to  know  the  amount  gained  by  discounts  from  bills  for  cash. 

material  purchases. 

This  section  embraces  all  purchases  for  consumption  during  the  course 
of  manufacture ;  being  the  raw  materials  which  enter  directly  into  the  goods, 
and  supplies  required   for  the  operation  of  the  mill. 

The  columns  are  all  self-explanatory,  each  account  being  charged  with 
its  own  particular  class  of  goods :  while  supplies  are  all  lumped  in  one  account. 

The  accounts  are  also  charged,  through  the  record,  with  all  freight  and 
cartage  paid  on  the  stock.  The  goods  are  placed  in  storage  and  delivered 
only  on  requisition,  and  the  accounts  are  credited  with  consumption  at  prices 
which  include  these  charges,  so  that  the  balances  on  the  ledger  show  the 
actual  cost  value  of  those  on  hand. 

This  method  of  treatment  gives  perpetual  inventories  of  all  stock  in 
storage,  and  removes  the  necessity  of  taking  stock  at  closing  time. 

1304 


966 


American  Business  and  Accounting  Encyclopedia 


Vo. 


Occasional  inventories  for  checking  puq^oses  may  be  made  at  any  time 
to  verify  the  book  records. 

Fuel  consumption  is  reported  weekly  by  the  engineer's  department,  and 
the  account  credited  monthly  with  its  value. 

production  department. 

This  section  shows  the  cost  of  labor  expended  in  manufacturing  the 
product.  The  first  three  columns  represent  productive  labor,  or  that  actually 
consumed  in  making  the  goods. 

The  first  shows  the  value  of  labor  put  on  cotton  products:  and  is  a 
charge  to  Cotton  IVIanufacturing  account. 

The  second  represents  amounts  on  the  pay  roll  for  working  up  yarns. 

Contract  Labor  is  for  showing  amounts  paid  out  by  this  firm  to  others 
for  work  done  on  our  yarns ;  it  being  cheaper  to  have  it  done  outside. 

These  two  totals  are  charges  to  Yarn  Manufacturing  account,  and  the 
value  of  the  third  column  is  chiefly  statistical,  as  it  shows  the  totals  of  this 
class  of  work  separate  from  that  paid  out  directly  by  us. 

maintenance. 

The  Maintenance  or  Repairs  section  is  divided  into  six  heads,  as  the  man- 
agement desires  to  know  the  cost  of  each  department  separately. 

As  these  produce  different  classes  of  goods,  each  requiring  their  own 
particular  kind  of  machinery,  together  with  individual  rooms  for  their  pro- 
duction, this  is  the  best  method,  as  it  gives  the  cost  of  maintaining  each 
separate  and  distinct ;  which  admits  of  the  charges  being  made  where  they 
properly  belong,  and  to  be  distributed  to  the  cost  of  the  goods  that  should 
bear  them. 

Engine  Room  Maintenance  account  is  charged  with  all  expenses  of  this 
nature  for  both  engine  and  boiler  room. 

Miscellaneous  repairs  are  those  which  can  not  be  allotted  to  any  par- 
ticular department. 

As  we  rent  the  building  occupied  no  provision  is  needed  for  Building 
Maintenance.  Replacements  made  by  us  are  charged  to  the  owner  through  the 
sundries  section;  and  alterations  or  ordinarj'  repairs  are  charged  to  the  room 
in  which  they  occur,  or  are  placed  in  ]\Iiscellaneous. 

The  other  columns  explain  themselves,  and  are  a  part  of  the  total  cost 
of  the  class  of  goods  produced  in  those  rooms. 

It  would  have  been  better  to  bring  together  the  columns  for  Engine 
Room  and  Miscellaneous  Repairs,  instead  of  having  them  so  widely  separated, 
as  these  expenses  have  to  be  pro-rated  to  the  various  lines  of  output  on  a  basis 
of  the  wages  paid  for  the  productive  labor  on  them. 

general  and  selling  expenses. 

These  sections,  also  called  Administrative  and  Distribution  Expenses  are 
self-explanatory,  the  accoimts  provided  being  for  the  purpose  of  giving  infor- 
mation that  is  chiefly  of  statistical  and  comparative  value. 

1305 


Vo. 


American  Business  and  Accounting  Encyclopedia 


966-969 


* 


I 


They  .clearly  separate  the  expense  of  administering  the  business  from 
that  of  distributing  the  goods,  and  give  opportunity  to  see  that  there  are  no 
undue  increases  in  the  cost  of  either. 

SUNDRIES    section. 

This  has  been  provided  to  take  care  of  all  entries  for  which  there  is  no 
column.  It  was  arranged  with  columns  for  showing  names  of  the  account 
to  which  the  charges  are  to  be  made,  posting  folios  and  amounts,  thus  giving 
full  information  in  regard  to  every  item. 

At  the  end  of  the  month  it  can  be  recapitulated,  which  will  necessitate 
but  one  posting  for  each  account. 

The  Voucher  Record  (or  record  of  accounts  payable)  is  not  used  in  all 
respects  in  the  same  way  as  a  purchase  record,  for  the  reason  that  whereas 
a  purchase  record  is  usually  devoted  to  a  record  of  goods  purchased,  the 
voucher  record  covers  not  only  goods  purchased  but  expenditures  of  whatever 
nature. 

(969)     VOUCHER  SYSTEM. 

The  Voucher  System  consists  of  a  record  of  accounts  payable,  arranged 
with  columns  for  the  distribution  of  purchases  to  their  proper  departments ;  a 
record  of  the  payment  of  such  accounts;  and  a  form  of  voucher  which 
accompanies  the  payment. 

Much  has  been  said  for  and  against  the  voucher  system;  and,  having 
had  considerable  experience  with  such  a  system,  I  want  to  say  that  in  my 
opinion,  it  is  an  essential  record  with  a  concern  doing  anything  like  a  large 
business. 

The  method  that  I  will  attempt  to  describe  is  used  by  one  of  the  largest 
wholesale  and  retail  coal  concerns  in  the  south,  having  six  or  seven  mines, 
five  commissaries  and  four  retail  yards. 

The  voucher  record  and  the  voucher  itself  does  not  differ  much  from 
those  that  appear  so  often  in  text  books  and  other  publications.  As  the 
invoices  come  to  the  book-keeper,  he  files  them  in  a  common  paper  folder, 
alphabetically,  except,  of  course,  bills  that  are  payable  upon  reaching  his  desk. 
About  the  tenth  of  the  month  succeeding  the  purchase,  he  assorts  his  invoices 
and  statements,  verifying  their  correctness — then  he  is  ready  to  make  the 
voucher.  Instead  of  making  only  one,  he  makes  a  carbon  copy,  to  which  are 
attached  the  invoices  or  any  other  authority  for  making  the  voucher.  An 
impression  copy  is  then  taken  of  the  original,  which  is  made  with  indelible 
pencil,  to  prevent  any  change  or  alteration.  The  vouchers  and  all  papers 
supporting  same  are  passed  to  the  chief  clerk,  who  approves  them  as  to 
their  correctness ;  he  in  turn  passes  them  to  the  general  manager,  who  approves 
for  payment.  The  duplicates,  with  all  papers  attached,  are  passed  back  to 
the  book-keeper,  who  has  already  recorded  them  in  his  voucher  record,  num- 
bering each  as  recorded,  the  account  to  which  it  is  chargeable  is  shown 
on  the  duplicate.  The  duplicates  are  then  filed  in  a  wooden  cabinet,  made 
for  that  pui-pose,  in  numerical  order.    On  the  outside  is  shown  what  month's 

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f— 


GENERAL  MINING  EXPENSB 


Rent,  Taxes, 
Insurance 
Dr.  8 


Light,  Water.  Power 


Materials 
Dr.  9 


Labor 
Dr.  10 


Mach'y.  and  , 
Tool  KepaiiB 
Dr.  11 


RealEsUte 
Repairs 
Dr.  la 


DC  la 


Bk.  14 


I 


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OPPER  MINING  CO. 


GOLD  AND  COPPER  MINING  CO. 


GENERAL  MINING  EXPENSff 


RIDUGING  EXPENSE 


Power 


Labor 
Dr.  lO 


Mach'y.  and  , 
Tool  Kepain 
Dr.  11 


Real  Estate 
Repairs 
Dr.  12 


Aasay  Office 
Expense 
Dr.  18         i 


Sundry 

Expense 

Dr.  14 


Materials 
Dr.  16 


Mach'y.  and 

Tool  Repairs 

Dr.  16 


Labor 
Dr.  17 


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Expense 

Dr.  18 


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Dr.20 


4 


1 1 


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1 


t  I 


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Office 

Expense 

Dr.  21 


Traveling 

Expense 

Dr.  22 


Advertising 
Expense 
Dr.  28 


Internal  Legal  Stationery      Freight  and 

Postage  Revenue  Expense        and  Printing        Cartage 

Dr.  24  Dr.  26  Dr.  26  Dr.  27  Dr.  28 


Dr.  20 


Or  90 


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— . 

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SELLING  AND  MANAGEMENT  EXPENSE 

-     FAYMJENTO 

ACCOUNT  OF  PLANT 

SU.N  DRIES 

Mach'y.  and                                          Stmdrj 
Mmteiials              Tool  Repairs              Labor                  Expense 

Dr.  16                    Dr.  16                  Dr.  17                   Dr.  18 

„     -.                           i 

Sapplies     '             Labor 
Dr.  19                   Dr.  20 

Office 

Expense 

Dr.  21 

1        Traveling             Advertising                               Internal             Legal             Stationery 
1        Expense                 Expense            Postage           Revenue          Expense        and  Printing 
i          Dr.  22                   Dr.  23              Dr.  24            Dr.  26            Dr.  26             Dr.  27 

Freight  and                                       Sundry 
Cartage          CommiEsionB           Expense 
Dr.  28               Dr.  20                Dr.  80 

Machinery  and  Tool 
Claims,  Maps  and  Plate 
Furniture  and  Fixtures 
Real  Estate,  Etc..  Etc 

Dr.  81 

ACCOUNT 

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FOLDOUT  TOO  LARGE 

TO  BE  FILMED  AS  A 
WHOLE,  FILMED  IN 

SECTIONS  ONLY 


VOUCHER  RECORD 


''^z!!!!sir'*?'*'-''^^i£Sisss 


191 


Month       Day 


Voucher 
Na 


Fund 
Paid 
From 


TO  WHOM  PAID 


GENERAL  LEDGER 


Account 


Ck. 


Amount 


GENERAL  EXPENSES 


OPERATIVE  EXPENSES 


Adver-      Care  of        Heat 


Travel        Officers 


Farm 


and        Insurance   Postage    Printing 


Dairy 


Horticulture 


Ptoultrr 


tising      Grounds       Light 


Expense      Salaries     I  Labor      Supplies      Labor     Supplies       Labor      Supplies      Labor 


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1-1 


DISBURSEMENTS  OF  COLLEGE 


DISBURSEMENTS  OF  COLLEGE 


Uaries 
of 


EDUCATIONAL 


Salaries  of 


>lojees      Instructors 


Apparatus        Supplies 


r 
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Books 


MAINTENANCE  OF  PLANT 


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Material 

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No.  1 


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No.  2 


No.  3 


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New 
Dor'itory 


414- 


Old 
House 

1  >  ' 


Farm 

House 

f  f  ) 


Farm 


Ag'l 


NEW  PLANT  AND  EQUIPMENT 


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t 


969  American  Business  and  Accounting  Encyclopedia  Vo. 

vouchers  the  cabinet  contains.  So,  in  order  to  locate  a  certain  voucher  or 
payment  you  have  only  to  refer  to  the  record  for  the  number,  and  the  rest 
is  easy. 

The  original  is  passed  to  the  cashier,  who  issues  check;  the  vice  presi- 
dent will  only  sign  when  accompanied  by  the  original  voucher  properly 
approved.  The  check  and  voucher  is  then  mailed  to  the  party  in  whose  favor 
it  is  drawn.  Upon  return  of  the  original  properly  receipted,  it  is  turned  over 
to  the  cashier,  who  files  it  away  numerically,  entirely  separate  from  the 
duplicate.  At  intervals  he  checks  voucher  record  with  the  original  receipted 
vouchers  to  see  that  they  are  all  returned;  if  any  are  missing,  he  prepares 
a  copy  and  sends  it  to  the  payee  with  request  to  receipt  and  return.  His  file 
is  then  complete. 

At  the  end  of  the  month  or  when  the  books  are  to  be  closed  for  any 
particular  month,  the  voucher  record  is  added  and  posted  to  the  respective 
accounts;  the  total  of  voucher  record  is  credited  to  voucher  account  in  the 
general  ledger,  and  total  of  disbursing  cash  book  is  posted  to  debit  of  voucher 
account  in  the  general  ledger.  The  balance  in  voucher  account  will  always 
be  a  credit,  for  the  reason  that  the  vouchers  are  not  paid  in  the  same  month 
for  which  they  are  issued.  Therefore,  the  credit  balance  simply  represents 
unpaid  vouchers.  After  the  trial  balance  is  taken,  we  prove  the  balance  in 
voucher  account,  which  is  very  simple  and  requires  about  ten  or  fifteen  minutes. 

Say,  for  instance,  it  is  the  20th  of  February,  and  the  general  ledger  shows : 

Balance  on  January  31st $46,539.00 

Disbursing  cash  book  shows  on  February  20th $63,789.12 

This  amount  may  include  vouchers  for  the  months  of 
December,  January  and  February,  hence  we  de- 
duct February  vouchers  amounting  to 20,642.19 

$43,146.93 

UNPAID  VOUCHERS 

No.  165.  Dec.  Jay  &  Co $    373  27 

No.  323.  Dec.  A.   Jett    .""'  -49"5o 

No.     39.  Jan.  W.   Jones    927  90 

No.  127.  Jan.  F.   Wilson    ."."  i75'83 

No.  192.  Jan.  S.   Smith    750.00 

No.  211.  Jan.  Brown  &  Co 1,110^57       3,392.07 

$46,539.00 

We  have  not  only  proven  the  accuracy  of  the  voucher  record,  but  also  the 
disbursing  cash  book  up  to  February  20.  If  I  wanted  to  ignore  the  dis- 
bursing cash  book  after  February  1,  it  would  be  necessary  for  me  to  list  all 
unpaid  vouchers,  which  would  consume  some  time;  as  I  explained  at  the 
beginning,  January  vouchers  would  not  be  issued  until  about  February  10, 
or  at  least  80  per  cent,  of  them  would  not. 


1307 


Vo. 


Amkricax  Business  and  AccoUxXting  Encyclopedia 


960-970 


The  only  objection  that  1  have  ever  heard  uttered  against  this  system,  and 
that  carries  anv  weight  at  all  is,  how  can  I  tell  how  much  goods  I  have 
purchased  from  J.  H.  Hemphill  &  Co.  for  the  last  twelve  months,  without 
considerable  time  wasted  in  going  through  the  voucher  record.  This  can 
be  done  in  about  five  minutes,  and  get  out  the  papers,  too.  Put  this  against 
your  cumbersome  ledger  accounts,  your  overworked  book-keeper,  or  an  unnec- 
essary expense  of  $l,'i()0  per  annum. — C.  R.  Shannon. 

(9:0)     UNPAID  VOUCHERS. 

The  treatment  of  unpaid  or  partially  paid  vouchers  on  the  voucher  record, 
and  the  record  of  maturities  appears  to  be  responsible  for  a  considerable 
amount  of  dissatisfaction  with  the  voucher  system  generally. 

A  general  plan  for  the  use  of  the  voucher  system  where  It  is  the  cus- 
tom to  make  payments  on  account,  or  where  discounts  are  not  taken  advantage 

of,  is  as  follows: — 

First,  prepare  a  loose-leaf  form  of  voucher  record.  Then,  as  each  page 
of  entries' is  completed  by  full  payment  being  made,  the  pages  may  be  removed, 
only  those  pages  containing  unpaid  accounts  remaining  in  the  binder.  This  is  a 
very  convenient  plan  because  many  pages  may  be  completed,  while  back  pages 
may  remain  uncompleted,  so  that  only  those  pages  containing  unpaid  accounts 

will  have  to  be  dealt  with. 

Bring  forward  unpaid  monthly  balances  in  the  monthly  columns  provided 

for  them. 

At  the  end  of  each  month  foot  "Accounts  Payable"  and  '  Amount 
Paid  "  column  for  the  month  and  enter  unpaid  balances  in  the  month  to  which 
they  belong.  As  these  amounts  are  paid,  enter  the  credits  in  the  columns  pro- 
vided for  the  month  in  which  the  balance  is  brought  forward;  also  enter 
the  page  number,  showing  where  the  original  entry  was  made. 


This  provides  an  exhibit  each  month  of  how  much  remains  unpaid  and 
for  how  long  it  has  remained  unpaid. 

A  cross  footing  of  unpaid  balances  plus  the  difference  between 
"Accounts  Payable"  and  "Amount  Paid"  columns  should  agree  with  the 
balance  of  Accounts,  or  Vouchers  Payable  account. 


1308 


^' 


971-972        American  Business  and  Accounting  Encyclopedia 


Wa. 


V\ 


(971)     WAGES,  TABLE  OF. 

The  following  table  may  be  found  of  use  to  those  having  to  make  up  pay 


rolls 


Days 


H 
I 

^% 

2 

^% 
2% 


^2  h!f2>^ 


4% 

5^ 
6 
Hour. 


.o8| 
.I7i 
.25 
•33 

42 

50 

58 
.67 
•  75 
.83 

92 
1.00 
1.08 

1. 17 
I  25 

I  33 
1.42 
1 .  50'  I 
1.58 
1.67 
I  75 

1  83 
1.92 

2  00 

3 


S3       *3J^ 


II 
21 

31 
42 

52 

63 

73 
.83 
■94 
.04 

15 
.25 
•35 

46 

•  56|i 

.672 

•  772 
872 
982 
082 

.I9j2 

.29,2 


^3 
25 
38 
50 
63 
75 
88 
00 

13 
•  25 
.38 


•  IS 
.29 

44 
.58 

.73 

.88 

02  I 
I 
r 
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17 

31 
46 
60!  I 


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67 

.83 

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17 
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83 


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2  75 
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325 

3  50 

3  75 
4.00 

4  25 
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5.00 

5-25 
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5^75 
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9  I     10 


»7 


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II 


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S8     $S^ 


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12 


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I 

1  33 
1.67 
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2.332 

2  67 

3  00 

3  33 
3-67i3 
4.004 

4  33|4 
4  67j4 

5 -005 

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67,6 
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.6014. 

•  96|5. 

•315- 
.6716. 

.02|6. 

376. 

•737. 

.o8J7 
•447 

79,8 

158 

50 

H 


38 
75 
13 
50 
88 

25 

63 
00 

37 

•75 
13 

50 

.88 

•25 
.62 
.00 

•37 

.75 
.13 

.88 

•  25 

63 

.00 

15 


I 

.40, 

•  79 

i.i9i 

1.58; 

38; 

^•. 

17 
56 
3  96 
35 

75' 


510 

42 

•83 
1  25 

1  67 
J  08 

2  50 
2  93 


15 
54 
94 
33 
6  73 
13 


53 
92 
31 

71 
.10 


33 

75 

17 

58 
00 


9.50 
16I 


0 

o 

4 

4 

5 

5.42 

583 

625 

6  67 

7  08 

7  49 
7  92 

833 
875 
9  J7 
9.58 
10.00 

17 


Days 


% 
I 

I'.; 

2 

2^ 

'^ 
2^ 

3 

zH 
4 


$11 


^Vz 


•A 

6 
Hour. 


$13 


46 
92 

37 
83 
29 

75 
21 
67 

13 
58 
04 

50 
96 

8 


50 
1 .00 

I  50 
2.00 

2.50 

3  00 

3  50 
4.00 

4  50 

5  00 


$13 


7  33 

779 

8.25 

8  71 
9.17 

9  63 
10.08 

10.54 
11.00 

18 


5- 
6 

6 

1- 

7- 
8. 


50 
00 

50 
00 

50 
00 
8.50 
9  00 

9  50 
10.00 
10.50 

11  .00 
11.50 

12  00 
2o 


2. 

2 

3 

3 

4- 

4 

5 

5. 


$14 


•54 
1.08 
1.62 

17 
71 
25 
79 
33 
87 
42 
96 
6.50 
7.04 
7.58 
8.13 

8  67 

9  21 

9  75 
10  29 

10.83 

11-37 
11.92 
12.46 
13  00 
22 


»i5 


.58 
1. 17 

1.78 

2  33 

2  92 

3  50 
4.08 
4.67 
5  25 
5  83 
6.42 
7.00 

7.58 

8.17 

8.75 

9  33 

9  92 

io.c;o 

11.08 

11.67 

12  25 
12.83 

13  42 

14  00 

23 


S16 


317 


•  63 
1.25 

I  88 
2.50 

3^i3 
3  75 
438 
5  00 

5^63 

6.25 

6.88 

750 

8.13 

8.75 

938 
10.00 
10  63 
11.25112.00 
11.88  12.67 


.67 

1.33 
2  00 

2.67 

3-33 
4.00 

4  67 

5-33 
6.00 

6.67 

733 
8.00 
8.67 

9  33 
10.00 
10.6 

"33 


$18 


12.50 
13  13 


13 -33 
14.00 


13  75|i4  67 

14  38  15 -33 
15.00  16.00 

25  1     27 


•  71 
1.42 
2.12 
2.83 

3  54 
425 

4  961 
5^67| 
6.38! 
7.08 

7-79 

8.50 

9.21 
9.92 

10  63 

11  33 
12.04 

12  75 

13  46 
14.17 

14.88 

15  58 
16.29 
17.00 

28 


S19 


•  75 
I  50 
2.25 
3.00 

3  75 

4  50 
525 
6.00 

6.75 
750 
8.25 
9.00 

9  75 
10.50 
II . 25 

12  00 

12.75 

13  .so 
H  25 
15.00 

15  75 
16.50 

17  25 
18.00 

30 


$20 


■  79 

1  57 

2  36 

3^17 

3  96 

4  75 

554 

6.33 
7.12 

7  92 

8.71 

9  50 
10.29 
11.08 
11.88 
12.67 

13  46 

14  25 

15  04 

15.83 
16.62 

17.42 
18.21 
19.00 
32 


I. 

2 

3' 

4 

5 


S21 


84 
67 
41 
33 
17 
00 

583 

6  67 

7  50 

8.33 

9  17 
10.00 

10  83 
11.67 

12  50 

13  33 
14.17 
15.00 

15.83 
16.67 

17  50 

18.33 


I. 
2 

3. 
4^ 
5 
6. 

7 


88 

75 
63 
50 
37 
25 

13 
00 

7.87 

8.75 

9  63 

10.50 

11  37 

12  25 

13  13 
14.00 

14.87 

15^75 
16.63 

17.50 

18.37 
19  25 


$22 


S23 


19.  1720     13 

20.oo;2i  00 

33  1     35 


9^ 
I  83 
2^75 
3^67 
458 
5  50 
6.42 

7  33 
8.25 

9  17 
10.08 
II  00 
11.92' 
12.83' 

13  75 
14.67 

15  58 

16  50 

17-42 , 
18.33' 
19  25, 
20.171 
21.08 
22  00 
37 


96 
1.92 

2.88 
383 
479 
575 
6.71 

7  67 

8  62 

958 

10.54 
11.50 

12.46 

13  42 

14  37 

15  33 
16.29 

17.25 

18.21 


S25 


1.06 

2  «3 

3  19 

4  17 

5  21 


25 
29 


10 
II 

13 


833 

9  37 

42 
46 

50 

13 -54 
14.58 

'5  62 
16.67 
17.71 

18.75 
19.79 


19.1720.83 
20.12121.87 
21.0822.93 
22.04.23  96 
23.00^25. 00 
38I    42 


mi)     WAGON  FACTORY  CCST  ACCOUNTIITj. 

Tne  system  outlined  is  arranged  to  meet  the  requirements  ot  a  company 
which  employs  from  150  to  200  nie;i  and  is  engaged  in  the  manufacture  of  a 


1309 


Vo. 


Amkricax  Business  and  Accounting  Encyclopedia 


969-970 


The  only  objection  that  I  have  ever  heard  uttered  against  this  system,  and 
that  carries  any  weight  at  all,  is,  how  can  I  tell  how  much  goods  I  have 
purchased  from  J.  H.  Hemphill  &  Co.  for  the  last  twelve  months,  without 
considerable  time  wasted  in  going  through  the  voucher  record.  This  can 
be  done  in  about  five  minutes,  and  get  out  the  papers,  too.  Put  this  against 
your  cumbersome  ledger  accounts,  your  overworked  book-keeper,  or  an  unnec- 
essar>'  expense  of  .$l,-;?00  per  annum. — C.  R.  Shannon. 


(970)     UNPAID  VOUCHERS. 

The  treatment  of  unpaid  or  partially  paid  vouchers  on  the  voucher  record, 
and  the  record  of  maturities  appears  to  be  responsible  for  a  considerable 
amount  of  dissatisfaction  with  the  voucher  system  generally. 

A  general  plan  for  the  use  of  the  voucher  system  where  It  is  the  cus- 
tom to  make  payments  on  account,  or  where  discounts  are  not  taken  advantage 

of,  is  as  follows: — 

First,  prepare  a  loose-leaf  form  of  voucher  record.  Then,  as  each  page 
of  entries'is  completed  by  full  payment  being  made,  the  pages  may  be  removed, 
only  those  pages  containing  unpaid  accounts  remaining  in  the  binder.  This  is  a 
very  convenient  plan  because  many  pages  may  be  completed,  while  back  pages 
may  remain  uncompleted,  so  that  only  those  pages  containing  unpaid  accounts 

will  have  to  be  dealt  with. 

Bring  forward  unpaid  monthly  balances  in  the  monthly  columns  provided 

for  them. 

At  the  end  of  each  month  foot  "Accounts  Payable"  and  "Amount 
Paid  "  column  for  the  month  and  enter  unpaid  balances  in  the  month  to  which 
they  belong.  As  these  amounts  are  paid,  enter  the  credits  in  the  columns  pro- 
vided for  "the  month  in  which  the  balance  is  brought  forward;  also  enter 
the  page  number,  showing  where  the  original  entry  was  made. 


This  provides  an  exhibit  each  month  of  how  much  remains  unpaid  and 
for  how  long  it  has  remained  unpaid. 

A  cross  footing  of  unpaid  balances  plus  the  difference  between 
"Accounts  Payable"  and  "Amount  Paid"  columns  should  agree  with  the 
balance  of  Accounts,  or  Vouchers  Payable  account. 

1308 


971-972        American  Business  and  Accounting  Encyclopedia 


W,^ 


(Oil)     WAGES,  TABLE  OF. 

The  following  table  may  be  found  of  use  to  tho'se  having  to  make  up  pay 


rolli 


Days 


H 

I 

1% 


2;4 

2% 

4 


% 
A% 
\% 
5 
5^ 

h\ 
6 
Hour. 


Days 


13/ 


3 
\% 

h 

6 
Hour. 


S2  hf2>^ 


■o8! 

•  17 

•  25 
33 

•42 

•  50 
58 

.67 

■  75 

.83 
.92 

1.00 

08 

17 

25 

33 
1.42 

I  50 
1-58 
1.67 
I  75 

1  83 
1.92 

2  00 

3 


H 


II 
21 

31 
42 

52 

63 

73 
.83 

94 
•04 

15 
•  25 
•35 

46I1 

•56' I 
.672 

•772 
872 
982 
o8!2 

.I9I2 

.292 

40 
50 

4 


«3^ 


13 
25 

381 

50| 

.63 

75: 

.88 

00 

13 
•25 
.38 

50 
.62 

75 
.88 

.00 

13 
•  25 
•37 
•50 

63 
•75 

88 

00 
5 


•15 
29 
44 

•  58 

•  73 
.88 

.02  I 

171 

31  I 
46  I 
60!  I 


I 
I 
I 
I 

I 

I,  - 


94 


'7 
33 
50 
67 

.83 
.00 

17 
33 
50 
67 


*4>^ 


5f5 


^5}4 


19  .21 

•38  42 

•56,  .63 

•75:  .83 

94i^04 

I  131-25 
1 .31  1.46 

i.'e;o  1.67 

1. 69!  1. 87 

1.872.08 

83  2.062.29 


23 
46 

69 

92 

15 
38 
60 

.83 

06 

.29 

•52 


$6J^ 


•25 
•50 

•  75 
1. 00  I 

I  25 

I  50 

I  75 
2.00 

2.2:; 


50 

75 


1 .75  2.002  2512.50 


90 
04 

19 

33I2 
.482 

.633 
•773 
92I3 
o6j3 
•  21  3 
35  3 
50,4 
6 


172 

33 


50 

67 

83 
,00 

17 

33 

50 

.67 

.83 
oo'4 

7  1 


44 
2.63 

2.81 
3.00 

3  19 
327 
3.56 
375 


75  3  00 


94 

13 
31 
50 

7 


2.71 
2.92 

3  •IS 
3 -3313 
3 -5413 
3-75!4 
3964 
4-174 
4- 3814 


4.58 

4  79 
5.00 

1'    8 


98 
21 

44 
67 
90 

13 

35 
58 
81 

04 

27 
50 
9 


3  25 
3  50 

3  75 


4.00 
4-25 
4  50 
4-75 
5.00 

5-25 
5-50 

5-75 
6.00 

1     10 


-=7 

54 
81 
08 

35 
63 
,90 
.i7 

44 
71 
98 

25 

52I3 

794 
064 

334 
604 


»7 


^7'A 


88 

15 
42 

68 

95 

.22 

50 
II 


■29 

•  58 
.88 

•  17 
46 

75 
04 

33 

63 

9^ 
,21 

50 
79 

.08 

•  37 
.67 
.96 

■25 
-.54 
.83 

•  13J6 
.42  6 

•7i|7 

.007 

12I 


S8 


31 
63 

94 

.25 
•55 
.88! 
.  19J2 
.502 

3 


§8}4      «9 


81 
13 

44 

75 
06 

38 

695 

.005 

315 


63 
94 


.21;  16 

567 

.88 

19 

50 
12 


33 

,671   . 

.00  I. 

.3311  ■ 
67|i. 

.OOj2. 

.33|2. 
6712 
003, 

33  3 

.673 
.oo!4 

33  J4 

674 
005 

•53'5 

67,6 

.006 

33(6 

•  677 
.00  7 

•33  7 
.678 

.008 

13! 


35 

71 
06  I 

42  I 

771 

182 

482 

833 
193 
54  3 
904 


38 
75 
13 

50 

88 

25 
63 
00 

37 
75  3 


§9^^  i    S«o 


25 
60 

96 

31 
67 


026 


37 


•73  7 
.087 

•447 
79,8 

•158 
509 
Hi 


13 
50 

88 

25 
62 
00 

37 

75 

.13 

•  50 

.88 

•  25 
63 

.00 

15 


6.7 


.40 

•79 
I  19 

■581 
98 
■38 
•  77 
17 
56 
.96 
•35 
75 
15 
54 
94 
33 
73 
13 
53 
92 
31 


67- 


10 
16 


42 

.83 

25 
67 

08 

50 

92 
33 

75 

n 
58 
5  00 

5.42 

583 

25 
67 
08 

49 
92 

8.33 

875 

9  17 

9.58 
10.00 

17 


6 
6 

7- 

7 
7- 


$(i 


$13 


.46 
•92 

T  37 
83 
29 

75 
21 
67 

13 
58 
04 

50 
96 
42 

88 


813 


7  33 
7-79 
8.25 

8  71 
9.17 

9  63 
10.08 

10.54 
11.00 

18 


50 
1 .00 

I  50 
2.00 

2.50 

3  00 

3  50 
4.00 

4  50 

5  00 

5  50 

6  00 

6  50 
7.00 

7  50 

8  00 
8.50 

9  00 

9  50 
10.00 

10.50 

II  .00 

II  .50 
12  00 

2o 


-54 
1.08 
1.62 
2.17 
2  71 


3 
3 
4 
4 


fi4 


25 
79 
33 
87 
5  42 
5  96 
6.50 
7.04 
7-58 

8.13 

8  67 

9  21 

9  75 

10  29 

10.83 

11  37 
11.92 

12.46 

13.00 

22 


I . 
I. 
2 
2 

3 

4- 

A- 

5 

5 


Si  5 


58 
17 
78 
33 
92 
50 
08 

67 

25 

83 
6.42 

7.00 

7-58 

8.17 

8.75 

9  .33 

9  92 

10.50 

11.08 

1 1 .  67 

12  25 
12.83 

13  42 

14  00 

23 


I 
I 

2 

3 
3 
4 
5 
5 
6 
6 

I 

8 
8 

9 
10 
10 
II 
II 
12 

13 
13 
14 
15 


S16 


-63 

.25 

88 

50 
•13 

75 
•38 
.00 

.63 
25 

.88 

50 
•13 
-75 

38 
.00 

63 

•25 
.88 

50 

13 

•75 
-38 
.00 

25 


.67 

1-33 
2.00 

2.67 

3-33 
4.00 


Si  7 


$18 


4 

5- 
6. 

6. 


67 

33 
00 

67 

7-33 
8.00 
8.67 

9  33 
10.00 
10.67 

"33 
12.00 

13.67 

13  33 
14.00 
14.67 

15-33 
16  00 


.71 

1.42 

2.12 

2.831 

3  54; 

4-25' 

4.96, 

5  67, 
6.38J 
7.o8| 

7  79 
8.50 
9.21 
9  92 

10  63 

11  33 
12.04 

12  75 

13  46 
14.17 
14.88 

15  58 
16.29 
17.00 

28 


$19 


-75 
I  50 
2.25 
3.00 

3  75 

4  50 
525 
6.00 

6.75 
750 
8.25 
9.00 

9  75 
10.50 
1 1 .  25 

12  00 
12.75 

13  50 

14  25 
15.00 

15  75 
16.50 

17  25 
18.00 
30 


$30 


S21 


-79 

1  57 

2  36 

3-17 

3  96 

4  75 

5  54 

6  33 
7.12 

7  92 
8.71 
9  50 

10.29 
11.08 
11.88 
12.67 

13  46 

14  25 
15.04 

15-83 
16.62 

17.42 

18.21 

19.00 

32 


.84 
1-67 
2  41 
3.33 

4  17 

5  00 

583 

6  67 

7  50 
8.33 
9.17 

10.00 
10  83 
11.67 

12  50 

13  33 
14.17 
15.00 

1583 
16.67 

•50 


.88 

1  75 

2  63 

3  50 

4  37 

5  25 

613 
7  00 

7.87 

8.75 

9  63 

10.50 

11  37 

12  25 

13  13 
14.00 

14.87 

15  75 
16.63 

17  50 
1837 


933 


J23 


I . 

2. 

3- 
4- 
5 
6. 


18.3319  25 
19.1720  13 

20.00i2I    00 

33  i     35 


92 

I  83 
2.75 
3-67 
4-58 
5  50 
6.42 

7-33 
8.25 

9  17 
10.08 
II  00 
II .92' 12 
12.83  13 

13  7S|i4 

14  67115 
15-5816 

16  5o|i7 
17.42  18 

1 8. 33' 19 
19  25  20 
20. 17:21 
21 .0822 
22  0023 

37 


96 
92 

88 

.83 
•79 
75 
71 
67 
62 

58 

•54 

-50 

.46 

42 

37 

33 

29 

35 

.21 

.17 


525 


06 
•3 
»9 
17 
21 

25 
29 


833 
9  37 


43 
46 


10 
II 
12.50 

13  54 
14.58 
15  62 
16.67 
17.71 
18.75 
19.79 
.  20.83 
,1221.87 

.o8'22.93 

•  <H|23  96 
.00^25.00 

38I     42 


(972)     WAGON  FACTORY  CCST  ACCDUNTTIIj. 

Tne  system  outlined  is  arranged  to  meet  the  requirements  of  a  company 
which  employs  from  150  to  200  nicn  and  is  engaged  in  the  manufacture  of  a 


1309 


1 1 


i  1'! 


Wa. 


American  Business  and  Accounting  Encyclopedia 


972 


general  line  of  farm  and  log  wagons  and  contractors'  bottom  dump  wagons. 
We  have  the  cost  accounting  and  pay  roll  keeping  departments  in  charge  of 
one  clerk,  making  it  easier  for  the  cost-keeper  to  get  into  close  touch  with 
conditions  in  the  factory. 

When  material  is  received,  the  receiving  clerk  makes  a  record  of  each 
item  of  the  goods  and  this  record  is  checked  with  the  invoices  for  verifica- 
tion, thus  calling  immediate  attention  to  any  errors  in  the  quantity  or  quality 
of  goods  received.  In  the  case  of  lumber,  an  inspection  sheet,  Form  2, 
is  made  out  in  duphcate  by  the  inspector  and  this  sheet  is  used  for  verification 
with  all  lumber  invoices.  All  invoices  are  then  checked  as  to  prices  and 
extensions  by  the  purchasing  department  and  are  entered  on  rough  material 
stock  ledger.  Form  3-a.  All  material  stock  ledgers  are  kept  by  the  stock- 
keeper  with  the  exception  of  the  lumber  records.  These  are  kept  by  the 
foreman  of  the  lumber  yard,  who  being  an  experienced  lumberman  can 
keep  them  with  the  greatest  accuracy.  Too  much  importance  cannot  be 
attached  to  this  matter  of  keeping  material  stock  records;  unless  closely 
watched,  the  careless  handling  of  material  is  apt  to  prove  one  of  the  worst 
leak  holes  in  the  factory.  The  stock-keeper  is  held  rigidly  responsible  for 
all  material  placed  in  his  care  and  no  employe  is  permitted  to  withdraw  a 
single  article  without  a  requisition  from  his  foreman  either  for  new  stock 
or  for  replacement  of  parts  spoiled  in  working. 

All  work  of  whatsoever  nature  in  the  factory  is  done  on  written  orders 
emanating  from  the  shop  superintendent.    Orders  are  of  two  distinct  kinds  : 

I._Standing  Shop  Orders :— These  are  designated  by  a  fixed  serial  given 
below  and  cover  all  general  instructions  as  to  shop  repairs,  maintenance  of 
machines,  buildings,  etc.     Form  4  is  used  for  these  orders. 

1  Repairs  to  buildings. 

2  Improvements  and  additions  to  buildings. 

3  Repairs  to  machinery. 

4  Improvements  to  new  machinery. 

5  Repairs  ot  tools. 

6  New  Tools. 

7  Repairs  to  patterns  and  dies. 

8  New  patterns*  and  dies. 

9  General  repairs. 

10     General  improvements. 

II. — Productive  Orders: — These  are  divided  under  the  following  heads, 
(A)  stock  orders  are  issued  to  the  various  departments  to  make  and  furnish  to 
stock,  separate  parts  ready  for  assembly.  (B)  repair  orders  are  issued  for 
repair  jobs  to  the  departments  directly  affected  by  them.  A  large  proportion 
of  repair  orders  in  the  factory  require  only  separate  parts  to  be  taken 
from  stock  and  sent  to  the  paint  shop.  (C)  assembly  or  shipping  orders  are 
issued  to  assembly  room,  paint  shop  and  shipping  department  to  assemble 
and  prepare  for  shipment  orders  as  received  from '  customers.  Under  this 
class  of  orders,  provision  is  made  to  keep  in  warehouse  ready  for  immediate 
shipment  a  moderate  supply  of  complete  wagon  gears,  beds  and  wheels  of 

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the  kinds  and  sizes  constituting  the  general  demand  of  the  trade.  (D)  special 
orders  are  issued  to  all  productive  departments  required  in  their  execution 
and,  usually,  being  rush  work,  they  take  precedence  over  all  regular  work 
in  the  shop.  These  orders  require  material  to  be  taken  directly  from  rough 
stock  and  worked  entirely  through  the  factory.  Each  class  of  orders  enumer- 
ated above  is  issued  on  a  different  serial  number  so  there  is  no  liability  of 
confusion  in  any  of  the  shop  records.  A  sample  of  the  stock  order,  Form  5-a, 
is  shown  herewith. 

When  rough  material,  as  indicated  by  stock  ledger  (Form  3-a),  has 
reached  the  minimum  limit,  stock-keeper  notifies  the  purchasing  department 
on  material  requisition.  Form  1.  When  stock  ready  for  assembly  as  indi- 
cated by  stock  ledger  (Form  3-b)  has  reached  the  minimum  limit,  stock-keeper 
notifies  shop  superintendent  who  issues  productive  order  which  is  at  once  a 
bill  of  material  to  stock-keeper  for  rough  material  required  and  an  order  to 
perform  labor  on  same.  Duplicates  of  all  productive  shop  orders  of  whatso- 
ever nature  are  sent  to  the  cost  department  and  a  labor  assembly  sheet. 
Form  6,  is  made  out  here  for  each  separate  part  called  for  in  order.  This 
form  is  kept  in  loose-leaf  binder  for  convenience. 

In  the  method  of  handling  labor  in  the  wood  working  department  it  is 
found  most  convenient  to  make  two  divisions.  It  is  immaterial  whether  the 
sawing  and  planing  room  and  the  wood  machine  room  are  separate  depart- 
ments or  whether  they  are  in  one  room.  Up  to  the  point  where  the  wagon 
parts  are  ready  for  machine  work,  the  labor  cost  on  them  is  determined  per 
square  foot.  The  two  following  forms  have  proved  to  be  the  simplest  and 
least  confusing  manner  of  handling  what  might  otherwise  be  a  matter  of  much 
guesswork.  Form  7  is  kept  by  the  cost  department  and  one  sheet  of  this  form 
is  carried  for  each  kind  of  lumber  used  in  the  factor}'.  Information  for 
column  "  feet  received  "  is  obtained  from  foreman  of  the  lumber  yard  who 
makes  duplicate  report  of  all  deliveries  to  factory.  Information  for  column 
"  feet  delivered "  is  obtained  from  planing  room  foreman's  daily  report. 
Form  8,  showing  the  exact  production  of  each  kind  of  lumber  in  his  depart- 
ment. Information  for  "  labor  on  operations  "  is  obtained  from  workmen's 
daily  tickets.  From  these  sheets.  Form  7,  we  can  find  at  any  time,  the  pro- 
duction in  feet  of  the  planing  room  each  day,  the  labor  cost  per  square 
foot  in  working  each  kind  of  wagon  lumber  up  into  separate  parts  and  the 
percentage  of  loss  in  working  each  kind  of  lumber;  information  which  is  all 
vitally  important  to  a  company  using  large  quantities  of  lumber.  This  record 
may  not  always  tally  with  the  stock  production  orders  for  so  much  depends 
upon  the  judgment  of  the  foreman  in  working  up  his  lumber,  that,  were 
he  bound  to  get  out  the  exact  requirements  of  each  order,  he  would  be  con- 
tinually hampered  in  his  work;  small  parts  are  always  being  accumulated 
which  must  be  stored  away  to  apply  on  future  orders.  But  the  information 
mentioned  above  is  all  that  is  necessary  to  make  this  one  of  the  most  impor- 
tant records  in  the  factory. 

Parts  sufficient  to  cover  each  order  are  delivered  by  planing  room  to 
wood-machine  room.     Here  shop  card.  Form  9,  is  made  out  for  each  lot  of 

1311 


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972 


MATERIAL  REQUISITION 

l^o 

"TKe  follpwtnh  iryitrrialis  nemdti  in  _         ..  —  ._  .        .joep 

o^^rt^^  {f^ij* 

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Form  3 A. 

1312 


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American  Business  and  Accounting  Encyclopedia 


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-J*?© 


0.-der  No. 


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STOCK  PRODUCTION  ORDER 


P\eMt  yvf    work.^9  .9  yw)r  deportsyrir  Hfrjtcr.^  yw*n^y  l^bor-ft  f^')'*')  )""«^")t  '^''^-'"'  ^  *^^ 

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American  Business  and  Accounting  Encyclopedia 


972 


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1314 


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American  Business  and  Accounting  Encyclopedia 


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PAY  ROLL  DISTRIBUTION 

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MATERIAL  AND  LABOR  INVENTORY 


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c«»r.  M4^. L«fcM- E»|K ."nisi. 

Mr- 


Fork  18. 
1315 


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American  Business  and  Accounting  Encyclopedia  Wa. 


parts,  as  is  also  done  for  iron  parts  in  the  blacksmith  shop  and  machine 
shop.  Workmen  in  all  productive  departments  charge  time  on  daily  time  slips. 
Form  10,  giving  time  spent,  operation  performed  and  number  of  pieces.  These 
time  tickets  are  collected  daily,  checked  with  the  automatic  time  recorder 
for  correctness  of  time  reported  and  posted  to  labor  assembly  sheet.  Form 
6.  Time  of  the  piece  workers,  after  being  entered  on  the  labor  assembly 
sheet  is  posted  to  pieceworkers'  records.  Form  11,  which  is  totaled  and  checked 
for  the  pay  roll  at  each  regular  pay  period.  We  consider  this  pieceworkers' 
record  an  important  factor  in  factory  accounting  and  it  is  closely  watched  by 
the  superintendent,  who  can  tell  from  it  at  any  time  the  earnings  of  each 
pieceworker,  the  proportion  of  his  time  each  man  spends  on  piecework,  the 
average  earnings  per  hour  on  each  piecework  job,  and  thus  makes  it  not 
only  a  time  sheet  for  each  man  but  also  a  basis  for  readjusting  piecework 
throughout  the  shop. 

When  parts  are  finished  in  the  shop  they  are  sent  to  the  stockroom 
accompanied  by  shop  card,  Form  9,  on  which  has  been  noted  by  inspector 
any  loss  in  working.  The  inspector  makes  a  daily  report  to  the  office 
of  all  losses  and  defects  found  in  the  factory,  giving  cause  of  loss,  parts 
lost  and  explanation  as  to  further  use  of  spoiled  parts.  Loss  in  working  parts 
in  each  department  is  made  up  by  stock-keeper  at  fixed  periods  and  this  loss 
is  pro-rated  over  entire  output  for  same  period. 

Stock-keeper  charges  each  lot  received  on  stock  ledger,  for  finished  parts, 
(Form  3-b)  and  forwards  each  shop  card  to  the  cost  department.  On  receiv- 
ing shop  card,  cost  clerk  totals  labor  assembly  sheet  and  posts  it  to  finished 
part  cost  sheet,  Form  13,  on  which  an  account  is  carried  for  every  part  which 
has  labor  performed  on  it.  This  sheet  is  kept  in  loose-leaf  form  and  is 
divided  into  volumes  according  to  productive  departments. 

By  means  of  this  form,  productive  labor  on  all  wagon  parts  can  be  kept 
for  comparison  and  reference  for  any  given  period  and  average  labor  costs 
obtained  therefrom.  Productive  labor  costs  of  all  special  orders  are  obtained 
from  their  respective  labor  assembly  sheets  immediately  upon  completion. 

Each  pay  period  the  cost  clerk  compiles  the  pay  roll  distribution  sheet, 
Form  14,  which  shows  for  each  dei)artment  in  the  factory  (a)  foreman's 
labor,  (b)  roustabout  labor,  (c)  total  non-productive  labor,  (d)  labor  on 
various  standing  shop  orders,  (e)  total  productive  labor  and  (f)  total  pay 
roll.  Place  is  also  provided  for  showing  percentage  of  foreman's  labor  and 
non-productive  labor  to  total  pay  roll  and  percentage  of  non-productive  labor 
to  productive  labor.  The  comparisons  thus  shown  on  this  sheet  are  a  valimble 
help  in  the  problem  of  the  reduction  of  indirect  factory  labor.  All  items 
on  this  sheet  are  obtained  from  daily  postings  of  the  workmen's  time  slips 
with  the  exception  of  items  (e)  and  (f).  Item  (e)  is  the  balance  between 
the  sum  of  all  non-productive  labor  and  expense  labor  and  the  total  pay  roll. 
This  item  of  productive  labor  is  checked  as  to  its  accuracy  each  month  as  fol- 
lows :  Labor  on  unfinished  orders  at  beginning  of  the  month  added  to  produc- 
tive part  of  pay  roll  must  balance  unfinished  orders  at  end  of  month  added  to 

1316 


all  completed  orders  during  the  month.  This  makes  a  complete  check  on  all 
labor  in  the  factory. 

Cost  of  all  materials  is  furnished  to  cost  department  by  stock-keeper 
representing  actual  cost  of  materials  purchased  F.  O.  B.  the  factory.  Special 
orders  requiring  the  purchase  of  materials  not  regularly  kept  in  stock  are 
charged  directly  with  cost  of  same. 

Paint  material  costs  are  obtained  periodically  by  means  of  paint  material 
cost  sheet.  Form  12.  Records  are  kept  by  cost  department  showing  average 
painting  surface  of  each  completed  wagon  part  which  passes  through  paint 
shop.  Stock-keeper  supplies  record  of  the  number  of  various  wagon  parts 
finished  in  paint  shop  also  number  of  pounds  of  paint  material  of  each  kind 
distributed  to  painters  during  given  period.  The  compiling  of  this  record 
then  is  simply  a  problem  in  the  distribution  of  cost  in  proportion  to  the  number 
of  feet  in  each  wagon  part,  making  an  accurate  tabulation  of  paint  material 
cost  for  any  part. 

The  remaining  item  to  complete  the  cost  of  the  product  is  expense.  This 
is  obtained  by  taking  all  expense  accounts  in  the  general  ledger  and  finding 
the  percentage  which  they  bear  to  the  total  pay  roll  for  the  year.  The  expense 
accounts  are  subdivided  into  factory  expense  and  selling  expense  and  a 
careful  distinction  is  at  all  times  maintained  between  the  cost  to  manufacture 
and  the  cost  to  market  the  product.  This  subdivision  of  factory  and  selling 
expense  is  a  problem  which  depends  upon  local  conditions  in  the  factory 
and  must  be  worked  out  according  to  the  individual  experience  of  each  firm. 


o 

COST  ASSEMBLY  SHFFT 

MATERIAU 

LABOR 

exPCNSE. 

-roTAu 

1 

A 

N<i>\e 

Uif^nSiOT 

h 

1* 

-o 

o 

1 

PI 

»- 1 

4 

f^ 

FnclSry 

Coat  tb 

"     " 

'Ten\ 

""  'T 

FOKM   15. 

With  all  the  cost  elements  now  found,  cost  assembly  sheet  is  prepared. 
Form  15,  showing  in  detail  the  material  cost  of  wood,  iron,  paints  and  wagon 
hardware  and  the  total  productive  labor  cost  of  each  part.  To  the  total  pro- 
ductive labor  the  percentage  of  indirect  labor  is  added  and  to  all  labor  is 
added  the  percentage  of  factory  expense.  This  total  represents  the  entire 
factory  cost  of  any  wagon  part  assembled.  Cost  of  complete  wagons  of  any 
desired  height  of  bed,  size  of  skein  or  width  of  tire  is  then  obtained  by  further 
combining  costs  of  sizes  necessary  to  make  the  required  combination. 

^^''e  have  outlined  the  method  by  which  the  total  cost  to  manufacture 
any  size  or  style  of  the  product  is  built  up  by  successive  steps.     Cost  clerk 

1317 


Wa.-Wo.      American  Business  and  Accounting  Encyclopedia        ^7^-^73 

places  itemized  factory  cost  on  a  carbon  copy  of  each  invoice  which  is  sent  out. 
These  are  then  filed  for  ready  reference  and  each  month  a  statement  of  sales 
and  costs  is  prepared  from  them  according  to  Form  16,  which  shows  total 
sales  for  month,  shop  cost,  selling  cost  and  total  cost  for  same  and  gross 
profits  for  the  month. 

Material  and  labor  inventory,  Form  17,  should  be  kept  to  maintain  an 
accurate  check  on  the  factory  accounts.  This  practically  amounts  to  a  con- 
trolling account  with  material  and  labor  in  the  general  ledger.  From  this  sheet 
the  costs  of  material  and  labor  consumed  on  various  factory  expense  items  are 
charged  to  their  corresponding  accounts  in  the  general  ledger  from  which 
source  the  percentage  of  expense  is  obtained. 

Form  IS  for  shop  patterns  and  shop  dies  is  kept  by  cost  department 
as  auxiliary  to  the  work  of  factory  accounting.  Material  used  on  new 
patterns  and  dies  is  reported  by  stock-keeper  and  labor  on  same  is  taken 
from  daily  time  slips.  All  steel  smith  shop  dies  and  patterns  for  iron  parts 
are  stenciled  with  their  pattern  numbers  and  all  wood  patterns  and  templets 
have  pattern  numbers  painted  on  them. — C.  R.  Bushong. 

(973)     WORKING  BALANCE  SHEET. 

A  term  used  to  designate  a  form  of  balance  sheet  drawn  up  by  some 
accountants,  preliminary  to  formulating  their  various  financial  statements. 
An  illustration  of  this  preliminary  balance  sheet  will  be  found  on  another  page. 


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1318 


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COMMERCIAL  LAW 


American  Business  and  Accounting  Encyclopedia  . 


Ab. 


COMMERCIAL    LAW 


^  ABATEMENT. 

In  contracts,  a  reduction  made  by  the  creditor,  for  the  prompt  payment  by 
the  payer  or  debtor  of  a  debt  due. 

ABBREVIATION. 

A  shortened  form  of  a  word,  obtained  by  the  omission  of  one  or  more 
letters  or  syllables  from  the  middle  or  end  of  the  word. 

The  use  of  abbreviations  capable  of  explanation  by  parol  evidence  or 
usage  does  not,  as  a  general  rule,  vitiate  a  writing  or  bill.  Courts  take  judicial 
notice  of  abbreviations  ordinarily  used  to  designate  time,  such  as  those  for 
month,  forenoon,  afternoon,  etc.,  and  will  determine  the  meaning  of  customary 
abbreviations  of  common  words,  names  of  places,  and  Christian  names,  without 
proof.  As  the  form  "  int."  inserted  after  the  words  "  Value  received  "  in  a 
promissory  note  is  an  abbreviation  of  the  word  "  interest,"  and  should  be 
construed  the  same  as  if  the  word  was  written  out.  The  letter  "  a  "  in  a  note 
as  "  Int.  a  6%  p.  a."  stands  for  the  word  "  at,"  and  "  6%  "  for  six  per  cent.," 
and  the  letters  "  p."  and  "  a."  for  "  per  annum."  "  Com."  and  "  Co."  are 
well  understood  abbreviations  of  the  word  "  company,"  and  the  abbreviation 
"  dolls."  stands  for  "  dollars." 

ABODE. 

The  place  where  a  person  dwells.    His  domicile. 

ABOUT. 

Almost  or  approximately;  near. 

The  import  of  the  qualifying  word  "  about "  is  simply  that  the  actual 
quantity  is  a  near  approximation  to  that  mentioned,  and  its  effect  is  to  provide 
against  accidental  variations.  When  there  is  a  material  and  valuable  variation, 
a  court  of  equity,  upon  a  petition  for  specific  performance,  will  give  the  word 
its  proper  effect. 

A  contract  to  pay  a  claim  of  about  one  hundred  and  fifty  dollars,  was 
held  to  cover  the  claim  although  it  amounted  to  fifty  dollars  more,  the  claim 
being  otherwise  identified. 

When  an  assignment  was  made  "  in  trust  to  pay  the  debts  due  the  follow- 
ing persons,  viz.,"  and  then  followed  the  names  and  debts,  and  a  debt  due  one 
creditor  was  put  down  "  about  $11,000  "  which  was  in  fact  upwards  of  $13,000, 
it  was  held  that  the  trust  included  the  latter  sum. 

"  About  to  remove  "  or  "  about  to  abscond  "  in  attachment  affidavits  do 
not  imply  the  next  hour,  or  day,  or  week,  or  month,  but  that  the  removal  or 

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absconding  will  shortly  occur;  each  case,  as  it  arises,  to  be  governed  by  its 
own  special  facts. 

ABSCOND. 

To  go  in  a  clandestine  manner  out  of  the  jurisdiction  of  the  courts,  or  to 
lie  concealed,  in  order  to  avoid  their  process. 

A  person  who  departs  from  his  usual  place  of  abode  secretly  or  suddenly, 
or  retires  or  conceals  himself  from  public  view  in  order  to  avoid  legal  process 
is  held  to  have  absconded. 

A  debtor  shut  up  in  his  own  house  from  his  creditors  is  an  absconding 

debtor. 

ABSENT. 

In  attachment  laws,  removed  from  home  to  avoid  process. 

ABSTRACT  OF  TITLE. 

A  summary  of  the  recorded  instruments  affecting  a  given  piece  of  real 
estate. 

ACCEPT— ACCEPTANCE. 

The  receipt  of  a  thing  offered  by  another  with  an  intention  to  retain  it, 
indicated  by  some  act  sufficient  for  the  purpose. 

The  element  of  receipt  must  enter  into  every  acceptance,  though  receipt 
does  not  necessarily  mean,  in  this  case,  some  actual  manual  taking.  To  this 
element  there  must  be  added  an  intention  to  retain.  This  intention  may 
exist  at  the  time  of  the  receipt  or  subsequently. 

Under  the  statute  of  frauds,  delivery  and  acceptance  are  necessary  to 
complete  an  oral  contract  for  the  sale  of  goods,  in  most  cases.  It  is  said  that 
such  acceptance  must  be  absolute  and  past  recall.  If  an  article  is  found  defec- 
tive, but  is  retained  and  used,  it  is  a  sufficient  acceptance.  If  goods  are  deliv- 
ered to  a  third  person  by  order  of  the  purchaser  they  are  deemed  to  have  been 
received  and  accepted  by  the  latter,  through  his  agent. 

Acceptance  of  Bills  of  Exchange  is  an  engagement  to  pay  the  bill  in 
money  when  due.    Such  acceptances  are : 

Absolute,  which  is  a  positive  engagement  to  pay  the  bill  according  to 

its  tenor. 

Conditional,  which  is  an  undertaking  to  pay  bills  on  a  contingency.  The 
holder  is  not  bound  to  receive  such  an  acceptance,  but,  if  he  does  receive  it, 
he  is  bound  to  observe  its  terms. 

Expressed,  which  is  an  undertaking  in  direct  and  express  terms  to  pay 

the  bill. 

Implied,  which  is  an  undertaking  to  pay  the  bill,  inferred  from  acts  of 
a  character  which  fairly  warrant  such  an  inference,  as  where  one  receives  and 
uses  goods,  knowing  that  a  draft  has  been  drawn  on  him  for  their  price.  The 
retaming  and  use  of  the  goods  is  equivalent  to  an  acceptance. 

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Partial,  which  is  one  varying  from  the  tenor  of  the  bill.  As  an  accept- 
ance to  pay  a  part  of  the  amount  for  which  the  bill  is  drawn ;  or  to  pay  at  a 
different  place  or  time. 

Qualified,  which  are  either  partial  or  conditional,  and  introduce  a 
variation  in  the  sum,  time,  mode,  or  place  of  payment. 

Supra  Protest,  or  For  Honor,  which  is  the  acceptance  of  the  bill  after 
protest  for  the  honor  of  the  drawer  or  for  honor  of  a  particular  indorser. 

Acceptance,  other  than  supra  protest,  must  be  made  by  the  drawee  or 
some  one  authorized  to  act  for  him.  The  drawee  must  have  capacity  to  act 
and  bind  himself  for  the  payment  of  the  bill,  or  it  may  be  treated  as  dishonest. 
The  acceptance  and  delivery  of  negotiable  paper  on  Sunday  is  void  between 
the  parties,  but  if  dated  falsely  as  of  another  day,  it  is  good  in  the  hands  of 
an  innocent  holder.  Acceptance  may  be  in  writing  on  the  bill  itself  or  on 
another  paper,  and  it  seems  that  the  holder  may  insist  on  having  a  written 
acceptance,  and  in  default  thereof  may  consider  the  bill  as  dishonest.  It  may 
be  made  before  the  bill  is  drawn,  in  which  case  it  must  be  in  writing ;  it  may  be 
made  after  the  bill  is  drawn  and  before  it  becomes  due,  which  is  the  usual 
course,  or  after  it  becomes  due,  or  even  after  a  previous  refusal  to  accept. 
Acceptance  must  be  made  within  twenty-four  hours  after  presentment,  or 
the  holder  may  treat  the  bill  as  dishonored.  Upon  refusal  to  accept,  the  bill 
is  at  once  dishonored,  and  should  be  protested.  The  usual  form  of  acceptance 
is  by  writing  "  accepted  *'  across  the  face  of  the  bill  and  signing  the  acceptor's 
name  but  the  drawee's  name  alone  is  sufficient,  or  any  word  or  phrase  of 
equivalent  force  to  accepted. 

A  parol  promise,  upon  sufficient  consideration,  to  accept  a  bill  of  exchange, 
binds  the  acceptor. 

ACCOMMODATION  PAPER. 

A  bill  of  exchange  or  promissory  note  to  which  the  acceptor,  drawer, 
maker,  or  indorser,  as  the  case  may  be,  has  put  his  name  without  consideration, 
for  the  purpose  of  accommodating,  by  a  loan  of  his  credit,  some  other  person 
who  is  to  provide  for  the  bill  or  note  when  it  falls  due. 

The  strict  obligations  of  parties  to  commercial  paper  are  modified  to  a 
certain  degree  in  the  case  of  accommodation  parties. 

The  accommodated  party  undertakes,  impliedly  if  not  expressly,  first,  that 
he  will  provide  for  the  bill  or  note  at  its  maturity;  and,  second,  that  he  will 
indemnify  the  accommodation  party  in  case  the  latter  is  compelled  to  take  up 
the  paper. 

The  accommodation  party,  by  his  signature,  first  confers  a  power  or 
authority  upon  the  party  accommodated  to  bind  him,  the  accommodation  party, 
in  favor  of  third  persons  by  the  issue  of  the  paper :  and.  second,  when  the 
paper  has  been  negotiated,  he  becomes  bound  to  the  indorsee  or  holder  in 
accordance  with  the  rules  of  commercial  law  and  the  position  of  his  name 
upon  the  instrument,  from  the  date  of  the  instrument. 

The  party  for  whose  accommodation  the  paper  has  been  made  actjuires  no 
right  against  the  accommodation  party,  since,  as  between  them,  there  is  no 

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defense  to  a  suit  upon  negotiable 


consideration,  a  fact  which  is  always  a 
paper  between  the  immediate  parties. 

When  the  accommodation  party  has  been  compelled  to  pay  the  instru- 
ment, the  party  accommodated  becomes,  in  consequence  of  the  implied  contract 
of  indemnity,  a  debtor  of  the  accommodation  party,  and  the  latter  has  a  right 
of  action  against  the  former.  This  relation  arises  only  when  payment  has  been 
made,  and  the  statute  of  limitation  begins  to  run  from  the  date  of  payment. 


ACCORD  AND  SATISFACTION. 

In  contracts  Accord  is  an  agreement  between  two  parties  to  give  and 
accept  something  in  Satisfaction  of  a  right  of  action  which  one  has  against 
the  other,  which,  when  performed,  is  a  bar  to  all  actions  upon  this  account; 
generally  used  in  the  phrase  "  accord  and  satisfaction."  It  must  be  advan- 
tageous to  the  creditor,  and  he  must  receive  an  actual  benefit  therefrom  which 
he  would  not  otherwise  have.  The  payment  of  a  part  of  the  whole  debt  due 
is  not  a  good  satisfaction,  even  if  accepted,  unless  the  amount  due  is  disputed, 
or  contingent,  or  there  are  mutual  demands.  If  any  additional  benefit  be 
received,  as  payment  at  some  other  place  or  at  an  earlier  time,  etc.,  then  a 
payment  in  part  will  be  held  to  be  a  good  satisfaction. 

Where  the  value  of  services  was  in  dispute,  and  a  check  was  sent  for 
part  claimed,  with  a  statement  that  it  was  to  be  in  full  satisfaction,  and  the 
check  was  retained,  the  debt,  which  was  unliquidated,  was  satisfied  by  such 
retention. 

ACCOUNT. 

A  detailed  statement  of  the  mutual  demands  in  the  nature  of  debit  and 
credit  between  parties,  arising  out  of  contracts  or  some  fiduciary  relation. 
There  are  various  kinds  of  accounts,  vis. : 

OPEN  account. 

Is  an  account  not  stated  or  agreed  upon  between  the  parties.  Thus  an 
account  is  open  when  some  term  of  the  contract  is  not  settled  by  the  parties, 
whether  the  account  consists  of  one  item,  or  many.  Also,  an  account  is  open 
when  there  have  been  current  dealings  between  the  parties,  which  are  kept 
unclosed  with  the  expectation  of  further  transactions  between  them. 


CURRENT    accounts. 

Are  accounts  not  stated,  running  accounts.  The  diflFerence  between  a 
running  account  and  one  that  does  not  run  is  that  in  the  latter  each  item  is 
a  separate  cause  of  action  in  itself,  the  minds  of  the  parties  are  presumed 
to  have  concurred  only  on  single  transactions;  but  in  the  case  of  running 
accounts,  according  to  the  doctrine  of  relation,  the  subsequent  acts  relate 
back  each  to  the  preceding  act  and  all  the  original  acts.    When  each  of  a  series 

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of  transactions  covering  a  number  of  years  is  separate  and  distinct  from  those 
which  precede  it,  there  is  no  running  account. 

account  rendered. 

Is  a  statement  presented  by  a  creditor  to  his  debtor  showing  charges  of 
the  former  against  the  latter.  Merely  rendering  an  account  gives  it  no  binding 
effect  upon  the  debtor,  but  by  his  acquiescence,  express  or  implied,  it  becomes 

an  account  stated. 

account  stated. 

Is  an  agreement  between  parties  who  have  had  previous  transactions 
of  a  monetary  nature,  that  all  the  items  of  the  accounts  representing  such 
transactions  are  true,  and  that  the  balance  struck  is  correct,  together  with  a 
promise,  express  or  implied,  for  the  payment  of  such  balance.  The  respec- 
tive book-keepers  of  the  debtor  and  creditor  may  state  an  account  binding  upon 
the  employers  as  an  account  stated.  An  account  cannot  become  an  account 
stated  with  reference  to  a  debt  payable  on  a  contingency;  there  must  be  an 
agreement.  Yet  an  account  rendered  may  become  an  account  stated  as  to  the 
items  admittedly  correct,  although  an  item  of  the  account  may  be  disputed. 
Where  an  account  is  rendered  to  a  merchant,  and  no  objection  is  made,  after 
sufficient  time,  acceptance  will  be  inferred,  and  such  an  account  will  be  deemed 
conclusive  between  the  parties.  An  account  stated  is  conclusive  as  to  the 
liability  of  the  parties,  with  reference  to  the  transactions  included  in  it,  and 
cannot  be  reopened  except  in  cases  of  fraud,  or  manifest  error.  And  it  is  not 
necessary  to  say  in  the  statement  "  E.  &  O.  E."  that  is  implied. 

ACCOUNTS  settled. 

When  the  balance  admitted  upon  a  stated  account  is  paid,  the  account  is 
deemed  a  settled  accoynt. 

Giving  a  promissory  note  is  prima  facie  evidence  that  the  accounts  have 
been  settled,  but  the  term  is  also  used  in  a  less  strict  sense,  as  where  the  parties 
agree  and  strike  a  balance  they  are  said  to  have  settled  their  accounts. 

ACCOUNT    sales. 

Are  separate  accounts  rendered  by  a  factor,  or  broker,  to  his  principal, 
showing  goods  sold,  prices  obtained,  and  the  net  results  after  deduction  of 
expenses,  etc. 

BOOK  ACCOUNTS. 

The  word  "  accounts  '*  includes  "  book  accounts." 


BANK    ACCOUNTS. 

This  phrase  designates  the  fund  which  merchants,  travelers  and  others 
have  deposited  into  the  common  cash  of  some  bank,  to  be  drawn  out  by 
checks  from  time  to  time,  as  the  owner  or  depositor  may  require;  also  the 

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statement  of  the  amounts  deposited  and  drawn,  which  is  kept  in  duplicate,  one 
in  the  depositor's  book  and  the  other  on  the  books  of  the  bank. 

Balancing  the  debtor's  bank-book,  and  returning  it  to  him,  makes  an 
account  stated  between  the  bank  and  the  depositor,  if  the  latter  retains  it 
without  objection. 

ACCOUNT  BOOK. 

A  book  in  which  accounts  are  kept :  a  book  kept  by  a  merchant,  trader, 
mechanic  or  other  person,  in  which  are  entered,  from  time  to  time,  the  trans- 
actions of  his  trade  or  business.  Such  books,  when  regularly  kept,  may  be 
admitted  in  evidence. 

ACCRUED. 

Means  due  and  payable,  vested.  The  phrase  ''The  dues  of  members 
of  the  lodge  accrue  weekly,''  was  held  to  mean  that  the  dues  are  estimated  or 
measured  weekly,  and  not  that  they  were  payable  weekly. 


ACCRUING  INTEREST. 

Running  or  accumulating  interest,  as  distinguished  from  accrued  or  nat- 
ural interest. 

ACKNOWLEDGE. 

To  admit:  to  confess;  to  give  a  receipt  for  money;  to  own;  so  to  assent 
to  a  legal  instrument  as  to  give  it  validity. 


ACKNOWLEDGMENT. 

The  act  of  acknowledging  the  state  of  being  acknowledged,  or  the  thing 
acknowledged. 

The  admission  of  having  received  money,  whether  owing  to  one  or 
bestowed  as  a  gift;  the  admission  of  having  received  a  benefit  of  any  kind; 
also  the  receipt  for  such  money,  the  expression  of  gratitude  for  such  favor. 
The  admission  of  an  act  to  take  the  responsibility  of  it,  as  the  admission  of 
a  debt.  The  act  of  one  who  has  executed  a  deed  or  other  legal  instrument, 
in  going  before  some  competent  officer,  or  court,  and  declaring  it  to  be  his 
act  and  deed.  In  most  states  such  act  is  held  to  be  a  judicial  one,  while  in 
some  it  is  held  to  be  a  ministerial  one.  The  object  of  acknowledgment  is  two- 
fold :  first,  to  entitle  a  deed  to  be  recorded ;  and,  second,  to  make  it  competent 
evidence  without  further  proof  of  its  execution.  The  practice  of  acknowl- 
edging instruments  is  a  creation  of  modern  statutes,  being  unknown  to  the 
common  law.  It  arose  from  a  desire  u  prevent  fraud  and  litigation  in  estab- 
lishing title  to  lands,  by  providing  reliable  evidence  of  such  title. 

Acknowledgment  is  not  an  essential  part  of  the  instrument:  and  as  to 
parties  to  the  instrument,  and  persons  with  actual  notice,  neither  an  imperfect 

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acknowledgment  nor  the  total  want  of  any  acknowledgment  affects  the  validity 
of  the  conveyance. 

ACKNOWLEDGMENT— FORM  OF. 

On  this day  of ,  A.  D.  one  thousand  nine  hundred 

and  ten   ,  before  me,   ,  a  Notary   Public,  in  and   for  said 

County,  residing  therein,  duly  commissioned  and  sworn,  personally 

appeared    ,  known  to  me  to  be  the   President,  and    

known  to  me  to  be  the  Secretary  of  the the  corporation  described 

in  and  that  executed  the  within  and  annexed  instrument,  and  severally  acknowl- 
edged to  me  that  such  corporation  executed  the  same. 

In  Witness  \\'hereof,  I  have  hereunto  set  my  hand  and  affixed  my  official 

seal,  at  my  office,  in  the  City  of County  of ,  State  of , 

the  day  and  year  in  this  certificate  first  above  written. 


Notary  Public. 


ACQUIESCENCE. 


A  silent  appearance  of  consent ;  submission  to ;  express  or  tacit  consent, 
assent  to;  tacit  acceptance  of. 

Acquiescence  in  the  acts  of  an  agent,  or  one  who  has  assumed  that 
character,  will  be  equivalent  to  an  express  authority. 

ACT  OF  GOD. 

Any  accident  due  to  natural  causes  directly  and  exclusively,  without 
human  intervention,  such  as  could  not  have  been  prevented  by  any  amount 
of  foresight,  and  pains,  and  care  reasonably  to  have  been  expected:  such 
as  those  caused  by  lightning,  earthquakes,  and  tempests. 

Where  the  law  casts  a  duty  on  a  party,  the  performance  should  be 
excused  if  it  be  rendered  impossible  by  the  act  of  God;  but  where  the  party, 
by  his  own  contract,  engages  to  do  an  act,  it  is  deemed  to  be  his  own  fault  that 
he  did  not  thereby  provide  against  contingencies,  and  exempt  himself  from 
responsibilities  in  certain  events;  and  in  cases  of  absolute  general  contracts, 
the  non-performance  is  not  excused  by  an  inevitable  accident,  or  other  con- 
tingency, although  not  foreseen  by,  nor  within  the  control  of,  the  party. 

Contracts  for  strictly  personal  services,  marriage,  etc.,  are  discharged 
by  death  or  incapacity. 

ACTUAL. 

Something  real,  in  opposition  to  constructive  or  speculative;  something 
"  existing  in  act."  The  actual  possession  by  a  person  of  any  property  creates 
the  presumption  that  he  is  the  rightful  owner  thereof ;  hence  the  necessity  of 
recording  bills  of  sale,  chattel  mortgages,  etc.,  to  give  third  persons  notice  of 
rights  of  lienors. 

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ACTUAL  DAMAGES. 

The  damages  awarded  for  a  loss  or  injury  actually  sustained;  in  con- 
tradistinction from  damages  implied  by  law,  and  from  those  awarded  by 
way  of  punishment. 

AGENT. 

One  who  undertakes  to  transact  some  business,  or  to  manage  some  aflfair 
for  another,  by  the  authority  and  on  accoimt  of  the  latter,  and  to  render  an 
account  of  it.  The  term  is  of  wide  application  and  is  used  to  include  factors, 
commission  merchants,  brokers,  attorneys  at  law  and  in  fact,  cashiers  of  banks, 
auctioneers,  clerks  and  the  like. 


I 


1 

I 

'    I 


WHO  MAY  BE  AN  AGENT. 

Many  persons  disqualified  from  acting  for  themselves,  such  as  infants, 
persons  attainted  or  outlaws,  aliens,  slaves,  and  others  could  act  as  agents  in  the 
execution  of  a  naked  authority.  A  married  woman  may  be  the  agent  of 
her  husband,  and  as  such,  with  his  consent,  bind  him  by  her  contract  or 
other  act,  but  she  cannot  contract  for  the  sale  of  his  lands  without  express 
authority,  and  she  may  be  the  agent  of  another  in  a  contract  with  her  hus- 
band. Anyone  may  act  as  agent  except  lunatics,  insane  persons  and  chil- 
dren of  very  tender  years. 

extent  of  authority. 

The  authority  of  an  agent,  unless  the  contrary  clearly  appears,  is  pre- 
sumed to  include  all  the  necessary  and  usual  means  of  executing  it  with  effect. 
"WTiere,  however,  the  whole  authority  is  conferred  by  a  written  instrument, 
its  nature  and  extent  must  be  ascertained  from  the  instrument  itself,  and  can 
not  be  enlarged  by  parol  evidence. 

An  agent  can  not  generally  appoint  a  sub-agent  so  as  to  render  the 
latter  directly  responsible  to  the  principal.  But  it  may  be  done  when  neces- 
sity requires,  and  when  the  delegated  acts  are  ministerial  involving  no  great 
skill  or  discretion. 

DUTIES  and  liabilities. 

The  particular  obligations  of  an  agent  vary  according  to  the  nature, 
terms  and  end  of  his  employment.  When  his  authority  is  limited  by  instruc- 
tions, it  is  his  duty  to  adhere  faithfully  to  those  instructions,  if  the  act  is  legal 
and  moral,  but  cases  of  extreme  necessity  and  unforeseen  emergency  constitute 
exceptions  to  this  rule.  He  is  bound  to  execute  the  orders  of  his  principal, 
whenever,  for  a  valuable  consideration  he  has  undertaken  to  perform  them. 
He  is  to  exercise  skill;  keep  his  principal  informed  of  his  doings  and  give 
reasonable  notice  of  whatever  may  be  important  to  his  interests;  keep  regular 
accounts  and  render  his  accounts  to  his  principal  at  reasonable  times. 

As  to  principals,  the  liabilities  of  an  agent  arise  from  a  violation  of 
duties  and  obligations  to  them  by  exceeding  his  authority,  by  misconduct, 

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or  by  negligence,  omission,  or  act  by  the  natural  result  or  just  consequence 
of  which  the  principals  sustain  a  loss.  The  degree  of  neglect  which  will 
make  the  agent  responsible  for  damages  varies  according  to  the  nature  of 
the  business  and  the  relation  in  which  he  stands  to  his  principal. 

As  to  third  parties,  when  an  agent  is  known  to  act  merely  for  another, 
and  with  full  authority,  his  acts  and  contracts  will  be  deemed  those  of  the 
principal  only,  and  the  agent  will  incur  no  personal  responsibility.  But  when 
he  does  an  act  without  authority  or  exceeds  his  authority,  and  the  want  of 
authority  is  unknown  to  the  other  party  the  agent  will  be  personally  responsible 
to  the  person  with  whom  he  deals. 

rights  and  privileges. 

An  agent  is  ordinarily  entitled  to  compensation  for  his  services,  commonly 
called  a  commission,  which  is  regulated  by  special  agreement,  by  usage  of 
trade,  or  by  the  presumed  intention  of  the  parties.  The  agent  has  a  right 
to  reimburse  his  advances,  expenses,  and  disbursements  reasonably  and  in 
good  faith  incurred  and  paid,  without  any  default  on  his  part,  in  the  course 
of  his  agency. 

AGREEMENT. 

"  The  expression  by  two  or  more  persons  of  a  common  intention  to 
affect  the  legal  relations  of  those  persons."  It  consists  of  two  or  more 
persons  being  of  the  same  mind,  intention  or  meaning  concerning  the  matter 
agreed  upon.  A  coming  together  of  parties  in  opinion  or  determination,  the 
union  of  two  or  more  minds  in  a  thing  done  or  to  be  done;  a  mutual  assent 
to  do  a  thing.  The  consent  of  two  or  more  persons  concurring,  the  one 
in  parting  with,  the  other  in  receiving,  some  property,  right  or  benefit. 

Conditional  Agreements  are  those  which  are  to  have  full  effect  only 
in  case  of  the  happening  of  certain  events,  or  the  existence  of  a  given  state 
of  things. 

Executed  Agreements  are  those  where  nothing  further  remains  to  be 
done  by  the  parties. 

Executory  Agreements  are  such  as  rest  on  articles,  memoranda,  parol 
promises  or  undertakings,  and  the  like,  to  be  performed  in  the  future,  or 
which  are  entered  into  preparatory  to  more  solemn  and  formal  alienations 
of  property. 

Express  Agreements  are  those  in  which  the  terms  are  openly  uttered 
and  avowed  by  the  parties  at  the  time  of  making. 

Implied  Agreements  are  those  which  the  law  supposes  the  parties  to 
have  made,  although  the  terms  were  not  openly  expressed. 


ALLONGE. 

A  piece  of  paper  annexed  to  a  bill  of  exchange  or  promissory  note,  on 
which  to  write  endorsements  for  which  there  is  no  room  on  the  instrument 
itself. 

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ALTERATION. 

A  change  in  the  terms  of  a  contract  or  other  written  instrument  by  a 
party  entitled  under  it,  without  the  consent  of  the  other  party,  by  which  its 
meaning  or  language  is  changed;  a  change  in  the  language  of  instruments 
but  not  in  the  contract  itself. 

Such  a  change  by  a  stranger  is  called  a  spoliation.  A  change  in  the 
written  instrument  by  agreement  of  the  parties  is  sometimes  called  an  altera- 
tion, but  such  an  altered  instrument  becomes  a  new  agreement. 

An  alteration  avoids  the  instrument,  if  such  alteration  is  material.  The 
question  of  materiality  is  one  of  law  for  the  court  and  depends  upon  the 
facts  of  each  case. 

A  spoliation  by  a  third  party  without  the  knowledge  of,  or  consent  of 
a  party  to  the  instrument  will  not  avoid  it  even  if  material,  if  the  original 
words  can  be  restored  with  certainty,  but  the  material  spoliation  of  an  instru- 
ment while  it  is  in  the  custody  of  the  promisee,  avoids  his  right  under  it, 
because  having  the  custo<ly  of  an  instrument  made  for  his  benefit  he  is  bound 
to  preserve  it  in  its  original  state. 

AMBIGUITY. 

Duplicity,  indistinctness,  or  uncertainty  of  meaning  of  an  expression 
used  in  a  written  instrument. 

Latent  ambiguity  is  that  which  arises  from  some  collateral  circumstance 
or  extrinsic  matter  in  cases  where  the  instrument  itself  is  sufficiently  certain 
and  intelligible. 

Patent  ambiguity  is  that  which  appears  on  the  face  of  the  instrument; 
that  which  occurs  when  the  expression  of  an  instrument  is  so  defective  that 
a  court  of  law  which  is  obliged  to  put  a  construction  upon  it,  placing  itself 
in  the  situation  of  the  parties,  cannot  ascertain  therefrom  the  parties'  intention. 

Latent  ambiguities  may  be  explained  by  parol  evidence,  and  are  sub- 
jects for  the  consideration  of  a  jury.  Patent  ambiguities  render  the  instru- 
ment, so  far  as  they  extend,  inoperative.  They  can  not  be  explained  by  parol 
evidence. 

Inaccuracies  or  such  uncertainty  as  arises  from  the  use  of  peculiar  words, 
or  common  words  in  a  peculiar  sense,  are  not  ambiguities. 

AMOUNT  COVERED. 

In  insurance,  the  amount  that  is  insured,  and  for  which  underwriters 
are  liable  for  loss  under  a  policy  of  insurance. 

ANNUALLY. 

Yearly :  returning  every  year.  As  applied  to  interest  it  is  not  an  under- 
taking to  pay  interest  at  the  end  of  one  year  only  but  to  pay  interest  at  the 
end  of  each  and  every  year  during  a  period  of  time,  either  fixed  or  contingent. 

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ANY. 

Ts  synonymous  with  "  either "  and  is  given  the  full  force  of  "  everv " 
or  "  all." 

APPORTIONMENT. 

The  division  or  distribution  of  a  subject-matter  in  proportionate  shares. 
The  allowance,  in  case  of  the  partial  performance  of  a  contract,  of  a  propor- 
tionate part  of  what  the  party  would  have  received  as  a  recompense  for  the 
entire  performance  of  the  contract. 


APPRAISEMENT. 

A  just  valuation  of  property.  Appraisements  are  rec|uired  by  law  to 
be  made  of  the  property  of  persons  dying  intestate,  of  insolvents,  and  others, 
when  an  inventory  of  the  goods  ought  to  be  made,  and  a  just  valuation  put 
upon  them. 

APPROPRIATION  OF  PAYMENTS. 

t 

The  application  to  one  or  more  of  several  debts,  of  a  payment  made  by 
a  debtor  to  his  creditor. 

The  debtor  has  the  first  right  of  appropriation.  No  precise  declaration 
is  required  of  him,  but  his  intention,  when  made  known,  is  sufficient;  still 
such  facts  must  be  made  to  appear  and  be  proved  as  will  satisfy  a  jury  that 
the  debtor  did  purpose  the  specific  appropriation  claimed.  The  appropria- 
tion must  be  made  by  the  debtor  at  or  before  the  time  of  payment. 

The  creditor  may  apply  the  payment,  as  a  general  rule,  if  the  debtor 
does  not.  In  the  absence  of  directions  the  creditor  may  apply  credits  to  the 
least  secure  items  of  his  claim,  but  there  are  some  restrictions  on  this  right. 
The  debtor  must  have  known  and  waived  his  right  of  appropriation.  The 
creditor  must  prefer  a  prior  legal  debt  to  a  posterior  equitable  debt.  Where 
only  one  of  several  debts  is  valid  and  lawful,  all  payments  must  be  applied 
to  this,  irrespective  of  its  order  in  the  account.  A  creditor  cannot  apply 
unappropriated  funds  to  such  of  his  claims  as  are  illegal  and  not  recoverable 
at  law.  But  in  the  case  of  some  debts  illegal  by  statute. — namely  those 
contracted  by  sales  of  spirituous  liquors, — an  appropriation  to  them  has 
been  held  good.  And  the  debtor  may  always  elect  to  have  his  payments 
applied  to  an   illegal   debt. 

If  some  of  the  debts  are  barred  by  the  statute  of  limitations  the  creditor 
cannot  first  apply  the  unappropriated  funds  to  them,  and  thus  revive  and 
take  them  out  of  the  statute.  Still  a  debtor  may  waive  the  bar  of  statute 
of  limitation,  just  as  he  may  apply  his  funds  to  an  illegal  debt ;  and  the 
creditor  may  insist,  in  the  silence  of  the  debtor,  unless  other  facts  controvert 
it,  that  the  money  was  paid  on  the  barred  debts.  It  has  been  held  that  a 
creditor  may  first  apply  a  general  payment  to  discharging  any  one  of  several 
accounts  all  barred,  and  by  so  doing  he  will  revive  the  balance  of  that  particu- 

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lar  account,  but  he  is  not  allowed  to  distribute  the  funds  upon  all  of  the 
barred  accounts  so  as  to  revive  all. 

The  law  will  apply  part  payments  in  accordance  with  the  justice  and 
equity  of  the  case,  and  in  a  manner  most  beneficial  to  the  debtor  at  the  time 
of  payment. 

Unappropriated  funds  are  always  to  be  applied  to  a  debt  at  the  time 
of  payment,  rather  than  one  not  then  due.  But  an  express  agreement  will 
make  good  an  appropriation  to  debts  not  due. 

Payments  made  on  account  are  first  to  be  applied  to  the  interest  which 
has  accrued  thereon.  And,  if  the  payment  exceed  the  amount  of  interest, 
the  remainder  goes  towards  extinguishing  the  principal.  But  a  payment 
cannot  be  applied  by  the  creditor  to  usurious  interest. 

When  no  other  rules  of  appropriation  intervene,  the  law  applies  part- 
payments  to  debts  in  the  order  of  time,  discharging  the  oldest  first.  So 
strong  is  this  rule  of  priority  that  it  has  been  said  that  equity  will  apply  pay- 
ments to  the  earliest  items,  even  where  the  creditor  has  security  for  these 
items  and  none  for  later  ones. 

The  general  rule  is  that  neither  debtor  nor  creditor  can  so  apply  a 
payment  as  to  aflfect  the  liabilities  of  sureties,  without  their  consent.  Where 
a  principal  makes  general  payments,  the  law  presumes  them,  prima  facie, 
to  be  made  upon  debts  guaranteed  by  surety,  rather  than  upon  others. 

APPROVED  ENDORSED  NOTES. 

Notes  endorsed  by  another  person  than  the  maker,  for  additional  security, 
the  endorser  being  satisfactory  to  the  payee. 

When  credit  is  given  at  public  sales,  the  sales  are  generally  made  on 
approved  endorsed  notes.  The  meaning  of  the  term  is  that  the  purchaser 
shall  give  his  promissory  note  for  the  amount  of  the  credit  endorsed  by 
another,  which,  if  approved  by  the  seller,  shall  be  received  in  payment. 

ARBITRATION. 

The  investigation  and  determination  of  a  matter  or  matters  of  difference 
between  contending  parties,  by  one  or  more  unofficial  persons,  chosen  by  the 
parties,  and  called  arbitrators  or  referees.  Voluntary  arbitration  is  that  which 
takes  place  by  mutual  and  free  consent  of  the  parties.  It  usually  takes 
place  in  pursuance  of  an  agreement,  usually  in  writing,  between  the 
parties,  termed  a  "  submission."  The  determination  of  the  arbitrators  or 
referees  is  called  an  "  award."  A  parol  submission  is  good  at  common  law. 
A  submission  to  arbitration  made  pending  an  action  relative  to  the  matter, 
operates  as  a  discontinuance  of  the  suit. 

Compulsory  arbitration  is  that  which  takes  place  when  the  consent  of 
one  of  the  parties  is  enforced  by  statutory  provisions.  Any  matter  which 
the  parties  may  adjust  by  agreement,  or  which  may  be  the  subject  of  a  suit 
at  law  (except  crimes)  may  be  determined  by  arbitration.    Any  person  who 

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is  capable  of  making  a  valid  and  binding  contract  with  regard  to  the  subject, 
may,  in  general,  be  a  party  to  a  reference  or  arbitration.  At  common  law  arbi- 
tration is  entirely  voluntary,  and  depends  upon  the  agreement  of  the  parties, 
to  waive  the  right  of  trial  in  court  by  a  jury.  A  submission  to  arbitration 
is  subject  to  revocation  at  any  time  before  an  award,  and  it  is  revoked  by  the 
death  of  one  of  the  parties. 

ARREARS. 

The  remainder  of  an  account  or  sum  of  money.  Any  money  due  and 
unpaid  at  a  given  time.    "  In  arrears  "  means  overdue  and  unpaid. 

ARTICLES  OF  AGREEMENT. 

A  written  memorandum  of  the  terms  of  an  agreement. 

The  instrument  should  contain  a  clear  and  explicit  statement  of  the 
names  of  the  parties,  with  their  additions  for  purposes  of  distinction;  the 
subject  matter  of  the  contract,  including  the  time,  place,  and  all  the  important 
details  of  the  manner  of  performance ;  the  promises  to  be  performed  by  each 
party;  the  date,  which  should  be  truly  stated,  and  should  be  signed  by  the 
parties  or  their  agents. 

ARTICLES  OF  CO-PARTNERSHIP. 

A  co-partnership  is  an  association  of  two  or  more  persons  for  the  trans- 
action of  business  with  joint  capital.  Such  an  association  of  persons  is  not 
subject  to  the  restrictions  or  limitations  attached  to  a  corporation,  and  each 
partner  is  individually  responsible  for  the  obligations  contracted  by  the  firm, 
or  co-partnership,  in  case  the  capital  invested  by  the  partners  in  the  partnership 
business  is  insufficient  to  satisfy  all  trade  liabilities. 

The  following  form  of  Articles  of  Co-partnership  may  be  found  useful: 

FORM   OF   ARTICLES  OF   CO-PARTNERSHIP. 

Articles  of  Co-partnership  made  this day  of 

,  by  and  between  John  Jones  and  William  Smith,  both  of  the  city  of 


The  said  parties  hereby  agree  to  form,  and  do  form,  a  co-partnership 
for  the  purpose  of  carrying  on  the  general  produce  and  commission  business, 
on  the  following  terms  and  articles  of  agreement,  to  the  faithful  performance 
of  which  they  mutually  agree  to  bind  themselves.     The  style  and  name  of 

the  firm  shall  be  Jones  &  Smith,  and  shall  commence  on  the day 

of 

Each  of  the  said  parties  agree  to  contribute  to  the  funds  of  the  partner- 
ship the  sum  of in  cash,  which  shall  be  paid  in,  on,  or  before 

the  first  day  of  »  to  the  business,  and  to  the  care 

and  superintendence  of  the  same. 

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All  profits  which  may  accrue  to  the  said  partnership  shall  be  divided, 
and  all  losses  happening  to  the  said  firm,  whether  from  bad  debts,  depreci- 
ation of  goods,  or  any  other  cause  or  accident,  and  all  expenses  of  the  business 
shall  be  borne  by  the  said  parties  equally. 

All  the  purchases,  sales,  transactions  and  accounts  of  the  said  firm 
shall  be  kept  in  regular  books,  which  shall  always  be  open  to  the  inspection 
of  both  parties,  and  their  legal  representatives,  respectively.  An  account 
of  stock  shall  be  taken,  and  an  account  between  the  parties  shall  be  settled 
as  often  as  once  a  year,  and  as  much  oftener  as  either  party  may  desire,  and 
in  writing  request. 

Neither  of  the  said  parties  shall  subscribe  any  bond,  sign  or  indorse 
any  note  of  hand,  accept,  sign  or  indorse  any  draft  or  bill  of  exchange,  or 
assume  any  other  liability,  verbal  or  written,  either  in  his  own  name  or  in 
the  name  of  the  firm,  for  the  accommodation  of  any  other  person  or  persons 
whatsoever,  without  the  consent  in  writing  of  the  other  party ;  nor  shall 
either  party  lend  any  of  the  funds  of  the  co-partnership  without  such  consent 
of  the  other  party. 

Neither  party  shall  engage  in  any  other  business,  nor  shall  either  party 

withdraw  from  the  joint  stock  any  more  than    per 

quarter,  or  per  year. 

On  the  dissolution  of  this  co-partnership,  if  the  said  parties  or  their 
legal  representatives  cannot  agree  in  the  division  of  the  stock  then  on  hand, 
the  whole  co-partnership  effects,  except  the  debts  due  the  firm,  shall  be  sold 
at  public  auction,  at  which  both  parties  shall  be  at  liberty  to  bid  and  purchase 
like  other  individuals,  and  the  proceeds  be  divided  after  paying  the  debts 
of  the  firm. 

For  the  purpose  of  securing  the  performance  of  the  foregoing  agree- 
ments, it  is  agreed  that  either  party,  in  case  of  any  violation  of  them,  or 
either  of  them,  by  the  other,  shall  have  the  right  to  dissolve  this  co-partner- 
ship forthwith  on  his  becoming  informed  of  such  violation. 

In  Witness  ^^'HEREOF,  The  said  parties  have  hereunto  set  their  hands 
and  seals,  the  day  and  year  first  above  written. 

John  Jones.  (Seal) 

William    Smith.       (Seal) 

ASSETS. 

All  the  stock  in  trade,  cash,  and  all  available  property  belonging  to  a 
merchant  or  company  or  corporation.  The  property  in  the  hands  of  an  heir, 
executor,  administrator,  or  trustee,  which  is  legally  or  equitably  chargeable 
with  the  obligations  which  such  heir,  executor,  administrator  or  other  trustee  is, 
as  such,  required  to  discharge. 

Legal  Assets  are  such  as  constitute  the  fund  for  the  payment  of  debts 
according  to  their  legal  priority. 

Personal  Assets. — Good  and  personal  chattels  to  which  the  executor 
or  administrator  is  entitled. 

Real  Assets  are  such  as  descend  to  the  heir,  as  an  estate  in  fee  simple. 

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In  the  United  States,  generally,  by  statute,  all  the  property  of  the 
deceased,  real  and  personal,  is  liable  for  his  debts,  and.  in  equity,  is  to  be 
applied  as  follows,  when  no  statute  prescribes  a  different  order  of  applica- 
tion, exhausting  all  the  assets  of  each  class  before  proceeding  to  the  next. 

First — The  personal  estate  not  specifically  bequeathed. 

Second — Real  estate  devised  or  ordered  to  be  sold  for  the  payment  of 
debts. 

Third — ^Real  estate  descended  but  not  charged  with  debts. 

Fourth — Real  estate  devised,  charged  generally  with  the  payment  of 
debts. 

Fifth — Generally,  pecuniary  legacies,  pro  rata. 

Sixth — Real  estate  devised,  not  charged  with  debts, 

ASSIGN. 

To  make  or  set  over  to  another. 

To  appoint,  to  select,  to  allot.    To  set  forth,  to  point  out 


ASSIGNEE. 

One  to  w^hom  an  assignment  is  made. 

Assignee  in  Fact  is  one  to  whom  an  assignment  has  been  made  in  fact 
by  the  party  having  the  right. 

Assignee  in  Law  is  one  in  whom  the  law  vests  the  right. 


ASSIGNMENT. 

A  transfer  or  making  over  to  another  of  any  property,  real  or  personal,  in 
possession  or  in  action,  or  of  any  estate  or  right  therein.  A  transfer  by 
writing,  as  distinguished  from  one  by  delivery. 

The  deed  by  which  the  transfer  is  made  is  also  called  an  assignment. 
To  make  an  assignment,  valid  at  law,  the  subject  matter  of  it  must  have  an 
existence,  actual  or  potential,  at  the  time  of  the  assignment  But  courts  of 
equity  will  support  an  assignment  not  only  of  interests  in  action  and  con- 
tingency, but  of  things  which  have  no  present,  actual  or  potential  existence, 
but  rest  in  mere  possibility  only. 

The  right  of  an  insolvent  debtor  to  make  an  assignment  for  the  benefit 
of  his  creditors  exists  at  common  law,  independent  of  statute,  and  when  good 
in  the  state  where  made  is  good  everywhere.  The  statutes  of  the  several 
states  should  be  examined  regarding  this  subject. 

Any  words  which  show  the  intent  of  the  parties  to  make  a  complete 
transfer,  will  work  an  assignment.  The  proper  and  technical  words  are 
**  assign,  transfer,  and  set  over." 

ASSIGNOR. 


One  who  makes  an  assignment. 


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ASSURED. 

A  person  who  has  been  insured  by  some  insurance  company,  or  under- 
writer, against  losses  or  perils  mentioned  in  the  policy  of  insurance.  He  is 
sometimes  designated  in  maritime  insurance  by  description,  and  not  by 
name,  as  "  for  whom  it  may  concern." 

ATTORN. 

To  aim  over ;  to  transfer  to  another  money  or  goods ;  to  assign  to  some 
particular  use  or  service. 

ATTORNEY. 

One  put  in  the  place,  turn  or  stead  of  another,  to  manage  his  affairs; 
one  who  manages  the  affairs  of  another  by  direction  of  his  principal. 

ATTORNEY  IN  FACT. 

A  person  to  whom  the  authority  of  another,  who  is  called  the  constituent, 
is  by  him  lawfully  delegated.  The  term  is  employed  to  designate  persons 
who  act  under  a  special  agency,  or  a  special  letter  of  attorney,  so  that  they 
are  appointed  in  factum,  for  the  special  act  to  be  performed. 

AUTHENTIC  ACT. 

An  act  which  has  been  executed  before  a  notary  public  or  other  officer 
authorized  to  execute  such  functions,  or  which  is  testified  by  a  seal,  or  has  been 
rendered  public  by  the  authority  of  a  competent  magistrate,  or  which  is 
certified  as  being  a  copy  of  a  public  record. 

An  authentic  act  has  been  held  to  be  full  proof  of  the  agreement  contained 
in  it,  against  the  contracting  parties  and  their  heirs  and  assigns,  unless  it  be 
declared  and  proved  to  be  a  forgery. 

AUTHENTICATION. 

Acts  done  with  a  view  of  causing  an  instrument  to  be  known  and 
identified. 

AUTHORITY. 

The  lawful  delegation  of  power  by  one  person  to  another. 

Authority  coupled  with  an  interest  is  an  authority  given  to  an  agent 
for  a  valuable  consideration,  or  which  forms  part  of  a  security.  Here  the 
agent  has  an  interest  in  the  subject  matter  of  the  agency,  and  a  limitation  is 
thus  placed  upon  the  principal's  power  to  terminate  the  agency. 

Express  authority  is  that  given  explicitly  either  in  writing  or  verbally. 

General  Authority  is  that  which  authorizes  the  agent  to  do  everything 
connected  with  a  particular  business,  and  it  empowers  him  to  bind  his  principal 

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by  all  acts  done  within  the  scope  of  his  emplo)mient.  General  authority 
cannot  be  limited  by  any  private  order  or  direction  not  known  to  the  party 
dealing  with  him.  Limited  Authority  is  where  the  agent  is  bound  by  precise 
instruction.  Special  Authority  is  that  which  is  confined  to  an  individual  trans- 
action. Naked  Authority  is  where  the  principal  delegates  the  power  to  the 
agent  wholly  for  the  benefit  of  the  former.  A  naked  authority  may  be  revoked ; 
an  authority  coupled  with  an  interest  is  irrevocable.  Unlimited  Authority 
is  where  the  agent  is  left  to  pursue  his  own  discretion.  Authority  by  law 
is  such  cases  as  where  the  law  creates  an  agency,  as  where  the  law  authorizes 
a  wife  to  pledge  her  husband's  credit,  even  against  his  will,  it  creates  a 
compulsory  agency,  and  her  request  is  his  request. 

The  delegation  of  authority  may  be  by  deed  for  any  purpose  whatever. 
When  the  act  to  be  done  must  be  done  by  or  through  the  medium  of  a  deed 
the  authority  to  do  such  act  must  be  delegated  by  a  deed,  and  executed  with 
all  the  forms  necessary  to  render  the  instrument,  by  which  the  act  is  done, 
perfect.  But  a  written  authority  is  not  necessary  to  authorize  an  agent  to 
sign  an  unsealed  paper.  For  most  purposes  the  authority  may  be  either  in 
writing  not  under  seal,  or  verbally,  or  by  the  mere  employment  of  the  agent, 
or  from  the  conduct  of  the  employer  in  sanctioning  the  acts  of  the  agent 

BAILMENT. 

Bailment  is  the  delivery  of  goods  for  some  purpose,  upon  a  contract, 
express  or  implied,  that  after  the  purpose  has  been  fulfilled  they  shall  be 
re-delivered  to  the  bailor,  or  otherwise  dealt  with  according  to  his  directions, 
.or  kept  till  he  reclaims  them. 

The  distinction  between  bailment  and  sale,  fundamentally,  is  that  in 
bailment  the  identical  thing  delivered,  in  the  same  or  altered  form,  is  to  be 
restored,  and  the  title  of  the  property  is  not  changed;  while  in  a  sale  there 
is  no  obligation  to  return  the  specific  article,  but  the  party  receiving  it  is  at 
liberty  to  return  another  thing  of  equal  value  either  in  the  form  of  money  or 
otherwise,  and  becomes  a  debtor  to  make  the  return,  and  the  title  to  the  prop- 
trty  is  changed. 

The  decision  of  the  question  as  to  whether  a  certain  transaction  is  a 
bailment  or  sale  is  not  always  easily  made,  and  frequently  depends  upon 
the  understanding  of  the  parties,  the  wording  of  the  particular  contract  or 
the  usages  of  trade,  as  where  grain  is  deposited  in  a  warehouse  or  elevator  to 
be  commingled  with  other  grain,  and  it  is  not  contemplated  that  the  identical 
grain  stored  shall  be  returned,  but  only  an  equal  amount  of  grain  of  the  same 
kind  and  grade,  in  which  cases  the  better  doctrine  seems  to  be  that  the  trans- 
action as  between  the  parties,  vis.,  the  owner  of  the  g^ain  and  the  depository, 
is  a  mere  bailment,  and  does  not  pass  title  to  the  grain.  But  where  the  deposi- 
tory has  the  option  of  paying  the  market  price  in  lieu  of  the  return  of  a  like 
quantity  and  quality  of  grain,  the  transaction  is  a  sale. 

Where  goods  or  raw  materials  are  sent  to  a  manufacturer  to  be  made 
into  other  articles  or  goods  which  are  to  be  returned  to  the  owner,  the  trans- 

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action  is  a  bailment.  But  where  such  goods  or  materials  are  to  be  returned 
as  altered  or  manufactured,  or  the  money  value  of  the  same  returned,  or  to 
be  paid  for  in  commodities,  the  transaction  is  a  sale  and  not  a  bailment. 

There  are  three  general  classes  of  bailments: 

First — Those  for  the  sole  benefit  of  the  bailor,  or  of  a  third  person 
represented  by  him. 

Second — Those  for  the  sole  benefit  of  the  bailee,  or  of  some  one  whom 
he  represents,  and 

Third — Those  for  the  benefit  of  both  parties. 

The  first  class  is  of  two  kinds:  (a)  Deposit,  where  personal  property  is 
to  be  kept  for  the  depositor  without  reward,  and  to  be  returned  when  he 
requires  it,  and  (b)  Alandate,  a  bailment  of  personal  property  in  regard  to 
which  the  bailee  engages  to  do  some  act  without  reward. 

The  second  class  is  (a)  Gratuitous  Loan,  a  bailment  of  an  article  for 
a  certain  time,  to  be  used  by  the  bailee  without  paying  for  the  use. 

The  third  class  is  (a)  Pledge  or  Pawn,  a  bailment  of  personal  property 
as  security  for  some  debt  or  engagement;   (b)   Bailments  for  hire. 

In  the  first  class  the  law  requires  of  the  bailee  only  slight  diligence,  and 
holds  him  responsible  only  for  losses  attributable  to  his  gross  neglect. 

In  the  second  class  the  bailee  is  required  to  exercise  extraordinary  care 
over  the  thing  bailed,  and  is  responsible  for  slight  neglect. 

In  the  third  class  the  bailee  is  required  to  exercise  only  ordinary  dili- 
gence, and  is  answerable  only  for  ordinary  neglect. 

The  bailee  is  not  an  insurer. 

BALANCE  SHEET. 

A  balance  sheet  is  a  summation  of,  or  general  balance  of  all  accounts,  but 
not  of  the  particular  items  going  to  make  up  the  several  accounts. 

Where  a  statute  required  the  directors  of  mining  corporations  to  post  in 
the  ofiice  of  the  company  each  month  a  "  balance  sheet  or  an  itemized  account," 
it  was  held  that  the  publication  of  a  balance  sheet  was  not  a  sufficient  compliance 
with  the  statute.  The  court  said :  "  Each  of  these  words  has  a  well-known 
and  definite  meaning,  entirely  different  from  each  other,  and  they  cannot  be 
construed  to  mean  the  same  thing." 

BANK  ACCOUNT. 

A  fund  which  merchants,  traders  and  others  have  deposited  into  the 
common  cash  of  some  bank,  to  be  drawn  out  by  checks  from  time  to  time  as 
the  owner  or  depositor  may  require.  The  statement  of  the  amount  deposited 
and  drawn,  which  is  kept  in  duplicate,  one  in  the  depositor's  bank  book  and  the 
other  in  the  books  of  the  bank. 

BANK  NOTES  or  BANK  BILLS. 

The  promissory  notes  of  incorporated  banks,  payable  to  bearer  on  demand, 
and  designed  to  be  circulated  as  money  for  an  indefinite  period. 

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Bank  notes  are  not  legal  tender,  but  current  bank  notes  are  regarded 
as  a  lawful  tender  in  payment  of  debts,  unless  the  debtor  makes  objection  to 
them  when  offered. 

The  bona  fide  holder  of  a  bank  note  can  recover  against  the  bank  or 
retain  it  against  the  real  owner,  though  it  was  lost  or  stolen.  The  holder, 
however,  must  have  come  by  the  note  in  the  usual  course  of  business,  and  for 
a  calculable  consideration,  if  he  is  to  retain  it  against  the  real  owner.  The 
holder  of  a  lost  or  stolen  bank  note  does  not  get  an  absolute  title  which  he 
can  transfer  to  a  purchaser  who  has  notice  of  the  loss  or  theft.  The  person 
disputing  the  holder's  title  must  show  that  the  holder  came  by  the  note  in 
bad  faith. 

Where  a  bank  note  has  been  partially  or  wholly  destroyed  the  person  to 
whom  it  belonefed  can  recover  from  the  bank.  Sufficient  and  satisfactorv 
evidence  as  to  the  identity  and  ownership  of  the  note,  and  the  destruction 
thereof  being  given  by  the  owner,  such  questions  being  cjuestions  of  fact 
for  the  jury.  An  indemnity  bond  to  secure  the  bank  has  been  held  to  be  neces- 
sary, but  the  question  is  still  open. 

BANKS. 

A  bank  is  an  institution  for  the  custody  and  loan  of  money,  the  exchange 
and  transmission  of  the  same  by  means  of  bills  and  drafts,  and  the  issuance 
of  its  own  promissory  notes,  payable  to  bearer,  as  currency ;  or  for  the  exercise 
of  one  or  more  of  these  functions. 

Banks  are  of  three  kinds :  banks  of  deposit,  banks  of  discount,  and  banks 
of  circulation ;  and  comprise  National,  State,  Savings  and  Private  banks,  and 
in  a  popular  sense  Loan  and  Trust  companies. 

The  distinction  between  a  bank  and  a  trust  company  is  well  defined. 
The  powers  of  the  trust  company  depend  upon  the  terms  of  its  charter,  but 
they  are  not  banking  powers.  The  trust  company,  like  a  savings  bank, 
pays  interest  upon  deposits,  but  its  deposits  are  strictly  loans,  not  subject  to 
check.  It  may  not  issue  its  own  notes  for  circulation,  nor  does  it  buy  or 
sell  or  exchange  in  the  ordinary  course  of  its  dealings. 

To  a  large  degree  the  limits  of  any  bank's  powers  are  defined  by  statute, 
or  its  charter. 

BARGAIN. 

Means  an  agreement  between  persons  concerning  the  loan,  exchange  or 
sale  of  property.  More  technically,  a  bargain  is  a  mutual  agreement  or 
contract  between  two  parties,  the  one  to  sell  goods  or  lands,  and  the  other 
to  buy  them. 

BARTER. 

Is  a  contract  by  which  the  parties  exchange  goods.  The  term  is  not 
applied  to  contracts  concerning  land,  but  to  such  only  as  relate  to  goods  and 
chattels. 

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BEARER. 

The  bearer  of  a  bill  or  note  means  a  person  in  possession  of  a  bill 
or  note  which  is  payable  to  bearer. 

BID. 

An  offer  to  pay  a  specified  price  for  an  article  about  to  be  sold  at  auction. 
An  offer  to  perform  a  contract  for  work  and  labor  or  to  supply  materials  at  a 
specified  price. 

BIDDER. 

One  who  offers  to  pay  a  specified  price  for  an  article  offered  for  sale 
at  a  public  auction,  or  offers  to  perform  a  contract  for  work  and  labor  or  supply 
materials  at  a  specified  price. 

The  bidder  has  a  right  to  expressly  withdraw  his  bid  at  any  time  before 
it  is  accepted,  which  acceptance  is  generally  manifested  by  knocking  down 
the  hammer ;  or  the  bid  may  be  withdrawn  by  implication,  as  by  an  adjournment 
of  the  sale  before  the  article  under  the  hammer  is  knocked  down. 

The  bidder  is  required  to  act  in  good  faith,  and  any  combination  between 
himself  and  others  to  prevent  a  fair  competition,  would  void  the  sale 
made  to  himself.  But  there  is  nothing  illegal  in  two  or  more  persons  agree- 
ing together  to  purchase  a  property  at  sheriff's  sale,  fixing  a  certain  price 
which  they  are  willing  to  give,  and  appointing  one  of  their  number  to  be  the 
bidder. 

BILAN. 

A  term  used  in  Louisiana  to  designate  a  book  in  which  bankers,  mer- 
chants and  traders  write  a  statement  of  all  they  owe  and  all  that  is  due  to  them. 
A  balance  sheet. 

BILL. 

In  mercantile  law  the  creditor's  statement  in  writing  of  his  claim,  specifying 
the  items.  If  differs  from  an  "  account  stated  "  in  this,  that  an  account  stated  is 
a  statement  which  has  been  assented  to  by  both  parties,  while  a  bill  is  the 
creditor's  statement.  It  has  been  held  in  New  York  that  merely  presenting 
a  bill,  no  payment  or  agreement  as  to  the  amount  being  shown,  does  not 
prevent  the  party  from  suing  for  a  larger  sum. 

BILL  OF  EXCHANGE. 

A  written  order  from  one  person  upon  another,  directing  the  person 
to  whom  it  is  addressed  to  pay  to  a  third  person  a  certain  sum  of  money 
therein  named. 

An  open  (unsealed)  letter  addressed  by  one  person  to  another  directing 
him,  in  effect,  to  pay,  absolutely  and  at  all  events,  a  certain  sum  of  money 
therein  named,  to  a  third  person,  or  to  any  other  to  whom  that  third  person 

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may  order  it  to  be  paid,  or  it  may  be  payable  to  bearer  or  to  the  drawer 
himself.  A  bill  of  exchange  may  be  negotiable  or  non-negotiable.  If  negoti- 
able it  may  be  transferred  either  before  or  after  acceptance. 

The  person  making  the  bill,  called  the  drawer,  is  said  to  draw  upon  the 
person  to  whom  it  is  directed,  and  undertakes  impliedly  to  pay  the  amount 
with  certain  costs  if  he  refuses  to  comply  with  the  command.  The  drawee  is 
not  liable  on  the  bill  till  after  acceptance,  and  then  becomes  liable  as  principal  to 
the  extent  of  the  terms  of  the  acceptance ;  while  the  drawer  is  liable  to  the 
payee  and  indorsees  conditionally  upon  the  failure  of  the  acceptor  to  pay.  The 
liabilities  as  between  indorsers  and  indorsees  are  subject  to  the  same  rules 
as  those  of  indorsers  and  indorsees  on  promissory  notes. 

A  foreign  bill  of  exchange  is  one  of  which  the  drawer  and  drawee  are 
residents  of  countries  foreign  to  each  other.  In  this  respect  the  states  of 
the  United  States  are  foreign  to  each  other.  An  inland  bill  of  exchange  is 
one  of  which  the  drawer  and  drawee  are  residents  of  the  same  state  or 
country.  The  distinction  between  foreign  and  inland  bills  of  exchange  becomes 
important  with  reference  to  the  question  whether  protest  and  notice  are  to 
be  given  in  case  of  non-acceptance. 

The  bill  must  be  written.  It  should  be  properly  dated  both  as  to  place 
and  time  of  making,  but  this  is  not  essential  to  the  validity  of  the  bill ;  if  not 
dated  it  will  be  considered  as  dated  at  the  time  it  was  made.  Bills  are  some- 
times ante  or  post-dated  for  convenience.  The  time  of  payment  should  be 
expressed,  but  if  no  time  is  mentioned  it  is  considered  as  payable  on  demand. 
The  place  of  payment  may  be  prescribed  by  the  drawer,  or  by  the  acceptor  on 
his  acceptance,  but  is  not  generally  done,  in  which  case  the  bill  is  considered  as 
payable  and  to  be  presented  at  the  usual  place  of  business  of  the  drawee,  at 
his  residence  where  it  was  made,  or  to  him  personally  anywhere.  The  order 
or  request  to  pay  must  be  absolute  and  not  contingent,  but  mere  civility  in 
the  terms  does  not  alter  the  legal  effect  of  the  instrument.  It  must  contain 
words  requiring  payment.  To  make  a  bill  negotiable  it  must  be  payable  to 
the  order  of  the  payee  or  to  bearer,  or  must  contain  words  of  negotiability. 
But  negotiability  is  not  essential  to  the  validity  of  a  bill. 

The  sum  for  which  the  bill  is  drawn  should  be  written  in  full  in  the 
body  of  the  instrument,  as  the  words  in  the  body  govern  in  case  of  doubt. 
And  the  amount  must  be  fixed  and  certain  and  not  contingent,  and  it  must 
be  payable  in  money  and  not  in  merchandise ;  and  is  not  negotiable  if  payable 
in  "  bank  bills  "  or  "  currency  "  or  other  substitutes  for  legal  money  of  similar 
denominations.  It  is  not  necessary,  however,  that  the  money  should  be  current 
in  the  place  of  payment,  or  where  the  bill  is  drawn,  it  may  be  in  the  money 
of  any  country  whatever. 

"  Value  Received  "  is  of  no  use  in  a  negotiable  bill. 

The  bill  should  be  subscribed  by  the  drawer,  though  it  is  sufficient  if 
his  name  appears  in  the  body  of  the  instrument ;  and  should  be  addressed  to 
the  drawee  by  the  christian  name  and  surname,  or  by  the  full  style  of  the 
firm. 

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The  parties  to  a  bill  are  the  drawer,  the  drawee,  the  acceptor  and  the 
payee.  Other  persons  connected  with  a  bill  in  case  of  a  transfer  are  the 
indorser,  indorsee  and  holder.  All  the  various  parties  need  not  be  different 
persons.  It  sometimes  happens  that  one  or  more  of  the  apparent  parties  to  a 
bill  are  fictitious  persons.  The  rights  of  a  bona  fide  holder  are  not  thereby 
prejudiced,  even  when  the  payee  and  indorser  are  fictitious  or  even  where  the 
drawer  and  payee  are  both  fictitious. 

BILL  OF  LADING. 

"  The  written  evidence  of  a  contract  for  the  carriage  of  and  delivery  of 
goods." 

"  A  written  acknowledgment  of  the  receipt  of  certain  goods  and  an 
agreement  for  a  consideration  to  transport  and  to  deliver  the  same  at  a 
specified  place  to  a  person  therein  named  or  his  order. 

A  through  bill  of  lading  made  by  a  carrier  by  land  is  one  where  the 
carrier  contracts  to  transport  over  its  own  line  for  a  certain  distance  certain 
merchandise  or  stock,  there  to  deliver  the  same  to  its  connecting  lines  to  be 
transported  to  the  place  of  destination  at  a  fixed  rate  for  the  whole  distance. 

A  bill  of  lading  should  contain  the  name  of  the  shipper  or  consignor, 
the  name  of  the  consignee,  the  names  of  the  vessel  and  her  master,  the  places 
of  shipment  and  destination,  the  price  of  the  freight,  and,  in  the  margin, 
the  marks  and  numbers  of  the  things  shipped. 

Though  it  is  not  necessary  that  the  shipper  should  sign  the  bill  of  lading, 
yet  if  the  terms  of  the  bill  restrict  the  carrier's  common  law  liability,  his 
assent  thereto  must  be  shown.  This  assent  need  not  be  express ;  it  is  suf- 
ficiently indicated  by  an  acceptance  of  the  bill  of  lading  containing  the  restric- 
tions. 

A  bill  of  lading  is  usually  made  in  three  or  more  original  parts,  one  of 
which  is  sent  to  the  consignee  with  the  goods,  one  or  more  others  are  sent 
to  him  by  other  conveyances,  one  is  retained  by  the  merchant  or  shipper, 
and  one  should  be  retained  by  the  carrier.  Where  one  is  marked  "  original  " 
and  the  others  "  duplicate,"  "  triplicate,"  etc.,  they  are  all  in  effect  originals. 

Where  a  bill  of  lading  is  given,  and  accepted  without  objection,  it  is  the 
real  contract  by  which  the  mutual  obligations  of  the  parties  are  to  be  gov- 
erned. Exceptions  in  a  bill  of  lading  are  to  be  construed  most  strongly  against 
the  carrier. 

BILL  PAYABLE. 

A  promissory  note  whereby  one  has  engaged  to  pay  money,  or  a  bill  of 
exchange  accepted.  It  is  so  called  as  being  payable  by  the  party.  An  account 
is  usually  kept  of  such  bill  in  a  book  entitled  "  Bills  Payable,"  and  also  in 
the  ledger. 

BILL  RECEIVABLE. 

A  promissory  note,  bill  of  exchange,  or  other  written  security  for  money 
payable  at  a  future  date,  which  a  party  holds.     So  called  because  the  amounts 

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which  they  represent  are  receivable  by  the  party.     An  account  of  same  is 
usually  kept  in  a  "  Bills  Receivable  "  book  and  the  ledger. 

BILL  OF  SALE. 

A  written  agreement  generally  under  seal,  by  which  one  person  transfers 
his  rights  to  or  interests  in  goods  and  personal  property  to  another.  It  is 
especially  used  where  immediate  possession  of  the  goods  or  chattels  cannot 
be  given. 

BOND. 

An  obligation  in  writing  and  under  seal. 

BREACH  OF  TRUST. 

The  wilful  misappropriation,  by  a  trustee,  of  a  thing  which  has  been 
lawfully  delivered  to  him  in  confidence. 

The  distinction  between  larceny  and  a  breach  of  trust  is  to  be  found 
chiefly  in  the  terms  or  way  in  which  the  thing  was  taken  originally  into  the 
party's  possession;  and  the  rule  seems  to  be,  that  whenever  the  article  is  to 
be  obtained  upon  a  fair  contract  not  for  a  mere  temporary  purpose,  or  by  one 
who  is  in  the  employment  of  the  deliverer,  then  the  subsequent  misappropria- 
tion is  to  be  considered  as  an  act  of  breach  of  trust.  This  rule,  however,  is 
subject  to  many  distinctions. 

BRIBE. 

The  gift  or  promise,  which  is  accepted,  of  some  advantage  as  the  induce- 
ment for  some  illegal  act  or  omission;  or  of  some  illegal  emolument,  as  a 
consideration  for  preferring  one  person  to  another,  in  the  performance  of  a 
legal  act. 

BRIBERY. 

The  receiving  or  offering  of  any  undue  reward  by  or  to  any  person 
whomsoever,  whose  ordinary  profession  or  business  relates  to  the  administra- 
tion of  public  justice,  in  order  to  influence  his  behavior  in  office,  and  to  incline 
him  to  act  contrary  to  his  duty  and  to  known  rules  of  honesty  and  integrity. 
The  term  now  extends  to  the  offense  of  giving  a  bribe  to  many  other  classes  of 
officers.  An  attempt  to  bribe,  though  unsuccessful,  has  been  held  to  be  criminal 
and  the  offender  may  be  indicted. 

BROKER. 

One  engaged  for  others  in  the  negotiation  of  contracts  relative  to  property, 
with  the  custody  of  which  they  have  no  concern. 

A  broker  is,  for  some  purposes,  treated  as  the  agent  of  both  parties; 
but,  in  the  first  place,  he  is  deemed  to  be  the  agent  only  of  the  person  by  whom 
he  is  originally  employed,  and  does  not  become  the  agent  of  the  other  until 

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the  bargain  or  contract  has  been  definitely  settled,  as  to  the  terms  between 
the  principals,  when  he  becomes  the  agent  of  both  parties  for  the  purpose 
of  executing  the  bought  and  sold  notes. 

A  commission  merchant  differs  from  a  broker  in  that  he  may  buy  and 
sell  in  his  own  name  without  disclosing  his  principal,  while  the  broker  can 
buy  and  sell  only  in  the  name  of  his  principal.  A  commission  merchant  has 
a  lien  upon  the  goods  for  his  charges,  advances  and  commissions,  while  the 
broker  has  no  control  of  the  property  and  is  only  responsible  for  bad  faith. 

Bill  and  Note  Brokers  negotiate  the  purchase  and  sale  of  bills  of  exchange 
and  promissory  notes.  They  are  paid  a  commission  by  the  seller,  and  it 
is  not  their  custom  to  disclose  the  names  of  their  principals.  There  is 
an  implied  warranty  that  what  they  sell  is  what  they  represent  it  to  be;  and 
should  a  bill  or  note  sold  by  them  turn  out  to  be  a  forgery,  they  are  held  to  be 
responsible. 

Exchange  Brokers  negotiate  the  sale  and  purchase  of  bills  of  exchange 
drawn  on  foreign  countries,  or  on  other  places  in  this  country. 

Insurance  Brokers  procure  insurance  and  negotiate  between  insurers 
and  insured. 

Merchandise  Brokers  negotiate  the  sale  of  merchandise  without  having 
possession  or  control  of  it,  as  factors  have. 

Pawnbrokers  lend  money  in  small  sums,  on  the  security  of  personal 
property,  generally  at  usurious  rates  of  interest.  They  are  licensed  by  the 
authorities,  and  sometimes  excepted  from  the  usuary  laws. 

Real  Estate  Brokers  negotiate  the  sale  or  purchase  of  real  estate,  and 
sometimes  procure  loans  on  mortgage  security,  collect  rents,  and  attend  to 
the  letting  and  leasing  of  houses  and  lands. 

Ship  Brokers  negotiate  the  purchase  and  sale  of  boats  and  ships,  and 
the  business  of  freighting  vessels.  They  usually  receive  a  commission  from 
the  seller  only. 

Stock  Brokers  are  employed  to  buy  and  sell  shares  of  stock  in  incorpor- 
ated companies,  and  the  indebtedness  of  governments. 

BROKERAGE. 

The  trade  or  occupation  of  a  broker;  the  commissions  paid  to  a  broker 
for  his  services. 

CAPITAL. 

The  sum  of  money  which  a  merchant,  banker,  or  trader  adventures  in  any 
undertaking,  or  which  he  contributes  to  the  common  stock  of  a  partnership, 
and  also  the  fund  of  a  trading  company. 

Capital  signifies  the  actual  estate,  whether  in  money  or  property,  owned 
by  an  individual  or  a  corporation;  it  is  the  fund  upon  which  it  transacts  its 
business,  which  would  be  liable  to  its  creditors,  and  which,  upon  insolvency 
would  pass  to  a  receiver. 

Money  Capital,  as  used  in  an  act  respecting  taxation  of  national  bank 
stock,  inclujdes  shares  of  stock  and  other  interests,  owned  by  individuals  in 

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all  enterprises  in  which  the  cat>ital  employed  in  carrying  on  its  business  is 
money,  where  the  object  of  the  business  is  making  profit  by  its  use  as  money. 

CAPITAL  STOCK. 

The  sum  divided  into  shares,  which  is  raised  by  mutual  subscription  of 
the  members  of  a  corporation.  It  is  the  sum  upon  which  dividends  are  to  be 
paid.  The  term  is  used  to  indicate  the  amount  of  capital  which  the  charter  or 
articles  of  incorporation  provide  for ;  the  entire  sum  agreed  to  be  contributed, 
whether  paid  in  or  not. 

CERTIFIED  CHECK. 

A  check  which  has  been  recognized  by  the  proper  officer  as  a  valid  appro- 
priation of  the  amount  of  money  therein  specified  to  the  person  therein 
named,  and  which  bears  upon  itself  the  evidence  of  such  recognition.  After 
certification  the  bank  is  bound  as  a  direct  and  original  promisor  to  the  payee, 
and  a  new  contract  exists  on  which  the  payee  has  a  right  of  action  directly 
against  the  bank. 

CHECK. 

A  written  order  or  request  addressed  to  a  bank  or  persons  carrying  on 
the  business  of  banking,  by  a  party  having  money  in  their  hands,  desiring  them 
to  pay,  on  presentment,  to  a  person  therein  named  or  bearer,  or  to  such  person 
or  order,  a  named  sum  of  money.  Checks  are  in  use  only  between  banks  and 
bankers  and  their  customers,  and  are  designed  to  facilitate  banking  operations. 
It  is  of  their  very  essence  to  be  payable  on  demand,  because  the  contract 
between  the  banker  and  the  customer  is  that  the  money  is  payable  on  demand. 

As  between  the  holder  of  the  check  and  the  endorser  it  is  required  that 
due  diligence  be  used  in  presenting  it,  and,  in  case  of  non-payment,  it  should 
be  protested  in  order  to  hold  the  drawer  and  endorsers.  But  it  is  not  necessary 
to  use  diligence  in  presenting  an  ordinary  check  in  order  to  charge  the  drawer, 
unless  he  has  received  damage  by  the  delay. 

In  common  with  other  kinds  of  negotiable  paper,  they  must  contain 
an  order  to  pay  money,  and  words  of  negotiability.  This  enables  a  bona  fide 
holder  for  value  to  collect  the  money  without  regard  to  the  previous  history 
of  the  paper. 

It  is  part  of  the  implied  contract  of  the  banker  that  only  checks  properly 
signed  by  the  person  or  firm  keeping  the  account  at  the  banker's  shall  be  paid. 
Checks  must,  therefore,  be  properly  signed  by  such  person. 

Giving  a  check  is  not  payment  unless  the  check  is  paid.  Receiving  a 
certified  check  is  payment. 

CHOSE. 

Personal  property.    Thing. 

CHOSE  IN  ACTION. 

A  personal  thing  of  which  the  owner  has  not  the  possession  but  merely  a 
right  of  action  for  their  possession ;  also,  a  right  to  receive  or  recover  a  debt, 

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or  money,  or  damages  for  breach  of  contract,  or  for  a  tort  connected  with  a 
contract,  but  which  cannot  be  enforced  without  an  action. 

At  common  law  a  Chose  in  Action  was  not  assignable.  This  naturally- 
led  to  difficulties  and  the  courts  gradually  yielded  to  the  pressure  of  necessity 
and,  without  a  statute,  from  an  early  period,  in  equity,  they  have  viewed  the 
assignment  of  a  chose  in  action  for  a  valuable  consideration  as  a  contract  by 
the  assignor  to  pennit  the  assignee  to  use  his  name  for  the  purpose  of 
recovery.  And  now,  at  common  law,  the  assignee  is  entitled  to  sue  and 
recover  in  the  name  of  the  assignor,  and  the  debtor  will  not  be  allowed,  by 
way  of  defense  to  such  suit,  to  avail  himself  of  any  payment  to  or  release 
from  the  assignor,  if  made  or  obtained  after  notice  of  the  assignment. 

CLERK. 

A  person  in  the  employ  of  a  merchant,  who  attends  only  to  a  part  of  his 
business,  while  the  merchant  himself  superintends  the  whole.  He  differs 
from  a  factor  in  this,  that  the  latter  supplies,  wholly,  the  place  of  his  principal 
in  respect  to  the  property  consigned  to  him. 

CODICIL. 

Some  addition  to,  or  qualification  of,  a  last  will  and  testament.  All 
codicils  are  part  of  the  will,  and  must  be  executed  with  the  same  formalities. 
It  is  not  necessary  that  the  codicil  be  on  the  same  piece  of  paper  in  order  that  it 
may  operate  as  a  republication  of  the  will.  It  has  been  held  that  a  codicil 
duly  executed,  and  attached  or  referring  to  a  paper  defectively  executed  as  a 
will,  has  the  effect  to  give  operation  to  the  whole  as  one  instrument.  There 
may  be  numerous  codicils  to  the  same  will.  In  such  cases  the  latter  ones 
operate  to  revive  and  republish  the  earlier  ones. 

COMMON  CARRIER. 

A  common  carrier  is  one  whose  business,  occupation,  or  regular  calling  is 
to  carry  chattels  for  all  persons  who  may  choose  to  employ  and  remunerate 
him. 

The  definition  includes  carriers  by  land  and  water.  They  are,  on  the  one 
hand,  stage  coach  and  omnibus  proprietors ;  railroad  and  street  railway  com- 
panies:  truckmen,  wagoners,  and  teamsters,  carmen  and  porters;  and  express 
companies,  whether  such  persons  undertake  to  carry  goods  from  one  portion 
of  the  same  town  to  another,  or  through  the  whole  extent  of  the  country,  or 
even  from  one  State  or  Kingdom  to  another.  And,  on  the  other  hand,  this 
term  includes  the  owners  and  masters  of  every  kind  of  vessel  or  water  craft 
who  set  themselves  before  the  public  as  the  carriers  of  freight  of  any  kind 
for  all  who  choose  to  employ  them,  whether  the  extent  of  their  navigation 
be  from  one  continent  to  another  or  onlv  in  the  coasting:  trade,  or  in  river 
or  lake  transportation,  or  whether  employed  in  lading  or  unlading  goods  or  in 

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ferrying,  with  whatever  mode  of  motive  power  they  may  adopt.  A  pipe  line 
company  is  a  common  carrier  bound  to  receive  and  transport,  for  all  persons 
alike,  all  oil  instrusted  to  its  care,  and  is  not  in  any  sense  an  agent  for  the 
])erson  who  employs  it  to  transfer  oil.  Telegraph  or  telephone  companies  are 
not  carriers ;  but  they  are  subject  to  the  rules  governing  common  carriers 
and  others  engaged  in  like  public  employment. 

Common  carriers  are  responsible  for  all  loss  or  damage  during  trans- 
portation, from  whatever  cause,  except  the  act  of  God  or  the  public  enemy. 
The  act  of  God  is  held  to  extend  only  to  such  inevitable  accidents  as  occur 
without  the  intervention  of  man's  agency,  which  could  not  be  avoided  by 
the  exercise  of  due  skill  and  care:  but  where  freight  cars  are  stopped  by  a 
Hood  and  the  contents  stolen,  the  loss  is  not  due  to  inevitable  accident,  act  of 
God,  or  insurrection.  The  carrier  is  not  responsible  for  losses  occurring  from 
natural  causes,  such  as  frost,  fermentation,  evaporation  or  natural  decav  of 
perishable  articles,  or  the  natural  and  necessar}^  wear  in  the  course  of  trans- 
portation, or  the  shipper's  carelessness,  provided  the  carrier  exercises  all 
reasonable  care  to  have  the  loss  or  deterioration  as  little  as  practicable. 

Carriers,  both  by  land  and  water,  when  they  undertake  the  general 
business  of  carrying  every  kind  of  goods,  are  bound  to  carry  for  all  who 
offer ;  and  if  they  refuse,  without  any  just  excuse,  they  are  liable  for  damages. 
But  the  business  of  a  common  carrier  may  be  restricted  within  such  limits 
as  he  may  deem  expedient,  if  an  individual,  or  which  may  be  prescribed  in 
its  grant  of  powers,  if  a  corporation,  and  he  is  not  bound  to  accept  goods  out 
of  the  line  of  his  usual  business.  But  should  the  carrier  accept  goods  not 
within  the  line  of  his  business,  he  assumes  the  liability  of  a  common  carrier 
as  to  the  specific  goods  accepted.  The  carrier  may  require  freight  to  be  paid 
in  advance:  but  in  an  action  for  not  carrying,  it  is  only  necessary  to  allege 
a  readiness  to  pay  freight.  It  is  not  required  to  prove  or  allege  a  tender,  if 
the  carrier  refuses  to  accept  the  goods  for  transportation.  The  carrier  is 
entitled  to  a  lien  upon  the  goods  for  freight,  and  for  advances  made  to  other 
-arriers.  The  consignor  is  prima  facie  liable  for  freight :  but  the  consignee  may 
be  Ifable  when  the  consignor  is  his  agent,  or  when  the  title  is  in  him  and  he 
accepts  the  goods. 

Common  carriers  may  qualify  their  common-law  responsibility  by  s|x?cial 
contract.  A  carrier  can  not  exact  as  a  condition  precedent  that  a  shipper 
must  sign  a  contract  in  writing  limiting  the  common-law  liability.  A  contract  to 
qualify  the  common-law  liability  may  be  shown  by  proving  a  notice,  brought 
home  to  and  assented  to  by  the  owner  of  the  goods  or  his  authorized  agent, 
wherein  the  carrier  stipulates  for  a  c|ualified  liability.  Or  it  may  be  reduced  to 
writing,  in  the  form  of  a  bill  of  lading.  A  contract  by  a  carrier  limiting  his 
liability  for  negligence  is  governed  by  the  law  of  the  place  where  the 
contract  was  made.  But  the  carrier  cannot  contract  against  his  own  negli- 
gence or  the  negligence  of  his  employes  or  agents. 

Railroad  companies,  steamboats  and  all  other  carriers  who  allow  express 
companies  to  carry  parcels  and  packages  on  their  cars,  or  boats,  or  other 
vehicles,  are  liable  as  common  carriers  to  the  owners  of  goods  for  all  loss 

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or  damage  which  occurs,  without  regard  to  the  contract  between  them  and  such 
express  carriers. 

Railways,  steamboats,  packets,  and  other  common  carriers  of  passengers, 
ahhough  not  Hable  for  injuries  to  their  passengers  without  their  fault,  are 
nevertheless  responsible  for  the  baggage  of  such  passengers  intrusted  to  their 
care  as  common  carriers  of  goods;  and  such  responsibility  continues  for  a 
reasonable  time  after  the  goods  have  been  placed  in  the  warehouse  or  depot 
of  the  carrier,  at  the  place  of  destination,  for  delivery  to  the  passenger  or  his 
order.  Where  one  company  checks  baggage  through  a  succession  of  lines 
owned  by  different  companies,  each  company  becomes  responsible  for  the 
whole  route.  The  baggage  check  given  at  the  time  of  receiving  such  baggage 
is  regarded  as  prima  facie  evidence  of  the  liability  of  the  company.  It  stands 
in  the  place  of  a  bill  of  lading.  Baggage  will  not  include  merchandise.  Jewelry 
and  a  watch  in  a  trunk,  being  female  attire,  are  regarded  as  proper  baggage. 
But  money,  except  a  reasonable  amount  for  expenses,  is  not  properly  baggage. 

The  responsibility  of  common  carriers  begins  upon  delivery  of  the  goods 
for  immediate  transportation.  A  delivery  at  the  usual  place  of  receiving 
freight,  or  to  the  employes  of  the  company  in  the  usual  course  of  business, 
is  sufficient,  but  where  carriers  have  a  warehouse  at  which  they  receive  goods 
for  transportation,  and  goods  are  delivered  there  not  to  be  forwarded  until 
some  event  occurs;  the  carriers  are,  in  the  meantime,  only  responsible  as 
depositaries;  and  where  goods  are  received  as  wharfingers,  or  warehousers, 
or  forwarders,  and  not  as  carriers,  liability  will  be  incurred  only  for  ordinary 
negligence.  Where  goods  are  injured  because  of  insecure  packing  or  boxing, 
the  carrier  is  not  liable ;  but  where  it  does  not  appear  that  they  were  received 
as  in  bad  order,  or  that  they  were  so  in  fact,  the  presumption  is  that  they 
were  in  good  order.  Where  there  was  less  than  a  car  load  of  goods,  and 
there  was  no  agreement  on  the  part  of  the  carrier  to  transport  them  in  a 
ventilated  car,  although  it  was  requested  by  the  carrier  that  they  should  be  so 
shipped,  it  was  held  that  the  carrier  was  not  liable  for  the  loss  of  perishable 
goods. 

The  responsibility  of  the  carrier  terminates  after  the  arrival  of  the  goods 
at  their  destination  and  a  reasonable  time  has  elapsed  for  the  owner  to  receive 
them  in  business  hours.  After  that,  the  carrier  may  put  them  in  a  warehouse, 
and  is  only  responsible  for  ordinary  care.  Where  goods  are  delivered  to  the 
consignee  in  violation  of  instructions  not  to  deliver  without  a  bill  of  lading, 
the  company  is  liable  to  the  shipper,  for  loss  thereby  sustained.  In  carriage 
by  water,  the  carrier  is,  as  a  general  rule,  bound  to  give  notice  to  the  consignee 
of  the  arrival  of  the  goods;  and  the  delivery  of  the  goods  from  a  ship  must 
be  according  to  the  custom  and  usages  of  the  port  and  such  delivery  will  dis- 
charge the  carrier  of  his  responsibility. 

Where  goods  are  so  marked  as  to  pass  over  successive  lines  of  railways, 
or  other  transportation  having  no  partnership  connection  in  the  business 
of  carrying,  the  successive  carriers  are  only  liable  for  damage  or  loss  occurring 
during  the  time  the  goods  are  in  their  fXDSsession,  for  transportation.  A 
carrier  may  stipulate  that  he  shall  be  released  from  liability  after  goods  have 


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left  the  road.  Where  one  of  the  carriers  has  contracted  clearly  and  unequiv- 
ocally to  deliver  goods  at  their  destination,  i.  e.,  to  carry  them  over  the  whole 
route,  his  liability  will  continue  until  final  delivery ;  but  the  carrier  upon  whose 
line  the  damage  or  loss  has  occurred  will  also  be  liable.  Where  the  connecting 
carrier  refuses  or  unreasonably  delays  to  accept  goods,  the  original  carrier 
while  so  holding  them  is  a  carrier,  and  the  liability  as  such  continues  until 
they  are  w^arehoused.  A  contract  to  transport  goods  from  or  to  points  not  on 
the  carrying  line,  and  without  the  State  by  which  it  is  incorporated,  is  held  to 
be  good. 

The  acts  of  agents  of  corporations  who  are  common  carriers,  such  as 
railway  and  steamboat  companies,  will  bind  their  principals  to  the  full  extent 
of  the  business  intrusted  to  their  control,  whether  they  follow  their  instruc- 
tions or  not.  Nor  will  it  excuse  the  company  because  the  servant  or  agent 
acted  wilfully  in  disregard  of  his  instructions. 

The  contracts  of  common  carriers,  like  all  other  contracts,  are  liable  to 
be  controlled  and  qualified  by  the  known  usages  and  customs  and  course  of 
the  business  in  which  they  are  engaged ;  and  all  who  do  business  with  them 
are  bound  to  take  notice  of  such  usages  and  customs  as  are  uniform,  of  long 
standing,  and  generally  known  and  understood  by  those  familiar  with  such 
transactions. 

The  liability  of  a  common  carrier  may,  at  common  law,  be  limited  by 
the  character  of,  or  defects  in,  the  subject-matter  of  the  contract.  The 
limitation  was  formerly  applied  to  contracts  for  the  carriage  of  slaves,  and 
it  was  held  in  such  cases  that  a  carrier  was  not  an  insurer,  and  was  only  liable 
for  the  want  of  skill  and  care.  The  carrier  of  animals  is  not  answerable  for 
the  damages  caused  by  the  conduct  or  propensities  of  the  animals  themselves : 
but  in  other  respect  the  liability  for  injury  to  live  stock  is  as  great  as  it 
would  be  under  a  contract  for  the  carriage  of  inanimate  objects. 

COMPROMISE. 

An  agreement  made  between  two  or  more  parties  as  a  settlement  of 
matters  in  dispute.  Such  settlements  are  sustained  at  law ;  and  are  highly 
favored.  The  amount  in  question  must,  it  seems,  be  uncertain.  Where  a 
debtor  tenders  part  of  a  disputed  claim  to  the  creditor  in  full  satisfaction, 
if  the  latter  accepts  the  tender,  he  is  bound  by  the  terms  thereof.  An  offer 
of  settlement  not  accepted,  does  not  bind  either  party.  There  can  be  no 
compromise  of  a  criminal  charge. 

CONFIRMATION. 

A  contract  by  which  that  which  was  voidable  is  made  firm  and  unavoid- 
able. Where  a  party,  acting  for  himself  or  by  a  previously  authorized  agent, 
has  attempted  to  enter  into  a  contract,  but  has  done  so  in  an  informal  or  invalid 
manner,  afterwards  confirms  the  act,  he  thereby  renders  it  valid,  in  which  case 
it  will  take  effect  as  between  the  parties  from  the  date  of  the  original  making. 


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To  make  a  valid  confirmation,  the  party  must  be  apprised  of  his  rights,  and 
where  there  has  been  a  fraud  in  the  transaction  he  must  be  aware  of  it  and 
intend  to  confirm  his  contract. 

CONFUSION  OF  GOODS. 

Such  a  mixture  of  the  goods  of  two  or  more  persons,  that  they  cannot 
be  distinguished. 

Where  this  is  caused  by  the  wilful  act  of  one  party  without  the  other's 
consent,  the  one  causing  the  mixture  must  separate  them  at  his  own  peril, 
and  must  bear  the  whole  loss.  But  if  the  goods  can  be  distinguished,  a  wilful 
mixture  will  not  justify  the  other  party  taking  other  than  his  own  goods, 
upon  the  ground  that  they  have  been  intermingled.  The  rule  extends  no 
farther  than  necessity  requires,  and  has  been  held  not  to  cover  cases  where 
the  confusion  was  the  result  of  negligence  merely,  or  accident. 

When  tlie  confusion  takes  place  by  the  mutual  consent  of  the  owners, 
they  have  an  mterest  in  the  mixture  in  proportion  to  their  respective  shares. 

CONFUSION  OF  RIGHTS. 

A  union  of  the  qualities  of  debtor  and  creditor  in  the  same  person.  The 
effect  of  such  a  union  is,  generally,  to  extinguish  the  debt. 

CONSIDERATION. 

An  act  of  forbearance,  or  the  promise  thereof,  which  is  oflfered  by  one 
party  to  an  agreement,  and  accepted  by  the  other  as  an  inducement  to  that 
other's  act  and  promise. 

Consideration  should  not  be  confounded  with  motive.  "  The  former 
means  something  of  value  in  the  eye  of  the  law,"  while  motive  is  the  induce- 
ment. Motive  may  sometimes  be  the  consideration  for  an  agreement  and 
consideration  the  motive.  Consideration  has  been  treated  as  the  very  life  and 
essence  of  a  contract :  and  a  parol  contract  or  promise  for  which  there  was  no 
consideration  could  not  be  enforced  at  law. 

The  consideration  is  generally  conclusively  presumed  from  the  nature  of 
the  contract,  when  sealed :  but  in  some  of  the  States  by  law,  and  in  others 
by  statute,  the  want  or  failure  of  consideration  may  be  a  good  defence 
against  an  action  on  a  sealed  instrument  or  contract. 

Negotiable  instruments  carry  with  them  prima  facie  evidence  of  con- 
sideration. 

Concurrent  Considerations  are  those  which  arise  at  the  same  time  or 
where  the  promises  are  simultaneous  and  reciprocal. 

Continuing  Considerations  are  those  which  consist  of  acts  which  must 
necessarily  continue  over  a  considerable  period  of  time. 

Executed  Considerations  are  acts  done  or  values  given  at  the  time  of 
making  the  contract. 

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Executory  Considerations  are  promises  to  do  or  give  something  at  a 
future  day. 

Good  Considerations  are  those  of  blood,  natural  love  or  affection,  and  the 
like.  Motives  of  natural  duty,  generosity  and  prudence  come  under  this  class. 
The  term  is  sometimes  used  in  the  sense  of  a  consideration  valid  in  point 
of  law ;  and  it  then  includes  a  valuable  as  well  as  a  meritorious  consideration. 
Generally,  however,  good  is  used  in  antithesis  to  valuable. 

Illegal  Considerations  are  acts,  which  if  done,  or  promises,  which  if 
enforced,  would  be  prejudicial  to  the  public  interest. 

Impossible  Considerations  are  those  which  can  not  be  performed. 

!Moral  Considerations  are  such  as  are  based  upon  a  moral  duty. 

Past  Consideration  is  an  act  done  before  the  contract  is  made,  and  is 
ordinarily  by  itself  no  consideration  for  a  promise.  On  principle  it  should 
not  be.  Possible  exceptions  might  be  services  rendered  on  request,  without 
definite  promise  or  reward,  and  voluntarily  doing  something  which  one  was 
legally  bound  to  do.  Also  a  promise  to  pay  a  debt  barred  by  the  statute  of 
limitations. 

Valuable  Considerations  are  either  some  benefit  conferred  upon  the  party 
by  whom  the  promise  is  made,  or  upon  a  third  party  at  his  instance  or 
request;  or  some  detriment  sustained  at  the  instance  of  the  party  promising, 
by  the  party  in  whose  favor  the  promise  is  made.  The  detriment  to  the 
promisee  must  be  a  detriment  on  entering  into  the  contract  and  not  from 
the  breach  of  it.  A  contract  upon  a  good  consideration  is  considered  merely 
voluntary,  but  is  good  both  in  law  and  equity  as  against  the  grantor  himself 
when  it  has  once  been  executed ;  but  void  against  creditors  and  subsequent 
bona  fide  purchasers  for  value.  A  valuable  consideration  alone  is  good 
against  subsequent  purchasers  and  attaching  creditors. 

Among  valuable  considerations  may  be  mentioned  these: 

In  general,  the  waiver  of  any  legal  or  equitable  right  at  the  request 
of  another  is  sufficient  consideration  for  a  promise.  An  invalid  or  not  enforce- 
able agreement  to  forbear  is  not  a  good  consideration ;  for  suit  may  be  brought 
immediately  after  the  promise  is  made.  The  forbearance  must  be  an  enforce- 
able agreement  for  a  reasonable  time.  But  if  a  meritorious  claim  is  made  in 
good  faith,  a  forbearance  to  prosecute  it  may  be  a  good  consideration  for  a 
promise,  although  on  the  facts  or  on  the  law  the  suit  would  have  failed  of 
success. 

The  prevention  of  litigation  is  a  valid  and  sufficient  consideration:  for 
the  law  favors  the  settlement  of  disputes.  Thus,  a  compromise  or  mutual 
submission  of  demands  to  arbitration  is  a  highly  favored  consideration  at  law. 
The  giving  up  a  suit  instituted  to  try  a  question  respecting  which  the  law  h 
doubtful,  or  is  supposed  by  the  parties  to  be  doubtful,  is  a  good  consideration 
for  a  promise. 

Incurring  a  legal  liability  to  a  third  party  is  a  valid  consideration  for  a 
promise  by  the  party  at  whose  rec|uest  the  liability  was  incurred. 

Refraining  from  the  use  of  liquor  and  tobacco  for  a  certain  time,  at 
the  request  of  another,  is  a  sufficient  consideration  for  a  promise  by  the  latter 
to  pay  a  sum  of  money. 

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The  assignment  of  a  debt  or  chose  in  action  with  the  consent  of  the  debtor 
is  a  good  consideration  for  the  debtor's  promise  to  pay  the  assignee.  It  is 
merely  a  promise  to  pay  a  debt  due,  and  the  consideration  is  the  discharge  of 
the  debtor's  liabiHty  to  the  assignor.  Work  and  service  are  perhaps  the  most 
common  considerations. 

In  the  case  of  deposit  or  mandate  it  was  once  held  that  there  was  no 
consideration;  the  reverse  is  now  usually  maintained.  In  these  cases  there 
does  not  appear  to  be  any  benefit  arising  from  the  bailment  to  the  promisor. 
The  definitions  of  mandate  and  deposit  exclude  this.  Nor  does  any  injury 
at  the  time  accrue  to  the  promisee;  the  bailment  is  for  his  benefit  entirely. 

Mutual  promises  made  at  the  same  time  are  concurrent  considerations, 
and  will  support  each  other  if  both  be  legal  and  binding. 

Marriage  is  now  settled  to  be  a  valuable  consideration,  though  it  is 
not  convertible  into  money  or  pecuniarily  valuable. 

Illegal  considerations  can  be  no  foundation  for  a  contract.  Violations 
of  morality,  decency  and  public  policy  are  in  contravention  of  common  law; 
as,  contracts  to  commit,  conceal  or  compound  a  crime.  So,  a  contract  for 
future  illicit  intercourse,  or  in  fraud  of  a  third  party,  will  not  be  enforced. 
But  the  act  in  question  is  not  always  a  criterion ;  e.  g.,  as  to  immoral  con- 
siderations that  which  the  law  considers  is  whether  the  promise  has  a  tendency 
1o  produce  immoral  results ;  hence  while  a  promise  of  future  illicit  cohabitation 
is  an  illegal  consideration ;  a  promise  founded  upon  past  illicit  cohabitation  is 
not  illegal,  but  simply  voluntary  and  governed  by  the  same  rules  as  other 
past  executed  considerations.  The  illegality  created  by  statute  exists  when 
the  statute  either  expressly  prohibits  a  particular  thing,  or  affixes  a  penalty 
which  implies  prohibition,  or  implies  such  prohibition  from  its  object  and 
nature.  If  any  part  of  the  consideration  is  void,  as  against  the  law,  it  is 
void  in  toto ;  but  contra,  if  the  promises  be  divisable  and  apportionable  to  any 
part  of  the  consideration,  the  promise  so  far  as  not  attributable  to  the  illegal 
consideration  might  be  valid. 

A  contract  founded  upon  an  impossible  consideration  is  void.  This 
impossibility  must  be  a  natural  or  physical  impossibility ;  but  it  may  be  other- 
wise when  the  consideration  is  valid  at  the  time  the  contract  was  formed  but 
afterwards  became  impossible. 

An  executory  consideration  which  has  totally  failed  will  not  support  a 
contract  when  the  performance  of  the  consideration  forms  a  condition  pre- 
cedent to  the  performance  of  the  promise. 

A  past  consideration  will  not  generally  be  sufficient  to  support  a  contract. 
It  is  something  done  before  the  obligor  makes  his  promise,  and,  therefore, 
cannot  be  a  foundation  for  that  promise,  unless  it  has  been  executed  at  the 
request  (express  or  implied)  of  the  promisor.  Such  a  request  plainly  implies 
a  promise  of  fair  and  reasonable  compensation. 

As  to  time,  considerations  may  be  of  the  past,  present  or  future.  Those 
which  are  present  or  future  will  support  a  contract  not  void  for  other  reasons. 
When  the  consideration  is  to  do  a  thing  hereafter,  and  the  promise  has  been 

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accepted,  and  a  promise  in  return  founded  upon  it,  the  latter  promise  rests 
upon  sufficient  foundation,  and  is  obligatory. 

The  adequacy  of  the  consideration  is  generally  immaterial.  There  is  no 
case  where  mere  inadequacy  of  price,  independent  of  other  circumstances  has 
been  held  sufficient  to  set  aside  a  contract  between  parties  standing  on  equal 
ground  and  dealing  with  each  other  without  imposition  or  oppression.  The 
adequacy  of  the  consideration  does  not  aflfect  the  contract,  but  the  considera- 
tion must  be  real  and  not  merely  colorable;  a  dollar  would  be  a  sufficient 
consideration  for  any  promise  except  one  to  pay  a  larger  sum  of  money  abso- 
lutely. 

CONSIGNEE. 

One  to  whom  a  consignment  is  made.  When  the  goods  consigned  to  him 
are  his  own,  and  they  have  been  ordered  to  be  sent,  they  are  at  his  risk  the 
moment  the  consignment  is  made  according  to  his  direction ;  and  the  persons 
employed  in  the  transmission  of  his  goods  are  his  agents.  When  the  goods  are 
not  his  own,  if  he  accept  the  consignment,  he  is  bound  to  follow  the  instruc- 
tions of  his  consignor. 

CONTRACT. 

An  agreement  enforceable  at  law,  made  between  two  or  more  persons, 
under  which  rights  are  acquired  by  one  or  both  to  act,  or  forbearance  on  the 
part  of  one  or  the  other  or  others. 

At  common  law,  contracts  have  been  divided  into  contracts  of  record, 
contracts  by  specialty,  and  simple  and  parol  contracts. 

Contracts  of  Record  are  those  which  are  evidenced  by  matter  of  record, 
such  as  judgments,  recognizances,  and  statutes  staple.  These  have  been  said 
to  be  the  highest  class  of  contracts. 

Contracts  by  Specialty,  or  Specialties,  are  those  which  are  under  seal; 
as  deeds  and  bonds.  Though  little  of  the  real  solemnity  now  remains,  and 
a  scroll  is  substituted,  in  most  of  the  States,  for  the  seal,  the  distinction  with 
regard  to  specialties  has  still  been  preserved  intact  except  when  abolished  by 
statute.    The  distinction  is  not  now  sustained  by  reason. 

Simple  and  Parol  Contracts  are  those  not  of  record  or  under  seal.  They 
are  the  lowest  class  of  express  contracts,  and  answer  most  nearly  to  our 
general  definition  of  contracts.  The  only  distinction  between  a  simple  written 
contract  and  oral  contracts  is  their  mode  of  proof.  Simple  contracts  may 
be  either  express  or  implied.  Implied  contracts  may  be  either  implied  in 
law  or  implied  in  fact.  The  only  difference  between  an  express  contract 
and  one  implied  in  fact,  is  in  the  mode  of  substantiating  it.  An  express  agree- 
ment is  proved  by  express  words,  either  written  or  spoken.  An  implied 
contract  is  proved  by  circumstantial  evidence  showing  that  the  parties  intended 
to  contract. 

Entire  Contracts  are  those  the  consideration  of  which  is  entire  on  both 
side*^ 

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Executed  Contracts  are  those  in  which  nothing  remains  to  be  done  by 
either  party,  and  where  the  transaction  has  beey  completed,  or  was  completed 
at  the  time  the  contract  or  agreement  was  made. 

Executory  Contracts  are  those  in  which  some  act  remains  to  be  done. 

Express  Contracts  are  those  in  which  the  terms  of  the  contract  or 
agreement  are  openly  and  fully  uttered  and  avowed  at  the  time  of  making. 

Implied  Contracts  are  either  implied  in  law  or  in  fact.  A  contract  implied 
in  law  arises  where  some  pecuniary  inequality  exists  in  one  party  relatively 
to  the  other  which  justice  requires  should  be  compensated,  and  upon  which 
the  law  operates  by  creating  a  debt  to  the  amount  of  the  required  compen- 
sation. A  contract  implied  in  fact  arises  where  there  was  not  an  express 
contract,  but  there  is  circumstantial  evidence  showing  that  the  parties  did 
intend  to  make  a  contract;  for  instance,  if  one  orders  goods  from  a  trades- 
man or  employs  a  man  to  work  for  him,  without  stipulating  the  price  or  wages, 
the  law  raises  an  implied  contract,  in  fact,  to  pay  the  value  of  the  goods  or 
services.  In  the  former  class  the  implied  reasonable  contract  is  a  pure  fiction, 
having  no  real  existence;  in  the  latter  it  is  inferred  as  an  actual  fact. 

Illegal  Contracts  are  agreements  to  do  acts  prohibited  by  law,  as  to 
commit  a  crime ;  to  injure  another,  as  to  publish  a  libel. 

Every  contract  should  be  so  complete  as  to  give  either  party  his  action 
upon  it ;  lx>th  parties  must  assent  to  all  its  terms ;  there  must  be  a  good  and 
valid  consideration,  which  must  be  proved  though  the  contract  be  in  writing, 
except  in  bills  and  notes,  which  are  of  themselves  prima  facie  evidence  of 
consideration.  And  in  other  written  contracts',  when  the  consideration  is 
acknowledged,  it  is  prima  facie  evidence  thereof,  but  open  to  contradiction 
by  parol  testimony.  There  must  be  a  thing  to  be  done  which  is  not  forbidden 
by  law,  or  one  to  be  admitted  which  is  not  enjoined  by  law.  If  against  public 
policy,  a  contract  is  void  as  is  one  which  is  fraudulent,  immoral  or  forbidden. 

CONVEYANCE. 

The  transfer  of  the  title  of  land  from  one  person,  or  class  of  persons, 
to  another.    The  instrument  for  effecting  such  transfer. 

COPY. 

A  true  transcript  of  an  original  writing.  Copies  verified  by  the  great  seal 
or  by  the  seal  oi  a  court  are  Exemplifications.  Copies  cannot  be  given  in 
evidence  unless  proof  is  made  that  the  originals  from  which  they  are  taken  are 
lost  or  are  in  the  power  of  the  opposite  party,  and,  in  the  latter  case,  that 
notice  has  been  given  such  party  to  produce  the  original. 

COPYRIGHT. 

The  exclusive  privilege,  secured  according  to  certain  legal  forms,  of 
printing  or  otherwise,  multiplying,  publishing,  and  vending  copies  of  certain 
literary  or  artistic  productions. 

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COST. 

Is  that  which  is  actually  paid  for  goods. 

COUPONS. 

Those  parts  of  a  commercial  instrument  which  are  to  be  cut,  and  which 
are  evidence  of  something  connected  with  the  contract  mentioned  in  the  instru- 
ment. They  are  generally  attached  to  bonds  or  certificates  of  loan  where  the 
interest  is  payable  at  particular  periods,  and.  when  the  interest  is  paid,  they 
are  cut  off  and  delivered  to  the  payor.  In  the  United  States  they  have  been 
held  to  be  negotiable  instruments,  if  payable  to  bearer  or  order,  upon  which 
suit  may  be  brought,  though  detached  from  the  bond,  but  otherwise,  if  the 
bond  to  which  the  coupons  were  attached  was  not  negotiable,  or  if  the  coujxjns 
were  not  payable  to  bearer  or  order. 

Interest  on  coupons  may  be  recovered  in  a  suit  on  the  couix)ns  and  the 
rate  of  interest  provided  for  in  the  bond  continues  on  the  coupon  until  it 
is  merged  in  judgment.  A  suit  on  the  coupon  is  not  barred  by  the  statute 
of  limitations  unless  a  suit  on  the  bond  would  be  barred,  otherwise,  however, 
where  the  coupons  have  passed  into  the  hands  of  a  party  who  does  not  hold  the 
bonds. 

COVENANT. 

In  contracts  a  covenant  is  an  agreement  between  two  or  more  persons, 
entered  into  by  deed,  whereby  one  of  the  parties  promises  the  performance  or 
non-performance  of  certain  acts  or  that  a  given  state  of  things  does  or 
shall,  or  does  not  or  shall  not,  exist. 

CREDIT. 

The  ability  to  borrow  on  the  opinion  conceived  by  the  lender  that  he  will 
be  repaid.  A  debt  due  or  to  become  due  as  distinguished  from  debt  which 
is  a  debt  owing.  The  time  allowed  by  the  creditor  for  the  payment  of  goods 
sold  by  him  to  the  debtor. 

CREDITOR. 

He  who  has  the  right  to  require  the  fulfillment  of  an  obligation  or  contract. 
A  person  to  whom  any  obligation  is  due. 

CURRENCY. 

That  which  passes  among  the  people  for  money,  whether  gold  or  silver 
coin  or  bank  notes. 

CURRENT  MONEY. 

That  which  is  in  general  use  as  a  medium  of  exchange.     That  monty 

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which  is  commonly  used  and  recognized  as  such ;  current  bank  notes,  such  as 
are  convertable  into  specie  at  the  counter  where  they  were  issued. 

CUSTOM. 

Such  a  usage  as  bv  common  consent  and  uniform  practice  has  become 
the  law  of  the  place,  or  of  the  subject  matter,  to  which  it  relates. 

* 

CUSTOM  HOUSE. 

A  place  apopinted  by  law,  in  ports  of  entry,  where  importers  of  goods, 
wares  and  merchandise  are  bound  to  enter  the  same,  in  order  to  pay  or  secure 
the  duties  or  customs  due  to  the  government. 

CUSTOM  HOUSE  BROKER. 

A  person  authorized  to  act  for  parties,  at  their  option,  in  the  entry  or 
clearance  of  ships  and  the  transaction  of  general  business. 

CUSTOM  OF  MERCHANTS. 

A  system  of  customs  acknowledged  and  taken  notice  of  by  all  nations,  and 
which  are,  therefore,  a  part  of  the  general  law  of  the  land. 

DAILY. 

Every  day.  Where  a  statute  requires  an  advertisement  to  be  published 
in  a  daily  newspaper  it  is  such  if  it  uses  the  term  "  daily  newspaper "  in 
contradistinction  to  the  term  "  weekly,"  "  semi-weekly  "  or  "  tri-weekly  "  news- 
paper. The  term  was  used  and  is  to  be  understood  in  its  popular  sense,  and 
in  this  sense  it  is  clear  that  a  paper  which,  according  to  its  usual  custom,  is 
published  every  day  of  the  week  except  one,  is  a  daily  newspaper;  otherwise 
a  paper  which  is  published  every  day  except  Sunday  would  not  be  a  daily 
newspaper. 

DATE. 

The  designation  or  indication  in  an  instrument  of  writing  of  the  time 
and  place  when  and  where  it  was  made. 

A  date  is  necessary  to  the  validity  of  a  policy  of  insurance;  but  where 
there  are  separate  underwriters,  each  sets  down  the  date  of  his  own  signing, 
as  this  constitutes  a  separate  contract. 


DAY. 

The  space  of  time  which  elapses  while  the  earth  makes  a  complete  revolu- 
tion on  its  axis. 

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Generally,  in  legal  signification,  the  term  includes  the  time  elapsing  from 
one  midnight  to  the  succeeding  one,  but  it  is  also  used  to  denote  those  hours 
during  which  business  is  ordinarily  transacted  (frequently  called  a  business 
day),  as  well  as  that  portion  of  time  during  which  the  sun  is  above  the  horizon 
(sometimes  called  a  solar  day),  and  in  addition,  that  part  of  the  morning 
or  evening  during  which  sufficient  of  its  light  is  above  for  the  features  of  a 
man  to  be  reasonably  discerned. 

Where  a  party  is  required  to  take  action  within  a  given  number  of  days 
in  order  to  secure  or  assert  a  right,  the  day  is  to  consist  of  twenty-four  hours, 
that  is  the  popular  and  legal  sense  of  the  term. 

The  time  for  completing  commercial  contracts  is  not  limited  to  banking 
hours. 

It  is  said  that  there  is  no  general  rule  in  regard  to  including  or  excluding 
days  in  the  computation  of  time  from  the  day  of  a  fact  or  act  done,  but  that 
it  depends  upon  the  reason  of  the  thing  and  the  circumstances  of  the  case. 
Perhaps  the  most  general  rule  is  to  exclude  the  first  day  and  include  the  last 
Such  is  the  rule  as  to  negotiable  paper. 

DAYS  OF  GRACE. 

Certain  days  allowed  to  the  acceptor  of  a  bill  or  the  maker  of  a  note  in 
which  to  make  payment,  in  addition  to  the  time  contracted  for  by  the  bill 
or  note  itself. 

They  are  so  called  because  formerly  they  were  allowed  as  a  matter  of 
favor ;  but,  the  custom  of  merchants  to  allow  such  days  of  grace  having  grown 
into  law,  and  been  sanctioned  by  the  courts ;  and  the  days  of  grace  allowed  are 
three.  All  bills  of  exchange  are  by  the  law  merchant  entitled  to  days  of 
grace  as  of  right.  The  statute  of  Anne  making  promissory  notes  negotiable 
confers  the  same  right  on  those  instruments.  This  statute  has  been  generally 
adopted  throughout  the  United  States..  Bank  checks  are  due  on  presentation, 
and  are  not  entitled  to  days  of  grace. 

Where  there  is  an  established  usage  of  the  place  where  the  bill  is  payable 
to  demand  payment  on  the  fourth  or  other  day  instead  of  the  third,  the  parties 
to  it  will  be  bound  by  such  usage.  When  the  last  day  of  grace  happens  on 
Sunday  or  a  general  holiday,  as  the  Fourth  of  July,  Christmas  day,  etc.,  the 
bill  is  due  on  the  day  previous,  and  must  be  presented  on  that  day  in  order 
to  hold  the  drawer  and  indorsers,  unless  changed  by  statute,  as  in  some  states. 
Days  of  grace  are,  for  all  practical  purposes,  a  part  of  the  time  the  bill  has 
to  run,  and  interest  is  charged  on  them.  According  to  the  usage  and  custom 
of  merchants  to  fix  the  liability  of  the  indorser  of  negotiable  paper,  it  should 
be  protested  on  the  last  day  of  grace.  By  the  Negotiable  Instruments  Law,  all 
days  of  grace  have  been  abolished  in  a  majority  of  the  states.  For  full  text 
of  Negotiable  Instruments  Law,  see  pages  1434  to  1437. 

DEAD  LETTERS. 

Letters  transmitted  through  the  mails  according  to  direction,  and  remain- 

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ing  for  a  specified  time  uncalled  for  by  the  persons  addressed,  are  called  dead 
letters. 

DEBT. 

A  sum  of  money  due  by  certain  and  express  agreement.    All  that  is  due 
a  man  under  any  form  of  obligation  or  promise.    Any  claim  for  money. 


DEED. 

A  written  instrument  under  seal,  containing  a  contract  or  agreement  which 
has  been  delivered  by  the  party  to  be  bound  and  accepted  by  the  obligee  or 
covenantee.  A  writing  containing  a  contract  sealed  and  delivered  to  the  party 
thereto. 

A  writing  under  seal  by  which  lands,  tenants,  or  hereditaments  are  con- 
veyed for  an  estate  not  less  than  a  freehold.  A  writing  or  instrument,  written 
on  paper  or  parchment,  sealed  and  delivered  to  prove  and  testify  the  agree- 
ment of  the  parties  whose  deed  it  is  to  the  things  contained  in  the  deed. 

Any  instrument  in  writing  under  seal,  whether  it  relates  to  the  conveyance 
of  real  estate,  or  to  any  other  matter, — as,  for  instance,  a  bond,  single  bill, 
agreement,  or  contract  of  any  kind, — is  as  much  a  deed,  as  is  a  conveyance 
of  real  estate,  and,  after  delivery  and  acceptance,  is  obligatory.  The  term 
is,  however,  often  used  in  the  latter  sense  above  given,  and  perhaps  oftener 
than  in  its  more  general  signification. 

Requisites  of. — Deeds  must  be  upon  paper  or  parchment ;  must  be 
completely  written  before  delivery;  must  be  between  competent  parties;  must 
have  been  made  without  restraint ;  must  contain  the  names  of  the  grantor  and 
grantee,  but  a  variance  in  the  names  set  forth  in  the  deed  will  not  invalidate  it ; 
must  relate  to  suitable  property ;  must  be  sealed  ( /.  c,  in  order  to  constitute 
it  a  deed,  though  an  unsealed  instrument  may  operate  as  a  conveyance  of  land)  ; 
and  should  for  safety,  be  signed,  even  where  statutes  do  not  require  it. 

A  deed  must  be  delivered  and  accepted.  It  may  be  delivered  by  doing 
something  and  saying  nothing,  or  by  saying  something  and  doing  nothing, 
or  it  may  be  both.  But  if  the  deed  is  delivered  without  the  consent  of  the 
grantor,  it  is  of  no  effect.  Deeds  conveying  real  estate  must  in  most  states 
of  the  L'nited  States  be  acknowledged  and  recorded. 

The  requisite  number  of  witnesses  is  also  prescribed  by  statute  in  most 
of  the  states. 

Recitals  in  deeds  of  payment  of  the  consideration  expressed  therein  are 
not  proof  of  such  payments  as  against  persons  not  parties  thereto ;  nor  is  a 
consideration  always  necessary  to  the  validity  of  a  deed  of  land.  An  alteration 
in  the  description  of  property  in  a  deed  can  not  be  made  without  re-execution, 
re-acknowledgment,  and  re-delivery,  after  the  deed  has  been  delivered  and 
recorded. 


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DEFICIT. 


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The  deficiency  which  is  discovered  in  the  accounts  of  an  accountant,  or 
in  the  monev  which  he  has  received. 

DEFRAUD. 

To  defraud  is  to  withhold  from  another  that  which  is  justly  due  to  him, 
or  to  deprive  him  of  a  right  by  deception  or  artifice. 

DELIVERY  IN  CONTRACTS. 

The  transfer  of  the  possession  of  a  thing  from  one  person  to  another. 

Originally,  delivery  was  a  clear  and  unequivocal  act  of  giving  possc«>- 
sion,  accomplished  by  placing  the  subject  to  be  transferred  in  the  hands  of  the 
transferee,  or  his  avowed  agent,  or  in  their  respective  warehouses,  vessels, 
carts  and  the  like ;  but  in  modern  times  it  is  frequently  symbolical,  as  by  delivery 
of  a  key  to  a  room  containing  goods.  By  marking  timber  on  a  wharf,  or 
goods  in  a  warehouse,  or  by  separating  and  weighing  or  measuring  them, 
or  otherwise  constructive,  as  by  the  delivery  of  a  part  for  the  whole. 

Where  goods  are  ordered  by  a  foreign  merchant,  the  title  passes,  on  a 
delivery  to  a  carrier  for  shipment,  subject  only  to  the  right  of  stoppage  in 
transit;  but  such  is  not  a  delivery  to  the  vendee  where  he  dies  before  they 
reach  their  destination.  Where  the  vendor  takes  the  bill  of  lading  delivered 
to  the  order  of  himself,  or  of  his  agent,  it  prevents  the  property  from  passing 
to  the  intended  vendee  until  delivery. 

Delivery  is  not  necessary  at  common  law  to  complete  a  sale  of  personal 
property  as  between  the  vendor  and  vendee;  as  a  sale  passes  title  as  soon 
as  the  bargain  is  struck  without  any  delivery  or  payment.  But  as  against 
third  parties  possession  retained  by  the  vendor  raises  a  presumption  of  fraud, 
conclusive  according  to  some  authorities,  others  holding  it  merely  strong 
evidence  of  fraud  to  be  left  to  the  jury.  But  delivery  is  necessary,  in  gen- 
eral, where  the  property  in  goods  is  to  be  transferred  in  pursuance  of  a  pre- 
vious contract,  and  also  in  case  of  a  gift  made  in  expectation  of  death.  To 
give  validity  to  a  gift,  there  must  be  such  a  delivery  of  the  subject  thereof 
as  works  an  immediate  change  in  the  dominion  of  the  property.  The  rules 
requiring  actual  full  delivery  are  subject  to  modification  in  the  case  of  bulky 
articles. 

The  word  delivery  is  used  in  different  senses,  which  should  be  borne  in 
mind  in  considering  the  cases.  Sometimes  it  denotes  transfer  of  the  ])roperty 
in  the  chattel  and  sometimes  transfer  of  the  possession  of  the  chattel.  When 
used  in  the  latter  sense  it  may  refer  either  to  the  information  of  the  contract, 
or  to  the  performance  of  it.  ^^'hen  it  refers  to  the  delivery  of  possession 
in  the  performance  of  the  contract  the  buyer  is  sometimes  spoken  of  as  being 
in  possession  although  he  has  only  the  right  of  possession,  while  the  actual 
custody  remains  with  the  vendor. 

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A  condition  requiring  delivery  may  be  annexed  as  a  part  of  any  contract 
of  transfer. 

DEMAND. 

A  claim;  a  legal  obligation. 

A  release  of  all  demands  is,  in  general,  a  release  of  all  covenants,  real 
or  personal  conditions,  whether  broken  or  not,  annuities,  recognizances,  obli- 
gations, contracts,  and  the  like;  but  does  not  discharge  rent  before  it  is  due, 
if  it  be  a  rent  incident  to  the  reversion ;  for  the  rent  was  not  only  not  due,  but 
the  consideration — the  future  enjoyment  of  the  lands — for  which  the  rent 
was  to  be  given  was  not  executed. 


DEPOSIT. 

A  naked  bailment  of  goods  to  be  kept  for  the  depositor  without  reward, 
and  to  be  returned  when  he  shall  require  it.  A  bailment  of  goods  to  be  kept 
by  the  bailee  without  reward,  and  delivered  according  to  the  object  or  purpose 
of  the  original  trust.  A  contract  by  which  one  of  the  contracting  parties  gives 
a  thing  to  another  to  keep,  who  is  to  do  so  gratituously  and  obliges  himself  to 
return  it  when  he  shall  be  requested. 

An  irregular  deposit  arises  where  one  deposits  money  with  another  for 
safekeeping,  in  cases  where  the  latter  is  to  return,  not  the  specific  money 
deposited,  but  an  equal  sum. 

A  depository  is  bound  to  take  only  ordinary  care  of  the  deposit,  which 
will  of  course  vary  with  the  character  of  the  goods  to  be  kept,  and  other 
circumstances.  While  gross  negligence  on  the  part  of  a  gratituous  bailee  is 
not  fraud,  it  is  in  effect  the  same  thing.  He  has,  in  general,  no  right  to  use 
the  thing  deposited ;  unless  in  cases  where  permission  has  been  given  or  may 
from  the  nature  of  the  case  be  implied.  He  is  bound  to  return  the  deposit 
itself  and  in  the  same  state  in  which  he  received  it;  if  it  is  lost,  or  injured,  or 
spoiled,  by  his  fraud  or  gross  negligence,  he  is  responsible  to  the  extent  of 
the  loss  or  injury.  He  is  also  bound  to  restore,  not  only  the  thing  deposited, 
but  any  increase  of  profits  which  may  have  accrued  from  it;  if  an  animal 
deposited  bear  young,  the  latter  are  to  be  delivered  to  the  owner. 

In  the  case  of  irregular  deposits,  as  those  with  a  banker,  the  relation 
of  the  banker  to  his  customer  is  that  of  debtor  and  creditor,  and  does  not 
partake  at  all  of  a  fiduciary  character.  It  ceases  altogether  to  be  the  money 
of  the  depositor,  and  becomes  the  money  of  the  banker.  It  is  his  to  do  what 
he  pleases  with  it,  and  there  is  no  trust  created.  The  legal  remedy  is  a  suit 
at  law  for  debt ;  the  balance  can  not  be  reached  by  a  bill  in  equity,  except  in 
some  cases  of  insolvency,  when  a  fund  can  be  followed.  The  banker  is  not 
liable  for  interest  unless  expressly  contracted  for,  and  the  deposit  is  subject 
to  the  statute  of  limitations. 


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DISCOUNT  IN  CONTRACTS. 


Dl 


Interest  reserved  from  the  amount  loaned  at  the  time  of  making  a  loan. 
An  allowance  sometimes  made  for  prompt  payment.  As  a  verb  it  is  used  to 
denote  the  act  of  giving  money  for  a  bill  of  exchange  or  promissory  note, 
deducting  the  interest.  In  an  ordinary  commercial  document,  discount  means 
rebate  of  interest  and  not  "  true  "  or  mathematical  discount. 

A  discount  by  a  bank  means  a  deduction  or  drawback  made  upon  its 
advances  or  loans  of  money  upon  negotiable  paper  or  other  evidences  of 
debt,  payable  at  a  future  day,  which  are  transferred  to  the  bank.  It  is  the 
difference  between  the  price  and  the  amount  of  debt,  the  evidence  of  which  is 
transferred. 

The  taking  of  legal  interest  in  advance  is  not  usurious;  but  it  is  only 
allowed  for  the  benefit  of  trade  and  where  the  bill  or  note  discounted  is  meant 
for  circulation  and  is  for  a  short  term. 

There  is  a  difference  between  buying  a  bill  and  discounting  it.  The 
former  word  is  used  when  the  seller  does  not  indorse  the  bill  and  is  not  account- 
able for  its  payment.  The  true  discount  for  a  given  sum,  for  a  given  time, 
is  such  a  sum  as  will  in  that  time  amount  to  the  interest  oi  the  sum  to  be 
discounted. 

DISHONOR. 

A  term  applied  to  the  non-fulfillment  of  commercial  engagements.  To 
dishonor  a  bill  of  exchange,  or  a  promissory  note,  is  to  refuse  or  neglect  to 
pay  it  at  maturity.  The  holder  is  bound  to  give  notice  to  the  parties  to  such 
mstruments  of  its  dishonor;  and  his  laches  will  discharge  the  indorsers. 


DIVIDEND. 

A  portion  of  the  principal  or  profits  divided  among  the  several  owners 
of  a  thing.  The  term  is  usually  applied  to  the  division  of  the  profits  arising  out 
of  the  business  and  surplus  funds  of  a  corporation  which  has  been  actually 
set  apart  by  a  valid  resolution  of  the  board  of  directors,  or  by  the  shareholders 
at  a  corporate  meeting,  for  distribution  among  the  shareholders  according  to 
their  respective  interests,  in  such  a  sense  as  to  become  segregated  from  the 
property  of  the  corporation,  and  to  become  the  property  of  the  shareholders 

distributively. 

In  the  commonest  use  of  the  term,  dividends  are  provided  for  by  a 
sum  which  a  corporation  sets  apart  from  its  profits  to  be  divided  among 
its  members,  and  which,  for  the  purpose  of  declaring  a  dividend,  consists  of 
the  excess  of  its  cash  and  other  property  on  hand  over  its  liabilities. 

Where  dividends  are  required  to  be  declared  out  of  the  profits  merely 
of  a  railroad  company,  the  rule  for  ascertaining  what  the  profits  are,  is  to 
exclude  from  consideration  all  debts  other  than  what  are  commonly  under- 
stood by  the  term  funded  debts,  but  to  treat  as  deductions  debts  incurred  and 

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due  for  engines,  rails  and  the  like,  which  should  and  would  have  been  paid 
at  the  time  if  the  funds  had  been  in  hand,  and  are  necessary  deductions  from 

the  property. 

Dividends  cannot  usually  be  paid  out  of  the  capital,  but  only  from  the 
profits.  The  former  is  a  trust  fund  for  the  stockholders,  which  each  of  them  is 
entitled  to  have  preserved  intact:  but  this  principal  does  not  apply  when  the 
capital  from  its  nature  is  liable  to  waste  and  depreciation.  And  the  term 
dividend  is  applied  to  the  distribution  among  the  creditors  of  the  eflfects  of  an 
insolvent  estate  or  of  a  bankrupt. 

It  is  within  the  implied  scope  of  the  authority  of  the  directors  of  a 
corporation  to  declare  dividends,  and  unless  controlled  by  the  action  of  the 
corporation  itself  they  have  authority,  at  their  sole  discretion,  to  declare  divi- 
dends and  to  fix  the  time  and  place  of  payment  within  the  limits  of  reason 
and  good  faith  with  the  stockholders.  And,  generally,  courts  will  not  interfere 
in  behalf  of  a  common  stockholder  to  compel  the  declaration  of  a  dividend, 
except  in  case  of  fraud  or  abuse  of  discretion;  nor  will  equity  restrain  the 
declaration  of  a  dividend  where  the  propriety  of  declaring  one  is  fairly  within 
the  discretion  of  the  directors. 

Dividends  must  be  so  declared  as  to  give  each  stockholder  his  proportion- 
ate share  of  the  profits,  and  if  one  person  is  excepted  he  may  sue  for  his 
dividends,  for  the  reason  that  such  exception  is  void. 

A  stockholder  cannot  recover  the  profits  made  by  a  corporation  until 
a  dividend  has  been  declared,  but  after  a  dividend  has  been  declared  and 
demand  made  therefor  by  a  stockholder,  he  may  sue  in  assumpsit  for  the 
amount  due  him,  and  stockholders  have  been  allowed  to  follow  the  amount 
of  his  dividend  into  the  hands  of  the  receiver  of  the  company. 


DOCUMENTS. 

The  deeds,  agreements,  title-papers,  letters,  receipts  and  other  written 
instruments  used  to  prove  a  fact. 

When  a  document  is  lost,  secondary  evidence  may  be  given  of  its  contents, 
after  laying  a  proper  foundation  therefor,  by  proving  its  former  existence, 
and  its  due  execution,  and  satisfactorily  accounting  for  the  failure  to  produce 
it.  The  burden  of  proving  all  of  these  facts  rests  upon  the  party  who  seeks 
to  induce  such  secondary  evidence. 


DRAFT. 

An  order  for  the  payment  of  money,  drawn  by  one  person  upon  another. 
It  is  frequently  used  in  corporations  where  one  agent  draws  on  another:  in 
such  case  it  may  be  treated  either  as  an  accepted  bill  or  a  promissory  note. 
They  are  frequently  used  for  mere  convenience  in  keeping  accounts  and  provid- 
ing concurrent  vouchers,  and  it  is  not  necessary  to  present  such  a  draft  to 
the  drawee  or  to  give  notice  of  the  non-payment  before  suing  the  corporation. 

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While  a  draft  by  directors  of  an  insurance  company  on  its  cashier  was 
held  to  contain  all  that  is  essential  to  constitute  a  promissory  note,  yet  drafts, 
which  are  frequently  used  between  municipal  officers,  are  said  not  usually  to 
be  negotiable  instruments.  But  it  has  been  held  that  municipal  warrants  or 
orders  for  the  payment  of  debts,  if  authorized  and  drawn  in  negotiable 
language,  may  be  sued  on  by  the  transferee.  They  must,  however,  be  pre- 
sented for  payment  before  suit. 

DRAWBACK. 

An  allowance  made  by  the  government  to  merchants  on  the  re-exportation 
of  certain  imported  goods  liable  to  duties,  which  in  some  cases  consists  of  the 
whole,  in  others  a  part,  of  the  duties  which  had  been  paid  upon  the  importation. 

DRAWEE. 

A  person  to  whom  a  bill  of  exchange  is  addressed,  and  who  is  requested 
to  pay  the  amount  of  money  therein  mentioned. 

DUE. 

What  ought  to  be  paid :  what  may  be  demanded.  It  differs  from  owing 
in  this,  that  sometimes  what  is  owing  is  not  due.  A  note  payable  a  certain 
time  after  date  is  owing  immediately  after  it  is  delivered  to  the  payee,  but  it  is 
not  due  until  such  certain  time  has  elapsed. 

At  times  the  word  "  due  "  signifies  a  simple  indebtedness  without  reference 
to  the  time  of  payment,  while  at  others  it  shows  that  the  day  of  payment  has 
passed. 

DUE-BILL. 

An  acknowledgment  of  debt  in  writing.  It  is  unlike  a  promissory  note  in 
many  respects :  it  is  not  payable  to  order,  nor  is  it  assignable  by  mere  endorse- 
ment, and  the  maker  of  it  is  not  estopped  by  it  as  to  anyone  who  may  purchase 
the  supposed  debt,  but  in  an  action  on  it  he  may  show,  under  a  plea  of  want  of 
consideration,  that  the  indebtedness  for  which  it  had  been  given  had  been 
paid  before  the  bill  was  made. 

DUPLICATE. 

The  double  of  anything.  A  document  Vvhich  is  essentially  the  same  as 
some  other  instrument. 

A  duplicate  instrument  has  but  one  eftect.  Each  dui)licate  is  complete 
evidence  of  the  intention  of  the  parties.  When  a  duplicate  is  destroyed,  as  in 
the  case  of  a  will.it  is  presumed  that  both  are  intended  to  be  destroyed,  but  th!> 
presumption  presents  greater  or  less  force,  owning  to  circumstances.     When 

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only  one  of  the  duplicates  is  in  the  possession  of  the  testator,  the  destruction 
of  that  i'-  a  strong  presumption  of  an  intent  to  revoke  both,  but  if  he  possessed 
both,  and  destroys  but  one,  it  is  weaker;  when  he  alters  one  and  afterwards 
dt.stroys  it,  retaining  the  other  entire,  it  has  been  held  that  the  intention  was 
to  revoke  both ;  but  that  seems  to  be  doubted. 


EARNEST. 

The  payment  of  a  sum  of  money  or  the  delivery  of  a  thing  or  token 
upon  the  making  of  a  contract  for  the  sale  of  goods,  to  bind  the  bargain,  the 
delivery  and  acceptance  of  which  makes  the  final  and  conclusive  assent  of  both 
parties  to  the  contract.  It  has  also  been  defined  to  be  the  payment  of  a  part 
of  the  price  of  goods  sold,  or  the  delivery  of  a  part  of  such  goods  for  the 
purpose  of  binding  the  contract. 

To  constitute  earnest  to  bind  the  bargain,  something  must  be  paid  or 
given.  Money  left  in  the  hands  of  a  third  person  as  a  forfeiture  is  not 
sufficient,  much  less  the  deposit  of  a  check. 

In  part  payment  something  of  value  must  pass  from  the  buyer  to  the 
seller.  A  mere  agreement  that  the  price  shall  go  in  settlement  of  an  existing 
account  is  not  sufficient  without  more;  nor  is  an  agreement  to  sell  one  article 
and  take  another  in  part  payment ;  there  must  be  a  delivery  of  something  of 

value. 

With  respect  to  the  time  when  part  payment  must  be  made,  it  is  in 
some  States  required  to  be  made  at  the  time  of  making  the  contract.  It  was 
so  held  in  New  York ;  the  same  day  has  been  held  to  be  sufficient,  and  so  was 
a  payment  asked  for  and  made  on  the  day  following,  the  contract  being  held 
to  be  then  made  for  the  first  time. 


EARNINGS. 

This  word  has  been  held  to  include  a  larger  class  of  credits  than  would 
be  included  in  the  term  wages.  It  also  means  the  gains  of  the  debtor  derived 
from  his  services  or  labor  without   the  aid  of  capital. 

Net  Earnings,  generally  speaking,  are  the  excess  of  the  gross  earnings 
over  the  expenditures  defrayed  in  producing  them,  aside  from  and  exclusive  of, 
the  expenditures  of  capital  laid  out  in  constructing  and  equipping  the  works 
themselves. 

EMBEZZLEMENT. 

The  fraudulent  appropriation  to  one's  own  use  of  the  money  or  goods 
entrusted  to  one's  care  by  another. 

The  fraudulent  appropriation  of  property  by  a  person  to  whom  it  has 
been  intrusted  or  to  whose  hands  it  has  lawfully  come.  It  is  distinguished 
from  larceny  in  the  fact  that  the  original  taking  of  the  property  was  lawful 

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or  with  the  consent  of  the  owner,  while  in  larceny  the  felonious  intent  must 
have  existed  at  the  time  of  the  taking. 

EMPLOYED. 

The  act  of  doing  a  thing,  and  the  being  under  contract  or  orders  to  do  it. 

EMPLOYEE. 

A  person  employed.  But  used  ordinarily  to  signify  a  person  in  some 
official  employment.  Though  it  is  not  confined  to  any  official  employment,  it 
is  understood  to  mean  some  permanent  employment  or  position.  It  has  been 
held  to  mean  anyone  who  renders  service  to  another,  and  has  been  extended 
so  far  as  to  embrace  an  attorney  or  counsel. 


ENDORSE. 


See  Indorse. 


ENGAGEMENT. 


A  contract.  The  obligation  arising  from  a  quasi  contract.  The  terms 
obligation  and  engagement  are  said  to  be  synonymous,  but  some  codes  seem 
specially  to  apply  the  term  engagement  to  those  obligations  which  the  law 
imposes  on  a  man  without  the  intervention  of  any  contract,  either  on  the 
part  of  the  obligor  or  the  obligee.  An  engagement  to  do  or  not  to  do  something 
amounts  to  a  promise. 

ENGROSS. 

To  copy  the  rude  draft  of  an  instrument  in  a  fair,  large  hand.  To  write 
out  in  a  fair,  large  hand  on  parchment. 

ENHANCED. 

Any  increase  in  value,  however  caused  or  arising. 

ENTRY. 

The  act  of  setting  down  the  particulars  of  a  sale,  or  other  transaction, 
in  a  merchant's  or  tradesman's  account  books;  such  entries  are  in  general 
prima  facie  evidence  of  the  sale  and  delivery,  and  of  work  done,  but  unless 
the  entry  be  the  original  one,  it  is  not  evidence. 

ERASURE. 

The  obliteration  of  a  writing.     The  effect  of  an  erasure  is  not  per  se 

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to  destroy  the  writing  in  which  it  occurs,  but  is  a  question  for  the  jury,  and  will 
render  the  writing  void  or  not,  under  the  same  circumstances  as  an  inter- 
lineation. 

ESTOPPEL. 

The  preclusion  of  a  person  from  asserting  a  fact  by  previous  conduct 
inconsistent  therewith,  on  his  own  part  or  on  the  part  of  those  under  whom  he 
claims,  or  by  an  adjudication  upon  his  rights  which  he  cannot  be  allowed 
to  call  in  question. 

EVIDENCE. 

That  which  tends  to  prove  or  disprove  any  matter  in  question,  or  to 
influence  the  belief  respecting  it. 

EXCHANGE. 

A  negotiation  by  which  one  person  transfers  to  another  funds  which  he 
has  in  a  certain  place,  either  at  a  price  agreed  upon  or  which  is  fixed  by 
commercial  usage. 

EXTINGUISHMENT  OF  A  DEBT. 

Destruction  of  the  debt.  This  may  be  done  by  the  recovery  of  a  judg- 
ment ;  by  the  acceptance  of  a  higher  security,  and,  when  the  debt  is  evidenced 
by  a  note,  by  a  surrender  of  the  note. 

FACE. 

The  words  of  a  written  paper  in  their  apparent  or  obvious  meaning, 
as  the  face  of  a  bill,  note,  check,  etc. 

The  face  of  a  judgment  is  the  sum  for  which  it  was  rendered,  exclusive 
of  interest.  * 

FACTOR. 

An  agent  for  the  sale  of  goods  in  his  possession  or  consigned  to  him.  An 
agent  employed  to  sell  goods  consigned  to  him  by  or  for  his  principal,  for  a 
compensation,  a  commission  merchant.  A  factor  may  buy  and  sell  for  his 
principal  in  his  own  name,  as  well  as  in  the  name  of  his  principal,  and  in  this 
respect  he  differs  from  a  broker  who  should  buy  and  sell  in  the  name  of  his 
principal  only.  A  factor  is  intrusted  with  the  possession,  management,  control 
and  disposal  of  the  goods,  and  has  a  special  property  in  and  a  lien  on  them, 
while  a  broker  has  no  such  possession,  management,  control  or  disposal  of  the 
goods  nor  property  in,  nor  lien  on  them.  The  term  factor  is  used  but  little 
in  the  United  States,  the  business  is  done  by  commission  men,  except  in  the 
southern  states. 


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FALSE  PRETENCES. 

False  representations  and  statements  made  with  a  fraudulent  design  to 
obtain  money,  goods,  wares  aixl  merchandise,  with  intent  to  cheat.  A  repre- 
sentation of  some  fact  or  circumstance  calculated  to  mislead,  which  is  not  true. 
There  must  be  an  intent  to  cheat  or  defraud  some  person.  The  intent  is 
all  that  is  requisite ;  it  is  not  necessary  that  the  party  defrauded  should  sustain 
anv  loss. 

It  is  not  necessary  that  all  the  pretences  should  be  false,  if  one  of  them,  per 
se  is  sufficient  to  constitute  the  offence.     And  although  other  circumstance 


'S 


may  have  induced  the  credit,  or  the  delivery  of  the  property,  yet  it  will  be 
sufficient  if  the  false  pretences  had  such  an  influence  that  without  them  the 
credit  would  not  have  been  given  or  the  property  delivered.  The  pretence 
must  relate  to  past  events  and  must  have  been  used  before  the  contract  was 
completed. 

FALSIFICATION. 

The  showing  an  item  in  the  debit  of  an  account  to  be  either  wholly  false 
or  in  part  erroneous  is  held,  in  Chancery  practice,  to  be  a  falsification. 


FICTITIOUS  PAYEE. 

* 

When  a  negotiable  paper  or  other  like  contract  is  drawn  in  favor  of  a 
fictitious  person,  and  has  been  indorsed  in  such  name,  it  is  deemed  payable 
to  bearer  as  against  all  parties  who  are  privy  to  the  transaction :  and  a  holder 
in  good  faith  may  recover  on  it  against  them. 

When  a  note  is  made  payable  to  the  name  of  some  person  not  having  any 
interest,  and  not  intended  to  become  a  party  to  the  transaction,  whether  a 
person  of  such  a  name  is  or  is  not  known  to  exist,  the  payee  may  be  deemed 
to  be  fictitious. 

The  maker  of  a  note  in  favor  of  a  fictitious  person,  by  negotiating  it 
transfers  title  to  it  without  indorsement,  and  it  is  presumed  that  the  note 
came  into  the  possession  of  the  holders  with  the  names  of  all  the  endorsers 
on  it,  and  prima  facie  he  is  treated  as  a  holder  for  value,  provided  that  the 
acceptor  or  indorser  be  ignorant  of  the  fact  that  the  payee  was  a  fictitious 
person.  In  the  hands  of  a  bona  fide  holder  such  a  note  or  bill  is  good  against 
the  maker. 

FINANCES. 

The  word  is  generally  used  in  the  plural,  and  denotes  money  resources 
generally.    The  state  of  the  finances  of  an  individual  or  coq^oration.  is  his  or  its 


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condition  from  a  monetary  point  of  view ;  the  cash  he  has  on  hand,  and  that 
which  he  expects  to  receive,  as  compared  with  the  engagements  he  has 
made  to  pay.    The  income  or  means  of  an  individual  or  corporation. 

FIXTURES. 

Personal  property  so  attached  to  real  estate  as  to  become  part  of  it, 
depending  on  the  intentions  of  the  parties. 

FLOATING  CAPITAL. 

Is  the  capital  retained  for  the  purpose  of  meeting  current  expenses. 
It  includes  raw  materials  destined  for  fabrication,  such  as  wool  and  flax 
products  in  the  warehouse  of  a  merchant  or  manufacturer;  and  such  as  cloth, 
linen,  stores,  money  for  wages,  etc. 

FLOATING  DEBT. 

Is  that  mass  of  lawful  and  valid  claims  against  a  corporation,  for  the 
payment  of  which  there  is  no  money  in  the  corporate  treasury  specifically 
designed,  nor  any  system  of  taxation  or  other  means  providing  money  to 
pay,  particularly  provided. 

FOREIGN. 

That  which  belongs  to  another  country;  that  which  is  strange.  The  sev- 
eral states  of  the  American  Union  are  foreign  to  each  other  with  respect  to 
their  municipal  laws.  But  the  reciprocal  relations  between  the  national  gov- 
ernment and  the  several  states  composing  the  United  States  are  not  considered 
as  foreign,  but  domestic. 

FOREIGN  BILL  OF  EXCHANGE. 

A  bill  that  is  drawn  in  one  country  or  state  and  made  payable  in  another; 
and  so  if  the  parties  to  it  reside  in  the  same  state,  but  the  bill  is  drawn  in  one 
state  and  made  payable  in  another,  such  is  a  foreign  bill. 

FOREIGN  CREDITOR. 

One  who  is  resident  in  a  state  or  country  foreign  to  that  of  the  domicile 
of  the  debtor  or  the  situs  of  his  property. 

FOREIGN  TRADE. 

The  exportation  and  importation  of  commodities  to  or  from  foreign 
countries,  as  distinguished  in  the  United  States  from  interstate  or  coast- 
wise trade. 

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FORGERY. 

The  falsely  making  or  materially  altering,  with  intent  to  defraud,  any 
writing  which,  if  genuine,  might  apparently  be  of  legal  efficacy  or  the  founda- 
tion of  a  legal  liability. 

The  fraudulent  making  or  alteration  of  a  writing  to  the  prejudice  of 
another's  rights. 

The  essence  of  forgery  consists  in  making  an  instrument  appear  to  be 
that  which  it  is  not. 

The  making  of  a  whole  written  instrument  in  the  name  of  another  with 
a  fraudulent  intent  is  a  sufficient  making  to  constitute  a  forger)-,  but  other- 
wise where  one  executes  a  promissory  note  as  agent  for  a  principal  from 
whom  he  has  no  authority. 

Making  an  instrument  in  a  fictitious  name,  or  in  the  name  of  a  non-existing 
person,  is  as  much  a  forgery  as  making  it  in  the  name  of  an  existing  person, 
and  although  a  man  makes  the  instrument  in  his  own  name,  if  he  represent  it  as 
the  instrument  of  another  of  the  same  name,  when  in  fact  there  is  no  such 
person,  it  will  be  a  forgery  in  the  name  of  a  non-existing  person. 

The  oflfence  of  forgery  may  be  complete  without  a  publication  of  the 
forged  instrument. 

The  intent  must  be  to  defraud  another,  but  it  is  not  requisite  that  any 
one  shall  have  been  injured ;  it  is  sufficient  that  the  instrument  forged  might 
have  proved  prejudicial.  The  act  of  offering  for  sale  and  selling  a  forged 
instrument  is  a  sufficient  representation  as  to  its  genuineness. 


FREIGHT. 

In  Maritime  Law,  is  the  sum  agreed  upon  for  the  hire  of  a  ship,  entirely 
or  in  part,  for  the  carriage  of  goods  from  one  port  to  another.  The  price 
to  be  paid  for  the  actual  transportation  of  goods  by  sea  from  one  place  to 
another. 

The  general  rule  is  that  the  delivery  of  the  goods  at  the  place  of  destina- 
tion, in  fulfillment  of  the  agreement  of  the  charter  party  or  bill  of  lading,  is 
required,  to  entitle  the  master  or  owner  of  the  vessel  to  freight,  but  there  are 
exceptions  to  this  rule. 


FUTURE  ACQUIRED  PROPERTY. 

A  mortgage  made  to  cover  "  after  acquired  property  "  is  valid,  and  may 
include  the  future  earnings  of  a  railroad  company,  its  rolling  stock,  and  the 
proceeds  to  be  received  from  the  sale  of  surplus  lands.  Future  calls  of  assess- 
ments on  stock  cannot  be  mortgaged,  but  it  has  been  held  that  calls  already 
made  can  be. 

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FUTURES. 

This  term  has  grown  out  of  those  purely  speculative  transactions  in 
which  there  is  a  nominal  contract  of  sale  for  future  delivery,  but  where  in 
fact  it  is  never  intended  or  executed.  The  nominal  seller  does  not  have  or 
expect  to  have  the  stock  or  merchandise  he  purports  to  sell,  nor  does  the 
nominal  buver  expect  to  receive  it  or  pay  the  price.  Instead  of  that  a  per- 
centage or  "  margin  "  is  paid,  which  is  increased  or  diminished  as  the  market 
rale  go  up  or  down  and  are  accounted  for  to  the  buyer.  This  is  simple  specula- 
tion and  gambling;  mere  wagering  on  prices  within  a  given  time. 


GAMING. 

A  contract  by  which  two  or  more  parties  agree  to  play  by  certain  rules 
at  cards,  dice,  or  other  contrivance,  and  that  one  shall  be  the  loser  and  the 
other  the  winner.  When  considered  in  itself,  and  without  regard  to  the  end 
proposed  by  the  players,  there  is  nothing  in  it  contrary  to  natural  equity,  and 
the  contract  will  be  considered  as  a  reciprocal  gift,  which  the  parties  make  of  the 
thing  played  for,  under  certain  conditions.  There  are  some  games  which 
depend  altogether  upon  skill,  others  upon  chance,  and  still  others  are  of 
a  mixed  nature.  Billiards  is  an  example  of  the  first,  lottery  of  the  second,  and 
backgammon  of  the  last. 

The  decisions  as  to  what  constitutes  gaming  are  not  altogether  uniform. 
Under  statutes  making  it  a  penal  offense,  it  is  defined  as  a  staking  on  chance 
where  chance  is  the  controlling  factor,  as  betting  on  a  horse  race.  Betting 
on  a  baseball  game  is  within  the  criminal  offense  of  gaming,  and  it  has  been 
held  that  a  bilhard  table  is  a  gaming  table,  while  the  reverse  is  held  in  some 

states. 

Statutes  have  been  passed  in  perhaps  all  of  the  States  forbidding  gaming 
for  money  at  certain  games,  and  prohibiting  the  recovery  of  money  lost  at 
such  games,  and  a  court  of  equity  will  not  lend  its  aid  in  a  gambling  trans- 
action either  to  the  winner  to  compel  payment  of  his  unpaid  accounts,  or  to 
the  loser  who  has  paid  his  losses  to  enable  him  to  recover  them  back,  whether 
the  loser  pays  his  losses  in  cash  or  in  negotiable  securities. 

Under  the  statutes,  bills  and  notes  given  for  the  amount  of  a  gaming 
debt  are  inoperative  and  void.  The  law  begins  by  declaring  all  wagers  and 
bets  unlawful  and  concludes  by  annulling  every  contract  growing  out  of  such 
a  transaction.  But  in  the  hands  of  a  bona  fide  purchaser,  or  indorsee,  with- 
out notice,  who  takes  it  for  value,  such  a  bill  or  note  is  valid  as  against  the 
payee,  on  his  indorsement,  as  on  a  new  contract,  and  he  is  liable  thereon.  He 
is  estopped  from  asserting  its  invalidity. 

As  between  the  immediate  parties  to  such  bills  and  notes  the  law  refuses 
to  enforce  it  in  favor  of  one  against  the  other.  The  courts  are  not  at  liberty 
to  give  effect  to  an  instrument  which  is  declared  affirmatively  to  be  void.  Notes 
and  bills  given  for  money  to  game  with  come  under  the  prohibition  and  are 
void. 

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GIFTS. 


Gi.-Go. 


A  voluntary  conveyance  or  transfer  of  property ;  that  is,  one  Jiot  founded 
on  the  consideration  of  money  or  blood. 

Gifts  inter  vivos  are  gifts  made  from  one  or  more  persons,  without  any 
prospect  of  immediate  death,  to  one  or  more  others.  Gifts  causa  mortis  are 
gifts  made  in  prospect  of  death. 

Gifts  inter  vivos  have  no  reference  to  the  future,  but  go  into  immediate 
and  absolute  effect.  Delivery  is  essential.  A  mere  intention  or  naked  promise 
to  give  without  some  act  to  pass  the  property,  is  not  a  gift.  But  it  is  sufficient 
to  complete  the  gift  if  the  conduct  of  the  parties  show  that  the  ownership 
of  the  chattels  has  been  changed. 

When  a  gift  inter  vivos  is  perfect,  it  is  then  irrevocable,  unless  it  is 
prejudicial  to  the  creditors,  or  the  donor  was  under  a  legal  incapacity,  or  was 
circumvented  by  fraud. 

A  gift  causa  mortis  is  revocable  during  the  donor's  life. 

GOLD. 

Parties  may  contract  for  the  payment  of  an  obligation  in  gold,  or  any 
other  money  or  commodity,  and  it  must  then  be  paid  in  the  medium  contracted 
for.  Contracts  expressly  stipulating  for  payment  in  gold  and  silver  dollars  can 
only  be  satisfied  by  the  payment  of  coined  dollars.  Such  a  contract  is  nothing 
else  than  an  agreement  to  deliver  a  certain  weight  of  standard  gold  to  be 
ascertained  by  a  count  of  coins,  each  of  which  is  certified  to  contain  a  definite 
proportion  of  that  weight. 

Where  a  note  was  made  payable  in  specie,  it  was  held  that  the  designated 
number  of  dollars  must  be  paid  in  so  many  gold  or  silver  dollars  of  the 
coinage  of  the  United  States,  and  a  tender  of  greenbacks  or  United  States 
legal  tender  notes  was  not  sufficient. 

A  contract  to  pay  a  certain  number  of  dollars  in  gold ;  a  draft  for  a  cer- 
tain number  of  gold  dollars,  or  a  note  payable  in  gold  or  silver,  are  all  enforce- 
able according  to  their  terms.  But  in  the  absence  of  a  stipulation  in  the 
contract,  a  right  to  demand  payment  in  coin  will  not  be  implied,  although  it 
appear  that  payment  in  coin  was  the  only  method  of  payment  recognized 
by  law  when  the  contract  was  entered  into  and  that  the  parties  no  doubt 
expected  that  payment  would  be  made  in  coin ;  as  where  the  consideration 
for  a  note  was  a  loan  in  gold  and  silver  and  there  was  no  stipulation  to  pay 
in  such  money. 

GOOD  FAITH. 

An  honest  intention  to  abstain  from  taking  any  unconscientious  advan- 
tage of  another. 

Good  faith  is  presumed  in  favor  of  the  holder  of  negotiable  paper,  and 
outweighs  a  presumption  of  payment,  and  such  holder  takes  the  paper  free 

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from  any  infirmity  in  its  origin  except  such  as  makes  it  void  for  illegality  of 
consideration  or  want  of  capacity  in  the  maker. 

One  who  has  purchased  for  value  and  without  notice,  or  his  transferee, 
is  termed  a  holder  in  good  faith. 

GOODS. 

In  contracts  the  word  "  goods  "  is  not  so  wide  as  chattels,  for  it  applies 
to  inanimate  objects,  and  does  not  include  animals  or  chattels  real,  as  a 
lease  for  years,  which  chattels  does  include.  "  Goods  "  will  not  include  fixtures, 
or  a  subscription  for  stock,  and  it  has  been  held  not  to  include  teams  and 
wagons,  notes  and  accounts  due. 

GOODS,  WARES,  AND  MERCHANDISE. 

Fixtures  do  not  come  within  this  term  as  used  in  the  statute  of  frauds, 
while  growing  crops  of  potatoes,  corn,  turnips  and  other  annual  crops  do.  A 
contract  for  the  sale  of  apples,  peaches  and  blackberries,  which  might  be  raised 
during  certain  years,  are  chattels  personal  and  not  within  the  statute.  Prom- 
issory notes  and  shares  in  an  incorporated  company,  and,  in  some  cases,  money 
and  bank  notes  have  been  held  within  it. 

GUARANTEE. 

(«.)  He  to  whom  a  guaranty  is  made.  Also,  (v.  t.)  to  make  oneself 
responsible  for  the  obligation  of  another,  in  which  case  he  is  termed  a  («.) 
guarantor. 

The  guarantee  is  entitled  to  receive  payment,  in  the  first  place,  from  the 
debtor,  and  secondly,  from  the  guarantor.  He  must  be  careful  not  to  give 
time,  beyond  that  stipulated  in  the  original  agreement,  to  the  debtor,  without 
consent  of  the  guarantor.  The  guarantee  should,  at  the  instance  of  the 
guarantor,  bring  an  action  against  the  principal  for  the  recovery  of  the  debt, 

GUARANTY. 

Is  a  collateral  undertaking  to  pay  the  debt  of  another  in  case  he  does  not, 
and,  also,  an  undertaking  to  answer  for  another's  liability,  and  is  collateral 
to  such  liability ;  a  promise  to  answer  for  the  debt,  default,  or  miscarriage  of 
another. 

It  is  in  the  alternative  and  is  distinguished  from  suretyship  in  being  a 
secondary,  while  suretyship  is  a  primary,  obligation.  Guaranty  is  an  engage- 
ment to  pay  on  the  debtor's  insolvency,  or  the  principal's  failure  to  perform 
if  due  diligence  be  used  by  the  guarantee  to  obtain  payment,  or  failure  to 
perform  is  not  due  to  acts  of  the  guarantee ;  suretyship  is  an  undertaking  that 
a  debt  will  be  paid. 

A  written  guaranty  which  fails  to  show  on  its  face  the  person  to  whom 


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the  guaranty  is  made  is  void,  and  where  the  terms  of  the  contract  fails  to 
express  a  guaranty,  parol  evidence  of  one  is  inadmissible. 

By  the  statute  of  frauds  it  is  provided  that  "  No  action  shall  be  brought 
whereby  to  charge  the  defendant  upon  any  special  promise  to  answer  for 
the  debt,  default  or  miscarriage  of  another  person,  *  *  *  unless  the  agree- 
ment upon  which  such  action  shall  be  brought,  or  some  memorandum  or 
note  thereof,  shall  be  in  writing,  signed  by  the  party  to  be  charged  therewith, 
or  by  some  person  thereunto  by  him  lawfully  authorized." 

"  Any  special  promise  "  in  the  act  does  not  apply  to  promises  implied 
in  law. 

\V'here  one  who  owes  a  debt  to  another  promises  to  pay  his  debt  to  a  cred- 
itor of  such  other  party,  the  promise  is  not  within  the  statute. 

While  it  has  been  held  that  no  suit  can  be  maintained  upon  a  guaranty 
except  by  the  person  with  whom  it  is  made,  still  it  has  also  been  held  that 
a  guaranty  of  a  note  may  be  sued  on  by  any  person  who  advances  money  on 
it,  but  that  it  is  not  negotiable  unless  made  upon  the  note,  the  payment  of 
which  it  guarantees.  And  in  the  case  of  promissory  notes  a  distinction  has 
been  made  between  a  guaranty  of  payment  and  a  g^iaranty  of  collectability ; 
the  latter  requiring  that  the  holder  shall  diligently  prosecute  the  principal 
debtor  without  avail,  before  recourse  can  be  taken  to  the  guaranty. 


HALF  YEAR. 

In  the  computation  of  time,  a  half  year  consists  of  one  hundred  and 
eighty-two  days. 

HANDWRITING. 

Anything  written  by  a  person.  The  manner  in  which  a  person  writes, 
including  the  formation  of  the  characters,  the  separation  of  the  words,  and 
other  features  distinguishing  the  written  matter,  as  a  mechanical  result,  from 
the  writing  of  other  persons. 

HOLDER. 

The  holder  of  a  bill  of  exchange  is  the  person  who  is  legally  in  the  posses- 
sion of  it,  either  by  endorsement  or  delivery,  or  both,  and  entitled  to  receive 
payment  either  from  the  drawee  or  acceptor.  One  who  indorses  a  promissory 
note  for  collection,  as  an  agent,  will  be  considered  the  holder  for  the  purpose  of 
transmitting  notices.  No  one  but  the  holder  can  maintain  an  action  on  a  bill 
of  exchange. 

HOLDER  IN  DUE  COURSE. 

See  Indorsee  in  Due  Course. 


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HOLIDAY. 

A  (lay  set  apart  for  commemorating  some  important  event  in  history;  a 
day  of  exemption  from  labor. 

In  the  United  States  legal  holidays  are  merely  the  creation  of  statute 
law,  and  the  lack  of  uniformity  in  the  statutes  of  the  several  States  -makes 
the  term  itself  very  difficult  of  exact  definition. 

Legal  holidays,  as  distinguished  from  the  first  day  of  the  week,  are  those 
days  which  are  set  apart  by  statute,  or  by  executive  authority,  for  fasting 
and  prayer,  or  those  given  over  to  religious  observance  and  amusements,  or 
for  political,  moral  or  social  duties  or  anniversaries,  or  merely  for  popular 
recreation  and  amusement  under  such  penalties  and  prohibitions  alone  as  are 
expressed  in  positive  legislation. 

In  most  of  the  States  it  is  the  rule,  and  such  is  the  general  commercial 
usage,  to  allow  only  two  days  of  grace,  when  the  third  would  fall  on  a 
holiday,  and  to  authorize  demand  of  payment  and  protest  on  the  day  next 
preceding  it. 

The  question  as  to  when  a  note  falling  due  on  a  legal  holiday  which 
happens  to  be  Sunday,  is  legally  payable,  is  to  be  determined  as  in  the  case 
of  any  other  note  falling  due  on  a  Sunday  which  is  not  a  legal  holiday.  This 
is  so  by  general  usage  without  special  provision  by  statute,  though  in  some 
States  there  is  such  provisions. 

The  same  custom  of  merchants  which  has  indulged  three  days  of  grace 
after  a  note  is  due,  if  the  last  day  of  grace  is  not  Sunday,  allows  but  two 
where  it  is  Sunday,  to  avoid  giving  four  days  of  grace. 

Where  a  note  is  drawn  without  grace  and  it  falls  due  on  Sunday,  demand 
of  payment  and  protest  cannot  be  made  until  the  day  following,  as  it  would 
be  recjuiring  payment  before  due  to  protest  it  on  the  day  before ;  and  where  a 
note  is  so  drawn  without  grace  and  it  falls  due  on  a  holiday  which  is  on 
Sunda}'.  and  the  holiday  is  observed  on  Monday,  payment  may  be  demanded  and 
protest  made  on  Tuesday. 

INCOME. 

The  gain  which  proceeds  from  property,  labor,  or  business.  It  is  applied 
l^articularly  to  individuals.  The  income  of  the  state  or  government  is  usually 
called  revenue.  The  word  is  sometimes  considered  synonymous  with  profits, 
the  gain  as  between  receipts  and  payments. 

INDORSE. 

To  write  on  the  back.  Bills  of  exchange  and  promissory  notes  are  indorsed 
by  a  party's  writing  his  name  on  the  back  thereof.     (See  Indorsement.) 


INDORSEE. 

The  person  or  party  to  whom  a  bill  of  exchange  is  indorsed,  or  trans- 
ferred by  indorsement. 

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INDORSEE  IN  DUE  COURSE. 


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One  who,  in  good  faith,  in  the  ordinary  course  of  business,  before  its 
ajiparent  maturity  or  presumptive  dishonor,  and  without  knowledge  of  its 
actual  dishonor,  acquires  a  negotiable  instrument,  duly  indorsed  to  him,  or 
indorsed  generally,  or  payable  to  bearer.     Also  called  Holder  in  Due  Course. 


INDORSEMENT. 

Tliat  which  is  zcrittcn  on  the  back  of  an  instrument  and  has  relation  to  it. 

The  writing  of  one's  name  on  the  back  of  a  promissory  note  or  other 
negotiable  instrument. 

A  blank  indorsement  or  indorsement  in  blank  is  the  writing  of  the  name 
of  the  indorser  only  on  the  instrument,  commonly  on  the  back,  but  if  written 
on  the  face  of  the  instrument  it  may  answer  the  same  purpose.  The  eflfect  is 
to  make  the  instrument  thereafter  payable  to  bearer,  and  to  render  the  indorser 
liable  in  certain  events. 

A  conditional  indorsement  is  one  made  subject  to  some  condition  with«>ut 
the  performance  of  which  the  instrument  will  not  be  or  remain  valid.  An 
indorsement  on  a  note,  making  it  payable  on  a  contingency  does  not  affect  its 
negotiability. 

An  indorsement  in  full  is  one  in  which  mention  is  made  of  the  indorsee. 
The  indorsement  is  usually  in  the  words,  "  Pay  to  John  Doe,  or  order."  fol- 
lowed by  the  signature  of  the  indorser.  The  omission  of  the  words  '*  or  order  " 
is  not  material,  for  the  indorsee  takes  it  with  all  of  its  incidents,  including 

its  negotiable  quality. 

A  qualified  indorsement  is  one  which  restrains,  or  limits,  or  qualifies,  or 
enlarges  the  liability  of  the  indorser,  in  a  manner  different  from  what  the 
law  generally  imports  as  his  true  liability,  deducible  from  the  nature  of  the 
instrument,  as  an  indorsement  without  recourse.  An  indorsement  without 
recourse,  or  at  the  indorsee's  "  own  risk,"  will  not  expose  the  indorser  to  any 
liability,  but  such  an  indorsement  warrants  the  genuineness  of  all  prior  signa- 
tures, that  the  indorser  has  title  to  the  note,  that  the  note  is  vaHd  between  the 
original  parties,  and  is  not  illegal  or  without  consideration,  and  that  the  parties 
were  competent  to  contract.  Although  by  such  an  indorsement  the  indorser 
relieves  himself  from  liability,  as  indorser,  yet  he  does  not  thereby  totally 
dissolve  his  connection  with  the  instrument :  there  are  certain  things  for  which 
he  may  be  liable,  although  he  indorses  ''  without  recourse;"  thus  if  the  instru- 
ment be  not  genuine,  as  if  the  signatures  of  any  of  the  prior  parties  be  forged; 
or  if  the  note  be  invalid  for  the  want  of  or  by  reason  of  the  illegality  of  the 
consideration ;  or  if  the  indorser  had  no  title. 

The  indorsement  without  recourse  does  not  indicate  that  the  party  so 
indorsing  is  conscious  of  any  defect  in  the  instrument,  nor  is  it  sufficient  to 
charge  the  indorsee  with  notice  of  a  defense  thereto,  or  to  put  him  on  the 
inquiry  thereto. 

A  restrictive  indorsement  is  one  which  restrains  the  negotiability  of  the 

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instrument  to  a  particular  person  or  for  a  particular  purpose,  as  "  Pay  A.  B. 
only." 

The  rule  is  well  settled  that  one  who  transfers  a  bill  or  note  by  delivery 
is  liable  for  the  amount  received  therefor,  if  it  proves  to  have  been  fictitious 
or  forged  either  by  the  original  counterfeiting  of  the  signatures  of  any  of 
the  parties  thereto,  or  subsequently  altered  in  any  material  part. 

The  vendor  warrants  by  implication  that  he  is  the  lawful  holder  and  has 
title  to  the  bill  or  note,  and  a  failure  thereof  is  a  fraud  upon  the  transferee 
and  he  may  return  the  note,  and  recover  back  the  consideration  therefor. 

Where  a  bill  or  note  made  payable  to  a  particular  person  is  transferred 
without  indorsement,  the  transferee  takes  the  equitable  title  only,  and  to 
entitle  him  to  maintain  an  action  thereon  he  must  allege  and  prove  the  assign- 
ment. And,  in  such  case,  the  instrument  will  be  subject  to  all  the  equities  and 
defences  that  it  would  have  been  in  the  hands  of  the  vendor  at  the  time 
of  the  transfer,  but  is  not  subject  to  those  subsequently  arising. 

A  party  taking  notes  or  bills  already  due,  or  after  maturity,  takes  them 
subject  to  every  defense  existing  against  them  in  the  hands  of  the  holder 
when  they  become  due.  It  is  therefore  often  important  to  know  when  an 
indorsement  was  made.  An  indorsement  is  presumed  to  be  of  the  same  date  as 
the  instrument,  or  at  least  to  have  been  made  before  maturity. 

When  the  indorsement  is  made  before  the  note  has  become  due,  the  indorsee 
and  all  subsequent  holders  are  entitled  to  recover  the  face  of  the  note  against 
the  maker,  without  any  right  on  his  part  to  offset  claims  which  he  may  have 
against  the  payee;  or,  as  it  is  frequently  stated,  the  indorsee  takes  it  free 
of  all  equities  between  the  antecedent  parties  of  which  he  had  notice. 

A  bill  or  note  cannot  be  indorsed  for  a  part  of  the  amount  due  the  holder, 
for  the  reason  that  the  law  will  not  permit  a  cause  of  action  to  be  cut  up  into 
several,  and  such  an  indorsement  is  utterly  void  as  such,  but  when  it  has  been 
paid  in  part  it  may  be  indorsed  as  to  the  residue. 

Bills  or  notes  do  not  lose  their  negotiability  by  dishonor  for  non-payment 
or  non-acceptance.  They  may  be  transferred  after  as  well  as  before  they  have 
been  dishonored,  and  the  taking  of  such  an  instrument  subjects  the  transferee 
to  those  defenses  only  which  might  have  been  made  to  it  in  the  hands  of  the 
transferer,  and  if  he  acquired  the  instrument  before  maturity  for  value  and 
without  notice  of  defenses  his  transferee  is  a  bona  fide  holder. 

Where  there  are  several  indorsers  of  a  bill  or  note  the  legal  effect  of  the 
successive  indorsements  is  to  make  them  liable  to  each  other  in  the  order  of 
time  in  which  they  sign  their  names ;  this  proceeds  upon  the  theory  that  the 
paper  is  transferred  from  the  one  to  the  others  by  indorsement  and  thereby 
a  several  and  not  a  joint  liability  is  credited ;  they  are  not  co-sureties,  and 
hence  contribution  between  them  cannot  be  enforced.  In  such  case  the  holder 
may  bring  action  on  the  instrument  after  dishonor,  against  his  immediate 
indorser,  or  against  any  of  the  prior  indorsers,  or  the  maker. 

INK. 

Ink  is  a  colored  liquid  employed  in  making  lines,  characters  and  figures 

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on  surfaces  capable  of  retaining  the  marks  so  made.  Its  usual  color  is  black, 
though  red,  violet,  blue,  green,  etc.,  are  often  used.  The  surface  written 
on  is  now  almost  always  paper  composed  of  vegetable  fibre.  For  a  few  legal 
documents  parchment  is  still  used.  Before  the  invention  of  paper,  parchment, 
leather,  wood  and  papyrus  were  employed. 

The  derivation  of  the  English  word  ink,  is  probably  through  the  French 
enque  and  the  Italian  inchiostro,  from  the  Latin  cucaustum  and  the  Greek 
enguaston,  which  means  burnt  or  corroded  in.  The  German  tiute  and  the 
Spanish  tinta  probably  come  from  the  Latin  verb  tingo,  to  touch,  through  its 
participle  tinctus,  whence  also  our  word  tincture.  In  several  languages,  as 
the  Hindostanee,  kali,  the  word  signifying  black,  has  become  the  name  of  the 
ink,  and  in  a  very  few  the  name  of  the  pen  or  writing  implement  is  the  word 
to  designate  ink,  as  the  Ethiopian  kalamns. 

Ancient  inks  were  paints,  thick  and  heavy,  far  different  from  the  thin 
fluid  now  used ;  writing  was  in  broad  strokes  and  pools  made  with  a  brush, 
stick  or  pen  of  reeds  or  rushes,  and  the  page  when  filled  was  laid  aside  to  dry. 
A  brush  and  India  ink  are  still  used  in  China. 

Modern  inks  are  dyes,  thin  and  flowing  freely  from  a  sharp-pointed  pen. 
In  most  cases  they  bite  into  the  paper  and  can  only  be  removed  by  cutting 
away  its  fibre;  whereas  ancient  inks,  lying  on  the  surface,  were  frequently 
washed,  rubbed  or  scraped  oft*  and  the  parchment  re-written. 

Pliny  says :  "  Ink  is  made  from  soot  in  many  ways,  as  by  burning  rosin 
and  pitch.  For  this  purpose  factories  have  been  built  which  emit  no  smoke. 
The  best  ink  is  made  from  the  smoke  of  torches.  It  is  adulterated  with  the 
smoke  of  furnaces  and  bath-house  chimneys,  and  this  is  used  for  much  writing. 
Some  employ  the  dried  lees  of  wine,  and  it  is  said  that  if  the  lees  come  from 
good  wine,  the  ink  is  improved.  It  is  also  made  from  charcoal  pounded 
fine  in  a  mortar.  The  cuttle-fish  has  a  wonderful  coloring  property,  but  it 
has  not  yet  been  used.  All  inks  are  improved  by  the  sunlight.  Book-writer's 
ink  is  made  with  gum,  weaver's  ink  is  mixed  with  glue.  Ink  whose  materials 
have  been  liquified  by  acid  is  very  difficult  of  erasure." 

Discorides,  who  lived  about  the  same  time  as  Pliny,  95  A.  D.,  gives  the 
following  recipe :  "  The  ink  with  which  I  write  is  made  from  the  soot  of  torches 
collected.  To  three  ounces  of  soot  add  one  of  gum.  It  is  also  made  from  the 
soot  of  resin,  called  painter's  black.  Of  this  soot  take  one  mina,  half  pound  of 
gum  and  of  ox-glue  and  copperas  each  half  an  ounce." 

In  the  fourth  century  was  introduced  the  quill  or  feather  pen.  The  first 
steel  pen  was  made  in  the  latter  half  of  the  eighteenth,  and  the  first  gold  pen 
in  the  first  half  of  the  nineteenth  century.  Early  in  the  twelfth  century  the 
Arabs  introduced  paper  into  Europe  from  China,  where  it  had  been  made 
for  nearly  a  thousand  years.  The  first  paper  was  made  at  a  mill  in  Spain, 
and  by  1150  it  was  known  throughout  Europe.  The  use  of  the  quill  pen 
and  paper  necessitated  an  ink  differing  from  the  thick,  muddy  atrameutum  scrip- 
torium of  the  Romans. 

The  monks,  who  were  the  writers  of  the  time,  made  many  experiments 
with  the  juices  of  plants  and  berries  and  decoctions  of   animal,   vegetable 


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and  mineral  substances.  One  result  has  been  that  many  of  the  clocunients  and 
chronicles  from  the  twelfth  century  on  have  partially  or  entirely  faded  out, 
while  those  of  earlier  date  are  still  black  and  legible.  From  out  of  all  this 
experimenting  the  use  of  taimin,  usually  in  the  form  of  nut-galls,  and  iron 
in  the  form  of  copperas,  became  almost  universal  nearly  a  century  ago.  Inks 
of  this  class  were  vastly  superior  to  the  older  ones.  Being  thin,  they  flowed 
freely,  dried  quickly  and  penetrated  into  the  paper.  They  were  very  durable. 
Their  faults  were  that  they  had  a  sediment,  were  pale  on  first  use  and  the 
acid  ate  up  the  pens.  They  were  frequently  colored  up  with  indigo,  logwood, 
aniline,  etc..  but  tannin  and  iron  were  their  foundation,  as  they  still  are  of  the 
best  writing  fluids. 

For  the  seventy-five  years  prior  to  ISfJO  the  manufacture  of  ink  was  very 
nearly  stationary  as  regards  improvements.  Since  that  time  there  has  been 
great  progress,  not  so  much  in  the  discovery  of  new  raw  materials  as  in  the 
precise  application  of  true  chemical  principles  to  the  treatment  and  combina- 
tion of  well-known  substances  and  in  the  exercise  of  more  care,  skill  and 
elegance  in  preparing  ink  for  the  market. 

INSOLVENCY. 

The  condition  of  a  person  who  is  insolvent.    Inability  to  pay  one's  debts. 

INSOLVENT. 

One  who  is  unable  to  pay  his  debts  as  they  fall  due  in  the  usual  course  of 
trade  or  business ;  the  condition  of  a  person  who  is  insolvent  or  unable  to  pay 
his  debts. 

Though  one's  assets  in  value  exceed  the  amount  of  liis  liability,  yet.  if 
he  is  unable  to  pay  his  debts  as  they  fall  due,  he  is  insolvent,  but  it  has  been 
held  that  mere  inability  to  pay  debts  promptly  as  they  mature  is  not  conclusive 
evidence  of  insolvency,  and  that  one  who  has  sufficient  property  subject  to  legal 
process  to  satisfy  all  legal  demands  is  not  insolvent,  and.  also,  that  a  person  wiio 
suspended  business  because  of  difficulties  arising  out  of  the  commencement  of 
an  action  was  not  necessarily  an  insolvent.  But  one  who  was  unable  to  pay 
commercial  paper  in  the  due  course  of  business  is  said  to  be  an  insolvent.  A 
corporation  is  insolvent  when  its  assets  are  insufficient  for  the  payment  of  its 
debts,  and  it  has  ceased  to  do  business,  or  has  taken,  or  is  in  the  act  of  taking. 
a  step  which  will  practically  incapacitate  it  from  conducting  the  corporate 
tnter])rise  with  reasonable  prospect  of  success,  or  its  embarrassments  are 
such  that  early  suspension  and  failure  must  ensue. 

INTEREST. 

The  amount  charged  for  the  use  of  money,  usually  on  a  percentum  basis. 

The  compensation  which  is  paid  by  the  borrower  of  money  to  the  lender, 
for  its  use.  and.  generally,  by  a  debtor  to  his  creditors  in  recompense  for 
his  detention  of  the  debt;  the  compensation  allowed  by  law  or  fixed  by  the 

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parties  to  a  contract  for  the  use  or  forbearance  or  detention  of  money. 

Legal  interest  is  the  rate  of  interest  established  by  the  law  of  the  country, 
which  will  prevail  in  the  absence  of  express  stipulation.  Some  of  the  States 
have  fixed  by  statute  the  maximum  rate  of  interest  which  may  be  charged,  as 
in  ^Michigan  the  legal  rate  is  five  per  cent.,  and  it  is  further  provided  that  **  in 
all  cases  it  shall  be  lawful  for  the  parties  to  stipulate  in  writing  for  the 
payment  of  any  rate  of  interest,  not  exceeding  seven  per  cent,  per  annum." 
Where  no  such  provision  exists  any  rate  of  interest  may  be  agreed  upon  by 
contract.  But  where  such  ])rovision  does  exist,  it  is  usury  to  contract  for  a 
rate  exceeding  such  maximum.     (  See  L'sury. ) 

When  not  stipulated  for  by  contract  or  authorized  by  statute,  interest  is 
allowed  by  the  courts  as  damages  for  the  detention  of  money  or  property: 
for  goods  sold  or  delivered,  after  the  customary  or  stipulated  term  of  credit 
has  expired. 

WMien  the  debtor  expressly  undertakes  to  pay  interest,  he  or  his  personal 
representatives  having  assets  are  bound  to  pay  it.  But  if  the  party  has 
accepted  the  principal,  it  has  been  held  that  he  cannot  recover  the  interest  in 
a  separate  action. 

Where  by  the  terms  of  a  note  or  bond  interest  is  to  be  paid  periodically, 
and  the  principal  is  at  a  distant  date,  the  interest  may  be  recovered  before  the 
principal  is  due.  "  With  interest  "  carries  interest  from  the  date  of  the  instru- 
ment containing  these  words.  Interest  coupons  bear  interest  from  maturity  of 
the  coupo;is.  Interest  on  a  dividend  declared  by  a  receiver  should  be  allowed 
from  the  time  such  dividend  is  declared. 

A  debt  barred  by  the  statute  of  limitations,  and  revived  by  an  acknowl- 
edgment, bears  interest  for  the  whole  time. 

Interest  upon  interest  is  not  allowed,  except  in  special  cases.  In  an 
action  to  recover  the  annual  interest  due  on  a  promissory  note,  interest  will 
be  allowed  on  each  year's  interest,  after  due,  until  paid.  A  note  which 
provides  for  a  rate  of  interest  agreed  upon  by  the  parties,  but  omits  to 
provide  for  the  rate  of  interest  after  maturity,  has  been  held  to  draw  the  legal 
rate  of  interest  after  maturity :  but  a  difterent  view  has  been  held  in  some 
States. 

In  comi:)uting  interest  on  notes,  bonds,  etc.,  upon  which  partial  payments 
have  been  made,  every  payment  is  to  be  first  applied  to  payment  of  the  interest ; 
but  the  interest  is  never  allowed  to  form  a  part  of  the  principal  so  as  to 
carry  interest.  When  a  partial  payment  exceeds  the  amount  of  interest  due 
when  it  is  made,  it  is  correct  to  compute  tlie  interest  to  the  time  of  the  first 
payment,  add  it  to  the  principal,  subtract  the  payment,  cast  interest  on  the 
remainder  to  the  time  of  the  second  payment,  add  it  to  the  remainder,  subtract 
the  second  payment,  and  in  like  manner  from  one  payment  to  another,  until 
full  payment  or  the  time  of  judgment. 

When  the  money  due  is  tendered  to  the  petson  entitled  to  it,  and  he  refuses 
to  receive  it,  the  interest  ceases. 


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The  legal  rates  of  interest  in  the  Uulted  States  vary  greatly  in  the  different 
States  and  Territories,  and  we  append  a  table  of  the  interest  laws  compiled 
from  the  most  recent  data. 

By  the  "  legal  rate  "  is  meant  that  rate  of  interest  which  would  be  fixed 
by  a  court  of  law  in  case  no  rate  had  been  determined  by  agreement  or  contract. 

Alabama. — Eight  per  cent.     Penalty  for  usury,  loss  of  interest. 

Arizona. — Legal  rate  six  per  cent,  per  annum.  Any  rate  may  be  agreed 
upon  in  writing,  and  by  agreement  in  writing  it  may  be  compounded. 

Arkansas. — Six  per  cent.  Parties  may  agree  verbally  or  in  writing  for 
ten  per  cent.  Legal  rate  when  no  agreement,  six  per  cent.  All  over  ten  per 
cent,  is  void  as  to  principal  and  interest.  If  contract,  for  interest,  is  in  writing, 
it  should  read  "  until  paid,"  as  otherwise,  when  merged  in  judgment,  it  will 
not  be  included. 

California. — Parties  may  agree  in  writing  for  the  payment  of  any 
rate  of  interest  whatever,  compounding  or  otherwise,  and  it  shall  be  allowed 
until  entry  of  judgment.  On  judgments  seven  per  cent,  is  allowed.  Seven 
per  cent,  is  allowed  where  no  rate  is  fixed  by  the  parties,  or  the  agreement  is 
not  in  writing.     Interest  cannot  be  collected  on  open  accounts  unless  agreed 

upon. 

Colorado. — The  legal  rate  of  interest  on  the  forbearance  or  loan  of 
any  money,  and  on  claims,  judgments  and  accounts,  in  the  absence  of  any 
express  agreement  between  the  parties,  is  eight  per  cent,  per  annum.  The 
parties  may  stipulate  in  any  bond,  bill,  promissory  note  of  other  instrument 
in  writing,  for  the  payment  of  a  greater  or  higher  rate  of  interest  than  eight 
per  cent,  per  annum,  and  such  stipulation  may  be  enforced  in  any  court  of 
competent  jurisdiction. 

Connecticut. — Any  per  cent,  by  way  of  interest  or  discount  may  be 
reserved  in  writing.  In  the  absence  of  a  written  contract,  made  in  the  State, 
six  per  cent,  only  is  recoverable ;  on  contracts  made  out  of  the  State,  the  legal 
rate  of  the  State  where  made  governs. 

Delaware. — Six  per  cent.  No  higher  rate  can  be  agreed  on  between 
parties.    Penalty  for  usury,  forfeiture  of  a  sum  equal  to  the  amount  loaned. 

District  of  Columbia. — ^The  rate  of  legal  interest  is  six  per  cent.,  but 
by  written  contract  may  be  higher — not  exceeding  ten.  If  any  greater  rate 
than  ten  per  cent,  be  received  upon  agreement  in  writing,  or  any  greater  than 
six  per  cent,  by  verbal  agreement,  the  whole  interest  will  be  forfeited. 

Florida. — Eight  per  cent.  On  special  contracts  any  rate  may  be  charged 
up  to  ten  per  cent.    Penalty  for  usury,  forfeiture  of  interest. 

Georgia. — Seven  per  cent.  Eight  per  cent,  is  allowed  on  special  contract 
in  writing.  Excess  of  interest  forfeited  on  plea  of  usury.  Open  accounts  bear 
interest  as  follows :  "  All  accounts  of  merchants,  tradesmen,  and  mechanics, 
which  by  custom  become  due  at  the  end  of  the  year,  bear  interest  from  that 
time  upon  the  amount  actually  due  when  ascertained." 

Idaho. — ^The  legal  rate  of  interest  in  Idaho  is  as  follows:  WTien  there 
is  no  express  contract  in  writing  fixing  a  different  rate  of  interest,  interest 
is  alloyed  at  the  rate  of  seven  cents  on  the  hundred  by  the  year,  on :    (1)  money 

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due  by  express  contract;  (2)  money  after  the  same  becomes  due;  (3)  money 
lent;  (4)  money  due  on  a  judgment  of  any  competent  tribunal  or  court;  (5) 
money  received  to  the  use  of  another  and  retained  beyond  a  reasonable  time 
without  the  owner's  consent,  express  or  implied;  (C)  money  due  on  a  settle- 
ment of  mutual  accounts  from  the  date  the  balance  is  ascertained ;  ( 7 )  money 
due  on  open  accounts  after  three  months  after  date  of  last  item.  Parties 
may  agree  in  writing  to  pay  twelve  per  cent,  per  annum.  Any  judgment  ren- 
dered on  such  contract  would  bear  interest  at  the  rate  of  seven  per  cent,  per 
annum.  The  penaUy  for  a  greater  rate  than  above  specified  is  as  follows: 
when  a  greater  rate  of  interest  than  above  specified  has  been  contracted  for, 
such  contract  works  a  forfeiture  of  ten  cents  on  the  hundred  by  the  year  on 
the  amount  of  such  contract  to  the  school  fund.  The  court  must  render  judg- 
ment for  said  ten  per  cent,  in  favor  of  the  State  for  the  use  of  the  schtx)l 
fund  of  the  county,  and  the  plaintiff  is  to  have  judgment  for  the  principal 
sum  less  all  payments  of  principal  or  interest  theretofore  made,  and  without 

interest  or  costs. 

Illinois. — Five  per  cent,  is  allowed  when  no  rate  is  specified.  In  all 
written  contracts,  parties  may  agree  on  any  rate  of  interest  not  exceeding 
seven  per  cent.  On  usurious  contracts  the  entire  interest  is  forfeited.  Open 
accounts  do  not  draw  interest  if  disputed,  unless  delay  of  judgment  is  shown 
to  be  unreasonable  and  vexatious. 

Indiana. — The  legal  rate  of  interest  is  six  per  cent.,  but  if  a  higher 
rate  be  contracted  for  in  writing  it  can  be  recovered,  not  exceeding  eight  per 
cent.  If  more  than  eight  per  cent,  is  contracted  for,  but  six  per  cent,  can 
be  recovered.  Where  interest  not  exceeding  eight  per  cent,  has  been  voluntarily 
paid  it  cannot  be  recovered.  Interest  on  a  closed  account  can  be  collected  from 
the  day  the  itemized  bill  is  rendered  and  payment  demanded.  Judgments 
cannot  bear  more  than  six  per  cent,  interest. 

Indian  Territory. — Legal  rate  is  six  per  cent.,  but  ten  per  cent,  may 
be  charged  by  contract.  Usurious  contracts  are  void  and  forfeit  principal  and 
interest,  even  in  the  hands  of  an  innocent  purchaser  before  maturity. 

Iowa. — Six  per  cent,  is  the  legal  rate.  Parties  may  agree  in  writing  on 
any  rate  not  exceeding  eight  per  cent.  If  a  rate  of  interest  is  contracted  for 
greater  than  this,  it  works  a  forfeiture  of  ten  per  cent,  on  amount  of 
contract  to  school  fund,  and  the  creditor  can  have  judgment  for  the  principal 
sum  only  without  interest  or  costs. 

Kansas. — Regular  rate  six  per  cent.  Parties  may  agree  in  writing  on 
any  greater  rate  not  exceeding  ten  per  cent.  If  more  than  ten  per  cent,  be 
contracted  for,  the  party  forfeits  double  the  sum  in  excess  of  that  per  cent. 

Kentucky. — ^The  rate  of  interest  is  fixed  at  six  per  cent.,  and  the  con- 
tract for  more  is  void.  The  lender  may  recover  the  amount  actually  loaned 
with  lawful  interest.  The  law  does  not  allow  interest  on  open  accounts, 
unless  specific  agreement  to  pay  the  account  at  a  definite  time  can  be  proved. 

Louisiana. — ^Legal  rate  five  per  cent,  per  annum;  conventional  interest 
expressed  in  writing,  may  be  as  high  as  eight  per  cent.  Debts  bear  legal  rate 
of  interest  from  maturity  only,  unless  otherwise  stipulated.     Compounding 


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of  interest  is  not  lawiiil.  The  full  face  of  a  promissory  note,  or  other  written 
obligation  to  pay  money  is  recoverable,  although  it  may  include  a  greater 
rate  of  interest  or  discount  than  eight  per  cent.  i)er  annum. 

Maine. — Six  per  cent.  There  is  no  limit  of  the  rate  of  interest  which 
can  be  fixed  by  contract. 

Maryland. — Six  per  cent,  per  annum:  no  highe:  rate  is  allowed.  To 
take  advantage  of  usury,  the  debtor  must  tender  the  principal  and  legal 
interest.  The  contract  is  only  invalid  for  the  excess  of  interest  charged  or 
taken.    Usurious  interest  once  paid  cannot  be  recovered  after  principal  debt 

has  been  paid. 

Massachusetts. — Six  per  cent,  is  the  legal  ate  of  interest  when  there 
is  no  agreement  for  a  different  rate :  but  any  rate  ol  Interest  may  be  received 
or  contracted  for  between  parties,  provided,  however,  that  no  greater  rate 
than  six  per  cent,  can  be  recovered  in  any  suit  unless  the  agreement  to  pay 
the  same  is  in  writing;  and  provided  also  that  all  loans  for  less  than  $1,000 
may  be  discharged  on  payment  of  principal  sum  actually  borrowed  with  interest 
at  eighteen  per  cent,  and  not  exceeding  $5.00  for  all  expenses:  but  lender 
may  have  at  least  six  months'  interest  at  that  rate  if  loan  paid  within  that  time. 
No  bond  of  a  corporation  shall  bear  more  than  seven  per  cent. 

MiCHiG.\N. — Legal  interest  is  five  per  cent.  Parties  may  agree  in  writing 
for  any  rate  not  exceeding  seven  per  cent.  If  the  contract  sued  on  bears 
more  than  six  per  cent.,  then  the  judgment,  when  rendered,  will  bear  the 
same  rate  as  the  contract  or  obligation  sued  on.  The  penalty  for  taking 
usurious  interest  is  a  forfeiture  of  the  entire  interest. 

Minnesota. — ^The  rate  of  interest,  unless  a  different  rate  is  contracted 
for  in  writing,  is  six  per  cent.,  and  the  highest  rate  that  can  be  contracted 
for  is  ten  per  cent.  A  contract  to  pay  interest  not  usurious  upon  interest 
overdue  is  valid.  All  contracts  that  be  at  the  same  rate  of  interest  after  they 
become  due  as  before,  and  any  provision  in  a  contract,  note  or  other  instru- 
ment providing  for  an  increase  of  the  rate  of  interest  upon  maturity  will 
work  a  forfeiture  of  the  entire  interest.  Every  person  who  for  any  loan  or 
forbearance  shall  have  paid  or  delivered  any  greater  sum  or  value  than  the 
rate  of  interest  allowed  by  the  law  may  recover  from  the  person  who  has 
received  the  same,  or  his  personal  representatives,  the  full  amount  of  interest 
so  paid.  The  action  must  be  brought  within  two  years.  One-half  of  the 
amount  recovered  must  be  paid  to  the  county  treasurer  for  the  use  of  the 
common  schools.  All  bonds,  bills,  notes,  assurances,  conveyances,  chattel 
mortgages  and  all  other  contracts  and  securities,  and  all  deposits  of  goods, 
or  anything  whatever,  whereupon  or  whereby  there  shall  be  reserved,  secured 
or  taken,  any  greater  sum  or  value  for  the  loan  or  forbearance  of  any  money, 
goods  or  things  in  action  than  is  allowed  by  law  is  void,  except  negotiable 
paper  in  the  hands  of  a  bona  fide  purchaser  for  value  without  notice  of  the 
usurious  transaction. 

Mi.ssTssipPi. — Six  per  cent.  Parties  may  agree  in  writing  on  any  rate 
not  exceeding  len  per  cent.  If  usurious  interest  be  stipulated  for,  the  effect 
is  to  forfeit  all  the  interest,  and  it  may  be  recovered  by  the  debtor  or  his 

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representative,  if  paid.     Local  building  and  loan  associations  dealing  alone 
with  their  own  members  in  this  State  are  not  subject  to  usury  law. 

Missouri. — ^The  legal  rate  of  interest  is  six  per  cent.  Parties  may 
agree  in  writing  upon  any  rate  not  exceeding  eight  per  cent.  Open  accounts 
do  not  draw  interest  without  proof  of  an  express  promise  to  pay  interest. 
Accounts  that  are  due  draw  interest  from  the  date  on  which  demand  of  pay- 
ment is  made.  Usurious  interest  paid  may  be  applied  in  payment  of  the 
principal  debt,  and  proof  of  the  exaction  of  usurious  rates  of  interest  shall 
invalidate  and  render  illegal  any  lien,  mortgage,  or  pledge  of  personal  prop- 
erty, made  to  secure  such  indebtedness. 

Montana. — Parties  may  stipulate  for  any  rate  of  interest.  Where  no 
contract  is  made  as  to  interest,  the  legal  rate,  eight  per  cent,  per  annum,  governs 
after  debt  is  due.    There  is  no  usury  law. 

Nebraska. — Seven  per  cent,  is  the  legal  rate,  or  any  rate  agreed  uix)n 
not  exceeding  ten  per  cent.,  on  express  contracts.  If  more  is  exacted,  the 
contract  remains  good  as  to  principal,  but  all  the  interest  is  forfeited. 

Nevada. — ^Where  there  is  no  express  contract  in  writing,  fixing  a  different 
rate  of  interest,  interest  shall  be  allowed  at  the  rate  of  seven  per  cent,  per 
annum,  for  all  moneys  after  they  become  due  upon  any  bond,  bill,  or  promis- 
sory note,  or  other  instrument  in  writing,  on  any  judgment  recovered  before 
any  court  in  this  State,  for  money  lent,  money  due  on  settlement  of  accounts, 
from  the  day  on  which  the  balance  is  ascertained,  and  for  money  received 
for  the  use  of  another.  Parties  may  agree  in  writing  for  the  payment  of 
any  rate  of  interest  whatever  upon  money  due,  or  to  become  due  on  any 
contract.  Judgments  rendered  upon  contracts  shall  conform  thereto,  and 
bear  the  interest  agreed  upon  by  the  parties,  which  shall  be  specified  in  the 
judgment:  provided  only  the  amount  of  the  original  claim  or  demand  shall 
draw  interest  after  judgment.  Interest  cannot,  be  made  to  compound  even 
where  it  is  so  stipulated  in  written  agreement  (so  decided  by  the  Supreme 
Court  and  never  overruled). 

New  Hampshire. — Interest  limited  to  six  per  cent.,  imless  smaller 
rate  stipulated.  Penalty  for  usury,  forfeiture  of  three  times  the  amount  of 
illegal  interest  received  to  the  party  aggrieved  who  will  sue  therefor.  If  the 
interest  on  a  note  is  paid  annually,  the  holder  is  entitled  to  recover  simple 
interest  on  each  year's  interest  from  the  time  k  is  due  until  it  is  paid. 

New  TeR-^ey. — Six  per  cent.  All  contracts  for  a  higher  rate  are  void. 
In  actions  brought  to  recover  usurious  debts,  the  creditor  can  only  recover 
the  actual  amount  loaned,  without  interest  or  costs  of  suit,  and  any  amoimt  paid 
by  way  of  interest  shall  be  deducted  from  the  amount  actually  loaned. 

New  Mexico. — Six  per  cent,  is  the  legal  rate  of  interest,  but  parties 
may  agree  in  writing  for  any  rate  of  interest  not  exceeding  twelve  per  cent. 
Open  accounts  bear  interest  at  six  per  cent,  from  six  months  after  the  date  of 
last  item  in  the  account.  Judgments  bear  the  same  interest  as  contract  sued  on, 
and  in  absence  of  any  specified  rate,  six  per  cent. 

New  York. — Six  per  cent,  is  the  legal  rate.  All  bonds,  notes,  contracts, 
securities,  etc.  (except  bottomr}'  and  respondentia  bonds),  whereby  a  greater 


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rate  is  reserved,  or  taken,  or  agreed  for,  are  absolutely  void.  The  lender 
upon  an  usurious  rate  can  recover  neither  principal  nor  interest.  But  corpora- 
tions cannot  plead  usury  as  a  defense.  Usury  is  also  a  misdemeanor  punishable 
by  fine  and  imprisonment.  In  case  of  loans  payable  on  demand,  for  not  less 
than  $5,000,  for  the  repayment  of  warehouse  receipts,  bills  of  lading,  certifi- 
cates of  stock,  biKo  of  exchange,  bonds,  or  other  negotiable  instruments  are 
pledged  as  security,  any  rate  of  interest  may  be  agreed  upon  in  writing. 

North  Carolina. — Six  per  cent. ;  or  if  usurious  interest  has  been  paid, 
double  the  amount  may  be  recovered  by  action  brought  within  two  years. 
The  only  penalty  for  illegal  interest  is  the  loss  of  the  whole  interest. 

North  Dakota. — Legal  rate  of  interest  seven  per  cent,  per  annum. 
Excess  above  twelve  per  cent,  usury,  and  usury  is  forfeiture  of  entire  interest. 
Judgments  draw  interest  at  seven  per  cent,  per  annum  only,  regardless  of 
the  rate  specified  in  the  contract  upon  which  the  judgment  is  recovered. 

Ohio. — The  legal  rate  is  six  per  cent.  Special  contracts  may  be  entered 
into,  stipulating  for  the  payment  of  interest  at  any  rate  not  exceeding  eight 
per  cent. 

Oklahoma  Territory. — ^The  legal  rate  is  seven  per  cent.  Twelve  per 
cent,  by  special  contract.     (See  Judgments.) 

Oregon. — Six  per  cent,  per  annum  is  the  legal  rate;  but  parties  may 
agree  in  writing  for  a  rate  as  high  as  ten  per  cent,  per  annum. 

Pennsylvania. — Six  per  cent.'  A  contract  for  a  higher  rate  is  void  as 
to  the  excess  over  six  per  cent.,  and  such  sum,  if  paid,  may  be  recovered 
by  suit  brought  within  six  months.  A  fair  purchase  of  a  bond  or  note  may 
be  made  at  any  discount,  without  being  usurious. 

Rhode  Island. — The  legal  rate  of  interest  is  six  per  cent,  when  no  rate 
is  agreed  upon  by  the  parties.    Any  rate  fixed  by  the  contracting  parties  is  legal. 

South  Carolina. — No  greater  rate  of  interest  than  seven  (7)  per  cent, 
per  annum  can  be  charged  upon  any  contract  arising  in  the  State,  except  upon 
written  contracts,  wherein,  by  express  agreement,  a  rate  of  interest  not  exceed- 
ing eight  (8)  per  cent,  may  be  charged.  No  person  or  corporation  lending 
or  advancing  money  or  other  commodity  upon  a  greater  rate  of  interest  shall 
be  allowed  to  recover  in  any  court  in  this  State  any  portion  of  the  interest  so 
unlawfully  charged,  but  may  only  recover  the  principal  so  lent  or  advanced 
without  any  interest  and  without  costs.  Any  person  or  corporation  receiving 
a  greater  rate  of  interest  than  eight  (8)  per  cent,  shall  not  only  forfeit  the 
interest,  but  also  double  the  sum  received,  to  be  collected  by  a  separate  action, 
or  allowed  as  a  counter  claim  to  any  action  brought  to  recover  the  principal. 
A.  A.  1898,  Sec.  3,  provides :  That  the  borrower,  and  his  heirs,  devisees,  lega- 
tees or  personal  representative,  or  any  creditor  or  any  person  having  a  legal 
or  equitable  interest  in  the  estate  or  assets  of  such  borrower,  may  plead  the 
benefit  of  the  provisions  of  this  act,  as  plaintiff  or  defendant,  and  the  same 
shall  be  effectual  at  any  suit  at  law,  or  in  equity,  and  any  person  oflFending 
against  the  same  shall  be  compelled  to  answer  on  oath,  any  complaint  that 
may  be  exhibited  against  him  for  the  discovery  of  any  sum  of  money  or 
things  in  action,  so  charged,  agreed  upon,  reserved  or  taken,  in  violation 

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of  the  foregoing  provisions,  or  either  of  them.  Open  accounts  do  not 
bear  interest,  except  by  written  agreement,  except  on  claims  against  corpor- 
ations.    Judgments  bear  interest  at  seven  per  cent. 

South  Dakota. — The  legal  rate  of  interest  is  seven  per  cent,  per  annum, 
but  persons  may  contract  in  writing  for  interest  up  to  the  rate  of  twelve  per 
cent,  per  annum.  The  penalty  for  taking  interest  above  the  rate  allowed  is 
the  forfeiture  of  the  entire  interest  contracted  for.  If  interest  above  the  rate 
allowed  has  been  paid,  the  person  who  paid  it  can  recover  from  the  person 
receiving  the  same  the  amount  of  interest  paid.  The  taking  of  a  greater 
amount  of  interest  than  is  allowed  by  law  is  a  misdemeanor,  and  is  punish- 
able by  fine  or  imprisonment,  or  both. 

Tennessee. — Six  per  cent,  is  the  legal  rate  of  interest;  any  contract 
for  a  higher  rate  of  interest  is  usurious.  Usury  appearing  on  the  face  of  an 
instrument  renders  it  void  altogether;  otherwise  the  debtor  can  avoid  only 
the  excess  over  legal  interest. 

Texas. — On  written  contracts  ascertaining  the  sum  payable,  when  no 
rate  of  interest  is  agreed  upon,  six  per  cent,  from  the  time  when  the  sum  is 
payable ;  parties  to  written  contracts  may  stipulate  for  any  rate  of  interest 
not  exceeding  ten  per  cent,  per  annum  on  the  amount  of  the  contract ;  upon 
open  accounts,  when  no  specified  rate  of  interest  is  agreed  upon,  interest  is 
allowed  at  six  per  cent,  from  the  first  day  of  January  next  after  the  accounts 
are  made;  judgments  bear  six  per  cent,  interest,  except  when  the  judgment 
is  founded  upon  a  contract  which  bears  a  specified  rate  of  interest  greater 
than  six  per  cent.,  and  not  over  ten  per  cent.,  in  which  case  the  judg^ient 
bears  interest  at  the  same  rate  as  the  contract.  W^ritten  contracts  which 
directly  or  indirectly  stipulate  for  more  than  ten  per  cent,  interest  are  void 
for  the  whole  amount  of  the  interest,  but  the  principal  may  be  recovered. 
If  usurious  interest  is  paid,  the  person  paying  the  same  may,  by  an  action 
brought  within  two  years,  recover  double  the  amount  of  the  interest  paid. 

Utah. — Legal  rate,  eight  per  cent. ;  by  contract,  any  rate  that  may  be 
agreed  on. 

Vermont. — Six  per  cent,  is  the  legal  rate,  and  interest  beyond  that  rate 
may  be  recovered  back. 

Virginia. — Legal  rate  at  six  per  cent.  Where  no  rate  of  interest  is  agreed 
upon  the  debt  bears  six  per  cent. 

Washington. — Legal  rate  six  per  cent.,  and  all  contracts  shall  draw 
interest  at  legal  rate  after  due,  except  otherwise  provided  for  in  writing  in 
the  contract.  Any  rate  not  exceeding  twelve  per  cent,  may  be  agreed  upon 
in  writing  between  the  parties.  If  a  greater  rate  than  twelve  per  cent,  be 
contracted  for,  the  contract  shall  not  therefore  be  void,  but  in  any  action  on 
such  contract,  if  proof  be  made  that  any  greater  rate  has  been  directly  cr 
indirectly  contracted  for,  reserved,  or  taken,  plaintiflf  shall  only  recover  th? 
principal  less  double  the  amount  of  interest  accruing  thereon,  and  the  defend- 
ant shall  recover  costs.  Statute  does  not  affect  existing  contracts,  or  munic- 
ipal or  other  public  bonds,  the  rate  of  interest  upon  which  is  provided  by  law. 

West  Virginia. — Six  per  cent,  is  the  legal  rate.     The  debtor  can  avoid 


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the  excess  over  six  per  cent,  if  he  desires,  on  contracts  for  more  than  the 
legal  rate. 

Wisconsin.— Six  per  cent,  is  the  legal  rate.  Parties  may  agree  in  writing 
on  any  rate  not  exceeding  ten  per  cent.  Any  usurious  agreement  whereby 
more  than  ten  per  cent,  is  agreed  to  be  paid,  forfeits  the  whole  interest;  but 
leaves  the  principal  debt  collectable.  Compound  interest  may  be  contracted 
for  by  written  contract. 

Wyoming. — The  legal  rate  of  interest,  where  there  is  no  agreement 
between  the  parties,  is  eight  per  cent,  per  annum.  Parties  may  stipulate  for 
the  payment  of  a  higher  rate  of  interest,  but  not  exceeding  twelve  per  cent. 
Unsettled  accounts  draw  interest  after  thirty  days  from  date  of  last  item. 
If  proof  in  any  action  shows  a  greater  rate  of  interest  has  been  contracted 
for,  only  the  principal  can  be  recovered  and  without  costs. 


INTERLINEATION. 

Writing  between  two  lines,  made  either  before  or  after  execution  of 
the  instrument.  Those  made  before  should  be  noted  on  the  instrument  pre- 
viously to  its  execution ;  those  made  after  are  considered  as  '*  made  either 
by  the  j^arty  in  whose  favor  they  are  made  or  by  strangers."  When  made 
by  the  party  himself,  whether  the  interlineation  be  material  or  immaterial, 
they  render  the  deed  or  instrument  void,  unless  made  with  the  consent  of 
the  opposite  party. 

When  the  interlineation  is  made  by  a  stranger  in  an  instrument  in  the 
hands  of  the  promisee,  though  without  his  knowledge,  if  it  be  immaterial  it 
will  not  vitiate  the  instrument;  but  if  it  be  material  the  instrument  is,  in 
general,  avoided.    Otherwise,  if  the  instrument  be  in  the  hands  of  a  stranger. 

The  insertion  of  the  words  "  or  order,"  without  the  consent  of  the  maker, 
constitutes  a  material  alteration  which  avoids  the  note. 

Where  interlineations  in  a  deed  are  in  the  handwriting  of  the  officer 
who  attested  it  officially,  the  presumption  is  that  they  were  made  at  or 
before  the  execution  of  the  instrument.  But  if  there  is  ground  of  suspicion, 
the  law  presumes  nothing,  but  leaves  the  question  of  the  time  when,  the  person 
by  whom,  and  the  intent  with  which  it  was  done,  to  the  jury,  upon  proofs  to 
be  adduced  by  the  party  offering  the  instrument.  In  cases  of  negotiable 
instruments  the  holder  is  held  to  clearer  proof  than  in  cases  of  deeds. 

JOINT. 

Shared  by  two  or  more.  The  term  is  used  to  express  a  common  property 
interest  enjoyed,  or  a  common  liability  incurred  by  two  or  more  persons. 
It  implies  that  the  interest  and  right  of  action  in  choses  in  action  are  united 
so  that  all  of  the  owners  must  be  joined  in  a  suit  to  enforce  the  obligation 
jointly  held :  each  person  subject  to  liability  on  it  is  liable  for  the  whole,  yet 
they  are  treated  in  law  as  together  constituting  one  legal  entity  and  must 

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be  sued  together,  or  a  release  to  one  will  operate  in  favor  of  all.     One  who 
pays  a  joint  debt  is  entitled  to  contribution. 

JOINT  AND  SEVERAL. 

A  liability  is  said  to  be  joint  and  several  when  the  creditor  may  sue  one 
or  more  of  the  parties  to  such  liability  separately,  or  all  of  them  together,  at 
his  option,  as  on  a  bond  when  the  obligors  bind  themselves  "  jointly  and 
severally  "  to  the  obligee.  In  such  a  case  the  action  must  be  jointly  as  to  all 
or  several  as  to  any  one  for  the  whole  amount,  but  it  cannot  be  joint  as  to 
some  and  several  as  to  the  others. 


JUDGMENT. 

The  conclusion  of  law  upon  facts  found,  or  admitted  by  the  parties,  or 
upon  their  default  in  the  course  of  a  suit. 


I 


JUDGMENT  NOTE. 

A  promissory  note  given  in  the  usual  form,  and  containing,  in  addition,  a 
power  of  attorney  to  appear  and  confess  judgment  for  the  sum  therein 
named.  On  this  account  it  is  not  negotiable  except  in  states  where  the 
Negotiable  Instruments  Law  is  in  force.  It  usually  contains  a  number  of 
sti])ulations  as  to  the  time  of  confessing  the  judgment:  against  appeal  and 
other  remedies  for  setting  aside  the  judgment:  an  attorney's  commission  for 
collection ;  waiver  of  exemption  and  other  conditions. 


JURAT. 

That  part  of  an  affidavit  where  the  officer  certifies  that  the  same  was 
"  sworn  to  "  before  him,  and  is  usually  in  the  following  form : 


**  Subscribed  and  sworn  to  before  me  this 


dav  of 


-,  A.  D. 


Ordinarily  the  jurat  must  be  authenticated  by  the  signature  of  the 
officer  before  whom  the  affidavit  is  made,  and  this  should  be  his  official  sig- 
nature, as  "Richard  Roe,  Notary  Public.   Bay  County,  Michigan." 


LAW  MERCHANT. 

The  general  body  of  commercial  usages  in  matters  relative  to  commerce. 
It  is  sometimes  called  the  "  Custom  of  Merchants."  It  consists  of  certain 
principles  of  equity  and  usages  of  trade  which  general  convenience  and  a 
common  sense  of  justice  have  established,  to  regulate  the  dealings  of  mer- 
chants and  mariners  in  all  the  commercial  countries  of  the  civilized  world. 


LAWFUL. 

That  which  is  permitted  or  sanctioned  by,  and  which  is  not  contrarj^  to 

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law.  Thus  an  oral  contract  to  convey  land  is,  under  the  statute  of  frauds, 
void,  yet  it  cannot  be  properly  said  to  be  unlawful,  because  there  is  no 
violation  of  law  in  making  or  performing  such  an  agreement;  but  it  cannot 
be  enforced  at  law,  because  it  is  not  legal  or  lawful  in  form  for  want  of 
that  written  evidence  required. 

LAWFUL  MONEY. 

Money  which  is  a  legal  tender  in  payment  of  debts,  such  as  gold  and 
silver  coined  at  the  mints. 

LEGAL  ESTATE. 

Is  one  the  right  to  which  may  be  enforced  in  a  court  of  law,  and  is 
distinguished  from  an  equitable  estate,  the  right  to  which  can  be  established 
only  in  a  court  of  equity. 

The  party  who  has  the  legal  estate  has  alone  the  right  to  seek  a  remedy 
for  a  wrong  to  his  estate,  in  a  court  of  law,  though  he  may  have  no  beneficial 
interest  in  it.  When  a  party  having  an  equitable  interest  in  an  estate  has  a 
claim,  he  must  enforce  his  right  in  a  court  of  equity. 

LEGAL  TENDER. 

That  currency  which  has  been  made  suitable  by  law  for  the  purposes  of 
a  tender  in  the  payment  of  debts. 

In  the  United  States  the  following  descriptions  of  money  are  legal  tender: 

All  the  gold  coins  of  the  United  States  are  a  legal  tender  in  all  payments 
at  their  nominal  value  when  not  below  the  standard  weight  and  limit  of  toler- 
ance provided  by  law  for  the  single  piece,  and  when  reduced  in  weight  below 
such  standard  of  tolerance,  they  are  a  legal  tender  at  valuation  in  proportion 
to  their  actual  weight.  Treasury  notes  and  standard  silver  dollars  for  all 
payments.  Silver  coins  of  a  smaller  denomination  than  one  dollar,  for  all 
sums  not  exceeding  ten  dollars.  The  minor  coins — five,  three,  two  and  one 
cent  pieces — for  all  surds  not  exceeding  twenty-five  cents. 

By  acts  of  February  25,  1862,  July  11,  1862,  and  March  3,  1863,  Con- 
gress authorized  the  issue  of  notes  of  the  United  States,  declaring  them  a 
legal  tender  for  all  debts,  public  and  private,  except  duties  on  imports  and 
interest  on  the  public  debt. 

LETTER  OF  CREDIT. 

An  open  or  sealed  letter,  from  a  merchant,  or  bank,  or  banker,  in  one 
place  directed  to  another  in  another  place  or  country,  requiring  him,  if  a  person 
therein  named  or  the  bearer  shall  have  occasion  to  buy  commodities,  or  to 
want  money  to  any  particular  or  unlimited  amount,  either  to  procure  the  same 
or  to  pass  his  promise,  bill,  or  other  engagement  for  it,  the  writer  of  the  letter 

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undertaking  to  provide  him  the  money  for  the  goods,  or  to  repay  him  by 
exchange,  or  to  give  him  such  satisfaction  as  he  shall  require,  either  for  himself 
or  the  bearer  of  the  letter. 

Such  letters  are  either  general  or  special.  General  letters  are  directed 
to  the  writer's  correspondents  generally,  wherever  the  bearer  of  the  letter 
may  happen  to  go;  special  letters  are  directed  to  some  particular  person. 

If  a  letter  is  addressed  to  a  debtor  of  the  one  who  gave  it,  and,  upon 
presentation  of  the  letter  the  addressee  refuses  to  comply  with  its  request,  the 
bearer  should  at  once  procure  the  letter  to  be  protested. 

In  the  United  States  an  action  can  be  maintained  by  one  who  advances 
money  on  a  general  letter  of  credit,  but  in  England  it  has  been  held  that,  as 
there  was  no  privity  of  contract  between  the  parties  such  an  action  could 
not  be  maintained. 

A  letter  of  credit  is  not  negotiable. 


Mi 


0 


LIQUIDATED  ACCOUNT. 

Is  one  the  amount  of  which  is  agreed  upon,  or  is  fixed  by  operation  of  law. 
When  it  is  certain  how  much  is  due,  it  is  said  to  be  a  liquidated  debt. 


MERCHANDISE. 

Is  a  term  which  includes  all  those  things  which  merchants  sell,  at  either 
wholesale  or  retail.  It  is  usually  applied  to  personal  chattels  only,  and  to  those 
which  are  not  required  for  food  or  immediate  support,  but  such  as  remain  after 
having  been  used,  or  which  are  used  only  by  a  slow  consumption.  "  The 
fact  that  a  thing  is  sometimes  bought  and  sold  does  not  make  it  merchandise. 
It  is  often  used  as  the  synonym  of  "  goods,"  "  wares  "  and  "  commodities." 


MERCHANTABLE. 

This  word  in  a  contract  means,  generally,  vendible  in  market. 

MIDDLEMAN. 

One  who  has  been  employed  as  an  agent  by  a  principal,  and  who  has 
employed  a  sub-agent  under  him  by  authority  of  the  principal,  either  express 
or  implied.  He  is  not,  in  general,  liable  for  the  wrongful  acts  of  the  sub-agent, 
the  principal  being  alone  responsible. 

Also  a  person  who  is  employed  by  both  the  purchaser  and  seller  of  goods, 
or  by  the  purchaser  alone,  to  receive  them  into  his  possession,  for  the  puri:)ose 
of  doing  something  in  or  about  them ;  as  where  goods  are  sent  to  a  packer  for 
and  by  order  of  the  vendee,  the  packer  is  to  be  considered  a  middleman.  In 
this  and  similar  cases  the  goods  are  considered  in  transitu,  provided  the  owner 
does  not  use  the  packer's  warehouse  as  his  own  and  has  an  ulterior  place  of 
delivery  in  view. 


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MONTH. 

In  mercantile  contracts  signifies  a  calendar  and  not  a  lunar  month;  a 
promissory  note  to  pay  in  twelve  months  would,  therefore,  mean  a  promise  to 
pay  in  one  year,  or  twelve  calendar  months. 


NEGOTIABLE  INSTRUMENTS. 

Besides  notes,  bills,  and  checks,  the  following  have  been  held  to  be  nego- 
tiable instruments :  State  and  municipal  bonds ;  corporate  bonds ;  coupon  bonds 
of  an  individual;  coupon  bonds  of  a  corporation,  and  the  coupons  to  such 
bonds ;  government  scrip ;  treasury  notes ;  postoffice  orders,  and  certificates  of 
deposit.  County  warrants  are  negotiable,  transferable  or  assignable,  but  not 
in  the  sense  of  the  law  merchant. 

Any  addition  to  the  form  of  a  note  which  destroys  its  essential  quality 
as  "a  promise  to  pay,  simple,  certain,  unconditional,  not  subject  to  any  con- 
tingency," will  destroy  its  negotiable  character. 

A  note  containing  a  tax  clause  is  not  negotiable. 

Indorsements  of  payment  on  the  back  of  a  promissory  note  before  delivery 
do  not  destroy  negotiability. 

NEGOTIATE. 

The  power  to  so  transfer  a  bill  or  note  by  endorsement  and  delivery  to 
another  or  by  delivery  alone  in  case  the  bill  or  note  is  payable  to  bearer,  so  that 
the  right  of  action  thereon  shall  pass  to  the  transferee,  indorsee  or  holder. 

NEGOTIATION. 

Is  the  act  by  which  a  bill  of  exchange  or  promissory  note  is  put  into  circu- 
lation by  being  passed  by  one  of  the  original  parties  to  another  person. 

There  are  two  modes  of  negotiation,  rh.,  by  delivery  and  by  indorsement ; 
the  former  applies  to  instruments  payable  to  bearer,  the  latter  to  those  payable 
to  order. 

Until  an  accommodation  note  or  bill  has  been  negotiated,  there  is  no 
contract  which  can  be  enforced  on  the  note:  the  contract,  either  express  or 
implied,  that  the  party  accommodated  will  indemnify  the  other  is,  till  then, 
ronditional. 

The  consideration  for  the  transfer  is  prima  facie  presumed,  and  the  trans- 
feror can,  under  certain  conditions,  give  a  good  title,  although  he  has  none 
himself. 

The  transferee  can  further  negotiate  the  instrument  with  the  like  privi- 
leges and  incidents,  and  can  sue  all  parties  to  the  instrument  in  his  own  name. 


NOTICE  OF  DISHONOR. 

A  notice  given  to  a  drawer  or  indorser  of  a  bill,  or  an  indorser  of  a 

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k«:gotiable  note,  by  a  subsequent  party,  that  it  had  been  dishonored  either  by 
non-acceptance  in  the  case  of  a  bill,  or  by  non-payment  in  the  case  of  a  note 
or  an  accepted  bill. 

The  notice  must  contain  a  description  of  the  bill  or  note,  sufficient  to 
leave  no  doubt  in  the  mind  of  the  party  to  whom  it  is  given,  as  a  reasonable 
man,  what  note  or  bill  was  meant  or  intended ;  a  clear  statement  of  the  dishonor 
and  something  more  than  a  mere  statement  of  the  fact  of  non-acceptance  or 
non-payment. 

The  notice  may  be  oral,  but  is  usually  in  writing,  and  it  may  be  personally 
served  or  sent  by  mail,  except  where  the  party  giving  the  notice  lives  in  the 
same  town  with  the  parties  to  be  served,  when  the  notice  must  be  served  per- 
sonally or  left  in  the  care  of  a  suitable  person  representing  the  party  to  be 

notified. 

It  must  be  sent  to  the  place  where  the  party  to  be  notified  will  most  prob- 
ably be  promptly  found,  whether  the  place  of  business  or  place  of  residence. 

When  sent  by  mail,  it  should  be  to  the  postoffice  to  which  the  party  usually 
resorts.  If  properly  addressed  and  mailed  it  will  charge  the  indorser  whether 
he  has  received  it  or  not. 

Every  person  who,  by  and  immediately  upon  the  dishonor  of  an  instru- 
ment, and  only  upon  such  dishonor,  becomes  liable  to  an  action  either  on 
the  paper  or  on  the  consideration  for  which  the  paper  was  given,  is  entitled 
to  immediate  notice.  The  holder  need  give  notice  only  to  the  parties  and  to 
the  indorser  whom  he  intends  to  hold  liable.  The  second  indorser  cannot 
defend  on  the  ground  that  the  first  indorser  was  not  so  notified. 

Notice  may  be  given  by  any  party  to  a  note  or  bill  not  primarily  liable 
thereon  as  regards  third  parties,  and  not  discharged  from  liability  thereon  at 
the  time  the  notice  is  given.  Such  notice  may  be  by  the  holder ;  by  his  agent, 
and  in  the  agent's  name ;  by  an  indorsee  for  collection ;  a  notary ;  the  adminis- 
trator or  executor  of  a  deceased  person :  or  the  holder  of  the  paper  as  collateral 

security. 

Mere  knowledge  on  the  part  of  the  indorser  of  a  note,  learned  from  the 
maker,  that  it  had  been  dishonored,  is  not  a  notice,  since  notice  must  come  from 
a  party  who  is  entitled  to  look  to  the  indorser  for  payment. 

The  notice  must  be  forwarded  as  early  as  the  day  after  the  dishonor,  by 
a  mail  which  does  not  start  at  an  unreasonably  early  hour. 

In  some  extreme  cases,  notice  of  dishonor  may  be  excused. 


I 

i 

1 


ON  DEMAND. 

A  promissory  note  payable  on  demand  is  a  present  debt  and  is  payable 
without  demand.  It  is  payable  the  instant  the  note  is  signed  and  no  demand  is 
necessary  before  bringing  an  action. 

OPEN  ACCOUNT. 

A  running  or  unsettled  account;  not  completely  settled,  but  subject  to 
future  adjustment. 


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ORDER. 

An  informal  bill  of  exchange  or  letter  of  request  requiring  the  party  to 
whom  it  is  addressed  to  deliver  property  or  money  of  the  person  making  the 
order  to  someone  therein  described. 

The  request  in  a  bill  of  exchange  that  the  drawee  accept  or  pay. 

OVERDRAW. 

To  draw  bills  or  checks  upon  an  individual,  bank,  or  other  corporation,  for 
a  greater  amount  of  funds  than  the  party  who  draws  is  entitled  to. 

Where  the  president  of  a  bank,  not  acting  in  good  faith,  permitted  over- 
drafts which  he  did  not  believe  and  had  no  reasonable  grounds  to  believe  would 
be  repaid,  and  it  appeared  that  he  intended  by  the  transaction  to  injure  and 
defraud  the  bank,  the  act  became  a  crime. 

A  bank  may  properly  refuse  to  pay  a  check  which  will  overdraw  the 
depositor's  account,  though  on  the  bank  books  his  balance  seems  to  be  larger 
than  the  amount  of  the  check,  where  a  check  of  his,  paid  by  the  bank  two  days 
before,  had  not  yet  been  charged  to  such  depositor. 

An  overdraft  on  a  bank  is  in  the  nature  of  a  loan ;  it  is  considered  a  fraud 
on  the  part  of  the  depositor. 

Where  a  person  has  overdrawn  his  account  without  any  intention  to  do 
so,  and  afterwards  gives  a  check  on  the  bank,  the  holder  is  required  to  present 
it,  and  on  refusal  of  payment  to  give  notice  to  the  maker,  in  order  to  hold 
him  bound  for  it ;  but  where  the  maker  has  overdrawn  the  bank  account  know- 
ingly, having  no  funds  there  between  the  time  the  check  is  given  and  its  present- 
ment, the  notice  is  not  required. 

A  cashier  who  knowingly  permits  an  overdraft  is  guilty  of  a  breach  of 
trust,  and  liable  to  an  action  to  make  good  the  amount,  even  though  the  direc- 
tors had  been  wont  to  countenance  him  in  a  custom  of  allchving  good  deposi- 
tors to  overdraw. 

OVERDUE. 

A  bill,  note,  bond,  or  other  contract  for  the  payment  of  money  at  a  particu- 
lar day,  when  not  paid  upon  that  pay,  is  overdue. 

The  indorsement  of  a  note  or  bill  that  is  overdue  is  equivalent  to  drawing  a 
new  bill  or  note  payable  at  sight  or  on  demand. 

A  note  when  passed  or  assigned  after  it  is  overdue,  is  subjected  to  all 
the  equities  between  the  original  contracting  parties. 

OWING. 

Something  unpaid,  a  debt,  whether  due  or  not. 

PAPER  MONEY. 

The  engagements  to  pay  money,  which  are  issued  by  the  governments  and 

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banks,  and  which  pass  as  money.  Bank  notes  are  generally  considered  as  cash, 
and  will  answer  all  the  purposes  of  currency;  but  paper  money  is  not  a  legal 
tender  if  objected  to. 

PAR. 

Equal.  It  is  used  to  denote  a  state  of  equality  or  equal  value.  Bills  of 
exchange,  stocks  and  the  like  are  at  par  when  they  sell  for  their  nominal  value ; 
above  par,  or  below  par,  when  they  sell  for  more  or  less.  Par  value  of  stock 
equals  its  face  value. 

PAR  OF  EXCHANGE. 

The  par  of  the  currencies  of  any  two  countries  means  the  equivalence 
of  a  certain  amount  of  the  currency  of  the  one  in  the  currency  of  the  other, 
supposing  the  currency  of  both  to  be  of  the  same  weight  and  purity  fixed  by 
their  respective  mints.  The  exchange  between  the  two  countries  is  said  to  be 
at  par  when  bills  are  negotiated  on  this  footing. 

PAYMENT. 

The  fulfillment  of  a  promise  or  the  performance  of  an  agreement,  or  the 
discharge  in  money  of  a  sum  due. 

It  is  now  the  law  that  payment  must  be  made  in  money,  unless  the  obliga- 
tion is,  by  the  terms  of  the  instrument  creating  it,  to  be  discharged  by  other 
means. 

Congress  has  determined  by  statute  in  what  form  the  creditor  may  demand 
his  payment  or  must  receive  it  if  offered  in  the  "  Legal  Tender"  acts.  (See 
Legal  Tender.) 

Whatever  the  parties  agree  shall  constitute  payment  the  law  will  adjudge 
to  be  payment. 

A  debt  contracted  in  a  foreign  country  is  payable  in  the  currency  of  that 
country  and,  therefore,  where  the  creditor  sues  in  the  United  States  he  is  entitled 
to  recover  such  sum  in  the  money  of  the  United  States  as  equals  the  debt  in  the 
foreign  country  where  it  was  payable. 

Giving  a  check  is  a  conditional  payment,  but  the  debt  is  discharged  only 
when  the  check  is  paid,  unless  it  was  agreed  that  the  check  should  be  received 
in  satisfaction  of  the  debt. 

Payment  in  forged  bills,  or  counterfeit  coins,  is  generally  a  nullity,  but  the 
forged  bills  or  counterfeit  money  must  be  returned  within  a  reasonable  time, 
to  throw  the  loss  upon  the  debtor.  It  has  been  held  that  payment  to  a  bank  in 
its  own  notes  which  are  received  and  afterwards  discovered  to  be  forged,  is  a 
good  payment,  so  a  forged  check  received  as  cash  and  passed  to  the  credit  of 
the  customer  is  good  payment. 

If  a  bill  of  exchange  or  promissory  note  be  given  to  a  creditor  and  accepted 
as  payment,  it  is  a  good  payment.  But  regularly  such  instruments  given  to  a 
creditor  shall  not  be  a  discharge  of  the  debt  till  payment  of  the  bill,  unless  so 


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accepted ;  and  the  agreement  to  receive  the  debtor's  own  promissory  note  in 
payment  must  be  expressed. 

A  bill  of  exchange  drawn  on  a  third  person,  and  accepted,  discharges 
the  debt  as  to  the  drawer,  and  in  an  action  to  recover  the  price  of  the  goods, 
payment  bv  a  bill  not  dishonored  has  been  held  a  good  defense. 

Payment  must  of  the  whole  sum ;  and  even  where  a  receipt  in  full  has 
been  given  for  a  pavment  of  part  of  an  ascertained  sum,  it  has  been  held  not 
to  be  an  extinction  of  the  debt.  But  where  payment  of  part  has  been  made  it 
may  be  left  to  the  jur>'  to  determine  whether  the  facts  in  the  case  constitute  a 

payment  of  the  whole. 

Payment  of  a  part  at  a  different  time,  or  place,  or  in  any  manner  more 
beneficial  to  the  creditor  than  that  prescribed  by  the  contract,  is  a  good  pay- 
ment of  the  whole  if  taken  as  such,  and  accepted  knowingly. 

Evidence  that  anything  has  been  done  and  accepted  as  payment  is  evidence 
of  payment,  so  a  receipt  is  only  prima  facie  evidence  of  payment,  but  a  receipt 
acknowledging  the  payment  of  ten  dollars  and  accjuitting  and  releasing  from 
all  obligations  would  be  a  receipt  for  ten  dollars  only,  and  it  may  be  shown 
that  the  particular  sum  stated  in  the  receipt  was  not  paid,  and,  also  that  no 

payment  has  been  made. 

Payment  is  to  be  made  to  the  creditor,  or  his  agent,  representative  or 
assign,  dulv  authorized  to  receive  same,  and  at  the  exact  time  and  place  agreed 
upon,  unless  both  the  parties  agree  to  a  change.  If  no  place  of  payment  is  men- 
tioned the  debtor  must  seek  out  th    payee. 


PLACE  OF  BUSINESS. 

The  place  where  a  man  usually  transacts  his  affairs  of  business. 

When  a  man  keeps  a  store,  shop,  counting  room,  or  office,  independently 
and  distinctly  from  all  other  persons,  that  is  deemed  his  place  of  business;  and 
when  he  usually  transacts  his  business  at  the  counting  house,  office,  and  the 
like,  occupied  and  used  by  another,  that  will  also  be  considered  his  place  of 
business,  li  h-  has  no  independent  place  of  his  own.  But  wheti  he  has  no  par- 
ticular right  to  use  a  place  for  such  private  purpose,  as  in  an  insurance  office, 
an  exchange  room,  a  banking  room,  a  postoffice,  and  the  like,  where  persons 
generally  resort,  these  will  not  be  considered  as  the  party's  place  of  business, 
although  he  may  occasionpUy  or  transiently  transact  business  there. 

It  is  a  general  rn!<-  -l«'t  a  notice  of  the  non-acceptance  or  non-payment 
of  a  bill,  or  the  non-T>avment  of  a  note,  may  be  sent  either  to  the  domicile  or 
place  of  busine<-  of  the  person  to  be  affected  by  such  notice :  and  the  fact  that 
one  is  in  one  ttwr  and  the  other  in  another  town  will  make  no  difference,  and 
the  holder  b?s  Ins  election  to  send  to  either.  A  notice  to  partners  may  be  left 
at  the  place  of  business  of  the  firm  or  of  any  one  of  the  partners. 

PLEDGE. 

A  bailment  of  personal  property  as  security  for  some  debt  or  engagement. 

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The  essential  feature  of  a  pledge  is  the  transfer  of  possession  as  dis- 
tinguished from  a  mortgage,  the  essential  feature  of  which  is  the  transfer  of 

the  title. 

Unless  the  pledgee  take  and  retain  possession  there  is  no  pledge,  and  if 
possession  be  given  to  a  third  person  for  the  pledgee,  such  person  must  know 
of  the  trust  and  accept  the  obligation  it  im])Oses.  But  a  constructive  delivery 
is  all  that  is  required ;  that  is,  such  delivery  as  the  nature  or  situation  of  the 
goods  will  admit.     A  change  of  the  location  of  bulky  goods  is  not  in  all 

cases  necessary. 

In  the  case  of  commercial  paper,  stocks,  bonds  and  securities,  which 
together  constitute  by  far  the  most  important  division  of  pledges,  or  collateral 
securities,  and  of  choses  in  action,  deliver)^  of  possession  is  essential,  but  to 
make  the  delivery  effective  assignment  is  necessary  and  assignment  is  transfer 
of  title.  As  both  title  and  possession  are  transferred,  the  distinction  between 
mortgage  and  pledge  ceases  to  be  of  much  practical  importance — the  title  to 
the  collateral  depends  not  on  the  principal  obligation,  but  on  the  mode  of 
transfer.  But  there  is  a  distinction  between  the  position  of  the  pledgee  in 
relation  to  the  pledgor  and  in  relation  to  third  persons.  His  position  cannot 
be  described  as  simply  that  of  a  trustee,  because  he  holds  the  collateral  primar- 
ily for  his  own  benefit,  which  affects  his  relation  to  the  pledge.  So  far  as  the 
pledgor  is  concerned,  the  question  of  the  title  of  the  pledgee  is  determined  by 
the  intention  of  the  parties ;  as  to  third  parties,  he  is  practically  owner.  Thus 
a  pledgee  of  stock  may  transfer  it  to  his  own  name,  though  this  is  not  necessary ; 
and  so  far  as  the  corporation  is  concerned,  he  is  the  owner  of  it.  The  legal 
title  to  a  pledged  note  or  chose  in  action  is  in  him.  He  occupies  the  position  of 
a  bona  fide  holder  for  value,  except  when  the  pledge  is  for  an  existing  debt : 
and  though  an  assignee  of  a  pledgee  have  notice  of  equities,  he  is  not  bound 
by  them,  if  his  assignor,  the  pledgee,  had  not  such  notice.  His  title  to  an  accom- 
modation note  is  good:  notwithstanding  equities  between  maker  and  payee; 
and  he  has  the  rights  of  a  bona  fide  holder  against  the  corporation,  when  the 
collateral  is  a  certificate  of  stock  which  proves  to  have  been  fraudulently 
issued. 

He  is  bound  by  anything  which  should  amount  to  notice  that  the  pledgor 
is  without  authority  to  pledge.  But  in  dealing  with  one  in  possession  of  the 
securities  and  having  the  apparent  right  to  dispose  of  them  he  will  be  pro- 
tected, though  the  pledge  be  a  fraud  on  the  real  owner.  Of  course,  if  the 
true  owner  has  been  deprived  of  possession  by  what  amounts  to  embezzlement 
he  can  recover  from  the  pledgee ;  and  a  i)ledge  from  one  who  has  no  authority 
either  to  sell  or  pledge,  acquires  no  lien  on  the  property  as  against  the  true 
owner.  As  holder  of  a  note  to  which  there  is  a  valid  defense  against  the 
payee,  the  pledgee  is  protected,  but  only  to  the  extent  of  his  interest,  i.  c,  to  the 
amount  which  he  has  advanced. 

\\'here  possession  is  given  to  one  of  three  pledgees,  to  hold  for  all  three, 
the  other  two  have  a  constructive  possession,  which  is  ecfually  good,  for  the 
purpose  of  sharing,  with  an  actual  possession.  Hence  the  mere  manual  posses- 
sion of  one  pledgee  will  not  give  a  right  to  discharge  the  whole  debt  of  the 


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holder  and  a  part  only  of  that  of  his  co-pledgee's.  So,  by  the  rule  of  construc- 
tive possession,  if  the  holder  should  lose  the  pledge  by  his  own  negligence,  he 
would  be  liable  to  his  co-bailees  out  of  actual  possession,  as  well  as  to  his  bailor. 

Substituted  collateral  is  held  on  the  same  terms  as  that  originally  pledged, 
the  surrender  of  that  given  up  being  sufficient  consideration  for  the  new 
deposit.  Collateral  deposited  on  a  demand  by  the  pledgee  for  additional 
"  margin  "  would  probably  be  held  to  be  security  given  for  an  existing  debt ; 
this  point  sloes  not  appear  to  have  been  decided. 

The  renewal  of  the  note  or  obligation  of  pledge  does  not  affect  the  pledgee's 
rights  in  regard  to  the  collaterals,  it  is  a  mere  prolongation  of  the  original 

contract. 

Assignment  by  the  pledgee  is  valid,  in  the  absence  of  an  agreement  to 
the  contrary,  and  carries  with  it  all  the  collaterals  pledged  as  security.  The 
pledgor  is  not  injured  thereby,  his  right  to  redeem  remaining  unimpaired. 
The  pledgor  may  sell  or  transfer  his  right  to  a  third  party,  who  may  bring 
trover  against  the  pledgee  if  the  latter,  after  tender  of  the  amount  of  the  debt, 
refuse  to  deliver  the  pledge. 

Possession  is  of  the  very  essence  of  the  pledge,  and  if  possession  be  re-de- 
livered by  the  pledgee,  or  with  his  consent,  the  pledge  is  extinguished.  The 
exceptions  to  the  rule  are  where  the  pledgor  holds  as  the  pledgee's  agent,  or 
where  the  pledge  is  re-delivered  for  a  temporary  purpose  only,  e.  g.,  for  sale,  or 
for  collection  or  suit  by  the  pledgor. 

Ordinary  Care.— The  pledgee  is  bound  to  take  ordinary  care  of  the 
pledge,  and  is  liable  only  for  neglect  of  such  care,  the  bailment  being  for  the 
mutual  benefit  of  both  parties.  Where  he  is  to  do  work  upon  the  pledge  and 
incur  expenditure,  he  must  use  reasonable  diligence  to  secure  the  best  net 
results,  and  account,  showing  that  expenses  for  which  allowance  is  claimed 
were  reasonable  and  necessary ;  where  he  is  to  sell,  paying  himself  out  of  the 
proceeds,,  he  will  be  liable  for  carelessness  in  not  properly  keeping  the  pledge 
and  for  fiiling  to  sell  until  the  market  has  fallen.  If  the  pledge  is  loose  and 
the  pledgee  has  not  failed  to  exercise  ordinary  care,  he  may  still  recover  his 
debt ;  such  losses  often  result  from  casualty,  superior  force,  or  intrinsic  defect 
against  which  a  man  of  ordinary  prudence  would  not  have  effectually  guarded 
himself.  If  a  pledgor  find  it  necessary  to  employ  an  agent,  and  exercises 
ordinary  care  in  the  selection,  he  will  not  be  liable  for  the  latter's  neglect  or 
misconduct.  Loss  or  depreciation  in  value  of  the  thing  pledged,  through 
negligence  of  the  pledgee,  does  not  operate  to  extinguish  protanto  the  debt 
secured ;  but  the  pledgee  is  liable  to  the  pledgor  for  the  depreciation  in  value  of 
the  property  pledged  after  a  tender  of  the  amount  due  and  a  refusal  of  the 
pledgee  to  deliver. 

Loss  by  theft  is  prima  facie  evidence  of  a  want  of  ordinary  care,  and  the 
bailee  must  rebut  the  presumption ;  the  facts  in  each  case  regulate  the  liability. 
Theft  is  only  evidence,  in  short,  and  not  absolute  presumption,  of  negligence. 
Perhaps  the  only  safe  rule  is  that,  where  the  pledgee  pleads  loss  by  theft  as 
ground  for  not  performing  his  duty,  to  excuse  himself  he  must  show  that  the 
theft  could  not  have  been  prevented  by  ordinary  care  on  his  part. 


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The  holder  of  collateral  security,  by  accepting  it,  binds  himself  to  use 
reasonable  diligence  in  protecting  it.  Thus,  by  negligently  releasing  the  indorser 
he  becomes  chargeable  with  the  amount  of  a  note ;  if  he  refuse  to  sue  on  a 
note  the  pledgor  may  file  a  bill  to  have  the  note  collected  and  credited  on  the 
debt;  by  failure  to  use  due  diligence  to  collect  accounts  assigned  he  becomes 
responsible  for  the  resulting  losses ;  he  must  account  for  the  real  value  of  an 
insurance  policy  surrendered  to  the  company  for  its  cash  value  without  notice 
to  the  pledgor.  But  as  assignee  of  a  poHcy  of  life  insurance  he  is  not  obliged 
to  pay  premiums  unless  he  has  engaged  to  do  so.  Though  authorized  to  sell 
collateral  in  the  event  of  its  depreciation,  he  is  not  bound  to  do  so,  nor  liable 
if  he  fails;  by  taking  notes  secured  on  property  he  incurs  no  obligation  to 
sue  for  the  property,  and  if  he  does  so,  at  the  request  of  the  pledgor,  he  incurs 
no  obligation  to  take  charge  of  it,  and  advance  expenses  upon  it.  When  only 
required  to  collect  a  sufficient  sum  on  a  note  to  pay  the  debt,  and  then  to  turn 
it  over  to  the  pledgor,  after  collecting  such  sum,  he  is  not  liable  for  failure  to 
take  prompt  steps  to  collect  the  residue  at  maturity :  but  he  is  responsible  as 
bailee  after,  as  well  as  before,  the  maturity  of  the  debt. 

Pledgee's  Expenses. — Whatever  reasonable  expense  be  necessarily 
incurred  by  the  pledgee  in  keeping  and  caring  for  the  property  pledged,  and 
protecting  it  against  liens  and  taxes  and  assessments,  and  asserting  title  to 
it,  or  rendering  it  available,  is  a  fair  charge  against  the  property  pledged. 
For  any  unusual  care  he  may  get  compensation  from  the  pledgor,  if  it  were 
not  contemplated  by  the  parties  or  is  implied  in  the  nature  of  the  bailment. 

Redemption. — ^The  pledgor  may  redeem  at  any  time  until  his  right  to 
do  so  has  been  foreclosed  by  judicial  decree,  or  by  sale  after  notice. 

POSSESSION. 

"  The  detention  or  enjoyment  of  a  thing  which  a  man  holds  or  exercises 
by  himself,  or  by  another  who  keeps  or  exercises  it  in  his  name." 

Possession  expresses  the  closest  relation  that  can  exist  between  a  corporeal 
thing  and  the  person  who  possesses  it,  implying  an  actual  physical  contact, 
as  by  sitting  or  standing  upon  a  thing. 

Actual  possession  exists  where  the  thing  is  in  the  immediate  occupancy 

of  the  party. 

Constructive  possession  is  that  which  exists  in  contemplation  of   law, 

without  actual  personal  occupation. 

In  order  to  complete  a  possession,  two  things  are  required  ;  that  there  be  an 
occupancy,  apprehension,  or  taking ;  that  the  taking  be  with  an  intent  to  possess ; 
hence  persons  who  have  no  legal  wills,  as  children  and  idiots,  cannot  possess 
or  acquire  possession.  But  an  infant  of  sufficient  understanding  may  lawfully 
acquire  the  possession  of  a  thing. 

Failure  to  take  possession  is  sometimes  considered  a  badge  of  fraud,  in 
the  transfer  of  personal  property. 

Possession  of  real  property  will  be  presumed  to  accompany  ownership 
until  the  contrary  is  proved ;  and  constructive  possession  consecinent  upon  legal 


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ownership  is  sufficient  as  against  mere  trespassers.  Long  continued  possession 
and  use  of  real  property  creates  a  presumption  of  lawful  origin :  and  this 
presumption  need  not  rest  upon  belief  that  a  conveyance  was  in  point  of  fact 
executed. 

PRESENTMENT. 

The  production  of  a  bill  of  exchange  or  promissory  note  to  the  party  on 
whom  the  former  is  drawn,  for  his  acceptance,  or  to  the  person  bound  to  pay 
either,  for  payment. 

For  a  full  discussion  see  "  Protest." 


PRIMA  FACIE. 

At  first  view  or  apearance  of  the  business;  as  the  holder  of  a  bill  of 
exchange,  indorsed  in  blank,  is  prima  facie  its  owner. 

Prima  facie  evidence  of  fact  is  in  law  sufficient  to  establish  the  fact,  unless 
rebutted.  For  example,  when  buildings  are  fired  by  sparks  emitted  from  a 
locomotive  engine  passing  along  the  road,  it  has  been  held  to  be  prima  facie 
evidence  of  negligence  on  the  part  of  those  who  have  the  charge  of  it;  and 
proof  of  the  mailing  of  a  letter  is  prima  facie  evidence  of  its  receipt  by  the 
person  to  whom  it  is  addressed. 

PRINCIPAL. 

m 

In  contracts  a  principal  is  one  who,  being  competent  to  do  any  act  for  his 
own  benefit  or  on  his  own  account,  confides  it  to  another  person  to  do  for  hiin. 

The  general  principle  which  governs  the  liability  of  a  principal  is  that  the 
responsibility  is  measured  by  the  character  and  extent  of  the  authority  given. 

The  powers  of  the  agent  must  be  measured  and  determined  by  the  applica- 
tion to  each  particular  case  of  ordinary  business  principles,  and  sound  judg- 
ment to  be  exercised  by  the  agent  in  executing  his  authority,  and  by  the  court 
which  is  to  deal  with  the  case  in  considering  the  question  of  responsibility  of  the 
principal.  Where  a  discretion  has  been  conferred  upon  the  agent  the  principal 
must  abide  the  result  of  its  exercise  and  will  be  held  liable  to  third  persons 
where  it  has  been  honestly  exercised. 

The  principal  has,  in  general,  and  as  against  third  persons,  a  right  to  all 
the  advantages  and  benefits  of  the  acts  and  contracts  of  his  agent,  and  is 
entitled  to  the  same  remedies  against  such  third  parties  in  respect  to  such  acts 
and  contracts,  as  if  they  were  made  or  done  with  him  personally.  But  to  this 
rule  there  are  the  following  exceptions:  First,  when  the  instrument  is  under 
seal,  and  it  has  been  exclusively  made  between  the  agent  and  the  third  person, 
as  in  the  case  of  a  charter  party  or  bottomry  bond  made  by  tlie  master  of  a  ship 
in  the  course  of  his  employment,  in  this  case  the  principal  cannot  sue  or  be 
sued  on  it.  .Second,  when  an  exclusive  credit  is  given  to  and  by  the  agent, 
and  therefore  the  principal  cannot  be  considered  in  any  manner  a  party  to 

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the  contract,  although  he  may  have  authorized  it  and  be  entitled  to  all  the  bene- 
fits arising  from  it.  Third,  when  the  agent  has  a  lien  or  claim  upon  the  property 
bought  or  sold,  or  upon  its  proceeds,  which  is  equal  to  or  exceeds  the  amount 
of  its  value,  the  principal  cannot  sue  without  the  consent  of  the  agent. 

Contracts  are  frequently  made  by  an  agent  without  mentioning  the  name 
of  the  principal.  In  such  case  the  principal  may  avail  himself  of  the  agreement ; 
for  the  contract  will  be  treated  as  that  of  the  principal  as  well  as  of  the 
agent.  If,  however,  the  person  with  whom  the  contract  is  made,  bona  fide 
dealt  with  the  agent  as  owner,  he  will  be  entitled  to  set  off  any  claim  he  may 
have  against  the  agent,  in  answer  to  the  demand  of  the  principal. 

The  principal  is  bound  to  fulfill  all  the  engagements  made  by  the  agent 
for  or  in  the  name  of  the  principal,  which  come  within  the  scope  of  his  usual 
employment,  although  the  agent  in  the  particular  instance  has  in  fact  exceeded 
or  violated  his  private  instructions. 

The  death  of  the  principal  usually  revokes  the  authority  to  act  for  him 
or  for  his  estate. 

A  principal  who  accepts  the  benefits  of  a  contract  made  on  his  behalf 
by  his  authorized  agent  is  responsible  for  the  fraudulent  representation  of 
the  agent,  although  such  representation  was  made  without  authority. 


PRINTED  FORMS. 

Words  written  in  a  printed  form,  such  as  a  contract,  or  insurance  poiic}-, 
will,  in  case  of  doubt,  have  a  greater  effect  than  the  printed  words. 


PROCEEDS. 

Money  or  articles  of  value  arising  or  obtained  from  the  sale  of  property. 
Goods  purchased  with  money  arising  from  the  sale  of  other  goods,  or  obtained 
on  their  credit,  are  proceeds  of  such  goods.  Proceeds  does  not  necessarily  mean 
money. 

PROMISSORY  NOTE. 

A  written  promise  to  pay  a  certain  sum  of  money,  at  a  future  time,  uncon- 
ditionally: an  unconditional  written  promise,  signed  by  the  maker,  to  pay 
absolutely  and  at  all  events,  a  sum  certain,  in  money,  either  to  the  bearer  or  to  a 
person  therein  designated  or  his  order. 

The  form  of  a  promissory  note  is  unessential,  providing  it  contains  the 
essential  ingredients  thereof.  There  are  two  principal  qualities  essential  to  the 
validity  of  a  note,  via. :  First  that  it  be  payable  at  all  events,  not  dependent  on 
any  contingency,  nor  payable  out  of  any  particular  fund.  Second,  it  is  recjuired 
that  it  be  for  the  payment  of  money  C  though  statutes  in  some  states  have  made 
notes  payable  in  merchandise  negotiable)  :  that  is,  in  whatever  is  legal  tender  at 
the  place  of  payment. 

A  promissory  note  should  be  dated  and  signed,  but  it  is  never  under  seal, 

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even  when  made  by  a  corporation,  though  it  has  been  held  that  a  paper 
seal  of  a  corporation  on  an  instrument  in  the  form  of  a  promissory  note  should 
be  regarded  as  mere  excess. 

He  who  makes  the  promise  is  called  the  maker,  and  he  to  whom  it  is 
made  is  the  payee.     Other  parties  to  a  note  are  the  indorsers  and  indorsees. 

A  promissory  note  payable  to  order  or  bearer  passes  by  indorsement, 
and,  although  it  is  a  chose  in  action,  the  holder  may  bring  suit  on  it  in  his  own 
name.  Although  it  is  a  simple  contract,  a  sufficient  consideration  is  implied 
from  the  nature  of  the  instrument.  It  has  been  urged  that,  upon  principle, 
negotiable  instruments  are  contracts  binding  by  their  own  force,  not,  therefore, 
requiring  any  consideration. 

When  the  back  of  a  note  is  covered  by  various  indorsements,  an  assign- 
ment of  the  note,  written  on  a  separate  piece  of  paper  and  pasted  to  the  note, 

will  pass  the  legal  title. 

A  promissory  note  does  not  discharge  the  debt  for  which  it  is  given, 
unless  such  be  the  agreement  of  the  parties ;  it  only  operates  to  extend  the  period 
for  the  payment  of  the  debt. 

PROTEST. 

Is  a  notarial  act,  made  for  want  of  payment  of  a  promissory  note,  or 
for  want  of  acceptance  or  payment  of  a  bill  of  exchange. 

The  duty  of  protesting  commercial  papers  is  an  important  one.  In  per- 
forming this  duty  it  should  be  borne  in  mind  that  the  real  purpose  of 
this  every-day  formal  preliminary  is  that  of  fixing  a  contingent  liability  that 
would  otherwise  be  released  altogether,  risking,  if  not  losing  outright,  the 
entire  debt  according  to  the  degree  of  responsibility  of  the  original  debtor. 
Although  this  task  is  so  simple  and  of  an  every-day  occurrence,  it  is  still  a 
great  and  delicate  responsibility,  for  any  blunder  in  the  execution  of  which  the 
party  risks  a  liability  in  damages.  It  demands  precision  and  promptness,  and 
one  should  not  undertake  its  performance  before  he  has  a  clear  understanding 
of  his  duties.  And  to  acquire  this  undertsanding  one  must  become  familiar 
with  the  legal  principles  which  govern  collections  of  such  commercial  papers  as 
bills  of  exchange  and  promissory  notes. 

Protest  is  the  act  of  marking  or  noting  on  a  promissory  note  the  want 
of  payment,  and  on  a  bill  of  exchange  the  want  of  acceptance  or  payment, 
by  which  it  is  formally  declared  that  all  parties  to  the  instrument  will  be 
held  responsible  to  the  holder  for  all  damages,  exchanges,  re-exchanges,  etc. 
This  word  is  often  used  to  include  the  "  Certificate  of  Protest,"  which  is  a 
formal  instrument,  made  by  a  notary  public,  alleging  the  due  presentment 
and  dishonor  of  a  bill  or  note,  and  declaring  that  the  notary  protests  the  same 
for  non-payment  or  non-acceptance.  The  word  protest  includes  all  the  steps 
necessary  to  charge  an  indorser,  vis :  Presentment,  demand,  noting  the  protest, 
and  Notice  of  Protest. 

The  Actual  Protest  is  a  formal  paper  written,  wherein  the  notary  certi- 
fies that  on  the  day  of  its  date  he  presented  the  original  bill  attached  thereto. 


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or  a  copy  of  \vhich  is  above  written,  to  the  acceptor,  or  the  original  note  to 
the  maker  thereof,  and  demanded  payment  or  acceptance,  which  was  refused 
and  that  thereupon  he  protests  against  the  drawer  and  indorsers  thereof  for 
exchange,  re-exchange,  damages,  costs  and  interest,  and  herein  called  the 
"Certificate  of  Protest." 

What  May  Be  Protested. — Under  the  common  law  a  foreign  bill  of 
exchange  must  be  presented  by  a  notary  public.  Inland  bills  and  promissory 
notes  were  not  originally  within  the  rule,  but  by  usage,  and  in  some  States  by 
statutes,  this  convenient  method  of  fixing  liability  on  commercial  paper  has 
been  applied  to  this  class  of  instruments  in  the  same  manner  as  to  foreign  bills. 
As  to  bills  of  exchange,  the  State  and  the  United  States  are  foreign  to  each 
other.  Even  when  the  drawer  and  drawee  live  in  the  same  State,  but  the  bill 
is  payable  in  another,  it  is  a  foreign  bill. 

Who  Makes  the  Protest. — It  is  everywhere  an  official  duty  of  notaries 
to  make  protests.  But  a  protest  need  not  be  made  by  a  notary  to  be  valid  except 
if  a  foreign  bill  of  exchange.  It  may  in  many  cases  be  made  by  other  function- 
aries, and  even  by  merchants.  Nor  does  the  law  merchant  require  the  notary  to 
do  more  than  make  the  protest  itself ;  the  subsequent  duty  of  notifying  indorsers 
may  be  performed  by  the  holder  of  the  note.  Still,  it  is  common  usage  for  the 
notary  to  make  the  demand  for  payment,  and  in  case  of  refusal,  protest  the 
paper  and  give  notice  of  non-payment  to  all  prior  parties.  Indeed,  in  some 
places,  statutes  empower  him  to  give  this  notice,  but  if  they  did  not,  he  might 
properly  do  so.  An  indorser  cannot  insist  on  having  notice  directly  from 
the  holder  of  the  paper ;  it  may  be  given  by  a  notary  or  by  any  agent,  only  an 
agent  who  gives  notice  of  the  dishonor  of  the  paper  has  not  the  benefit  of  the 
rule  which  allows  an  actual  party  who  has  an  interest  in  the  paper,  a  whole  day 
in  which  to  give  notice  to  the  party  to  whom  he  looks  for  payment.  And  as  the 
notary  is,  in  fact,  only  the  holder's  agent,  the  son  of  the  holder,  if  a  notary,  is 
not  prevented  by  relationship  from  protesting  paper  for  his  father.  But,  gen- 
erally speaking,  the  notary  must  make  the  protest  himself ;  he  should  not 
leave  it  to  his  clerk.  And  where  two  notaries  are  partners,  one  of  them  can- 
not protest  paper  as  the  other's  agent. 

Notice  of  Protest. — The  paper  having  been  dishonored,  it  is  the  duty  of 
the  notary  to  give  prompt  notice  of  the  fact  to  all  parties  in  interest.  Such 
notice  of  dishonor  or  protest  is  bringing,  either  verbally  or  by  writing  (usually 
the  latter),  to  the  knowledge  of  the  parties  liable  on  the  paper  the  fact  that 
the  paper  upon  proper  proceedings  taken,  has  not  been  accepted,  or  paid,  and 
that  the  party  notified  is  expected  to  pay  it.  The  elements  of  such  a  notice  are : 
An  identification  of  the  instrument,  a  statement  of  its  proper  presentment  and 
demand  for  acceptance  or  payment,  which  was  refused,  a  statement  of  its  non- 
acceptance  or  non-payment,  that  the  holder  expects  the  party  notified  to  pay, 
and  that  the  notification  be  signed  by  the  sender.  No  technical  phrases  are 
necessary  in  such  notice.  It  is  only  required  that  the  terms  used  be  such  as 
fairly  and  naturally  lead  a  mind  of  ordinary  intelligence  to  the  idea  that  the 
paper  has  been  presented  at  maturity  and  dishonored,  and  that  the  party  noti- 
fied is  looked  to  for  payment.    Following  is  a  form  extensively  used : 


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.,  A.  D.  . 


Take  notice,  That  the  (bill  or  note)   for  

r«  ^    mide  bv         dated    

payable  ('ordemand  or,  e.O  a. .and  endorsed  by  you.  has  ,h,s 

Say  been  presented  a,  ""d  <i^n>and  made  for  (acceptance 

or  pavment)  thereof,  which  has  been  refused.    Said  (b,ll  or  note)  has  been  protested 

for  (non-acceptance  or  non-payment),  and  the  holders  now  look  to  you  for  payment 

f  ^,  .  Yours,  etc., 

of  the  same. 


Notary  Public  in  and  for County. 


The  notice  must  be  explicit  and  in  no  way  calculated  to  mislead  the  party 
to  whom  it  mav  be  given.  It  must  be  sufficiently  definite  in  its  description  of 
the  paper  to  enable  the  indorser  to  know  to  what  instrument  m  particular  the 
notice  refers.    A  notice  which  barely  puts  the  indorser  upon  his  inquiry  is  not 

sufficient.  , 

The  notice  must  be  given  by  the  holder  of  the  paper,  on  any  person  who 
is  a  party  to  it,  and  who  would  on  the  same  being  returned  to  him,  have  a 
right  of  action  upon  it.  A  notice  by  a  mere  stranger  is  not  sufficient.  But  an 
agent  of,  or  any  person  duly  authorized  by  the  holder,  may  give  notice. 

An  unsigned  written  notice  of  the  dishonor  of  a  bill  is  not  sufficient, 
but  it  is  enough  if  it  is  signed  by  the  notary  and  not  by  the  party  giving  notice, 
and  a  printed  notice  of  protest  with  the  notary's  printed  signature  is  enough 
if  it  describes  the  paper  accurately:  it  should  appear  also  to  be  the  officer's 
own  act,  although  his  name  may  "be  signed  by  a  clerk  or  in  print.  It  is  only 
necessary  that  the  signature  be  by  his  authority.  The  authentication  of  the 
notice  should  be  the  forms  of  the  locality  as  they  are  at  the  time  of  mak^ 

ing  it.  ■    •  u         c 

The  notice  must  be  given  to  the  person  upon  whom  it  is  sought  to  tix  a 

liabilitv  upon  the  instrument.    It  is  safer  practice  to  notify  all  indorsers,  that 

i^.  indorsers  for  collection,  accommodation  drawer  or  indorser,  etc.,  and  to 

notify  each  partner,  as  well  as  the  firm  by  name;  each  of  the  joint  indorsers; 

persons  representative,  if  any ;  if  none,  then  some  authorized  person  at  the 

family  residence ;  the  bankrupt  personally  and  the  assignee  of  the  bankrupt. 

Between  parties  residing  in  the  same  town  the  indorser  was  formerly 

entitled  to  personal  notice,  either  verbally  or  in  writing,  or  a  written  notice 

must  be  left  at  his  dwelling  place,  or  place  of  business,  but  this  rule  has  been 

relaxed  so  that  notices  may  always  be  sent  through  the  postoffice,  whenever 

there  is  a  regular  communication  by  mail  between  the  place  of  presentment  or 

demand  and  the  office  where  the  person  to  be  charged  usually  receives  his 

letters  and  papers.     This  is  true  whether  the  sender  and  the  person  to  be 

charged  live  in  the  same  place  or  not.    Some  jurisdictions  hold  to  the  old  rule. 

Unless  the  statute  intervenes  a  verbal  notice  is  sufficient,  but  it  must  be  given 

to  the  indorser  personally.     Mere  hearsay  does  not  create  a  binding  liability, 

and  does  not  come  within  the  reasons  sanctioning  the  verbal  notice,  vis. :    If 

from  a  conversation  between  the  parties  it  can  be  ascertained  as  a  fact  that 

the  party  against  whom  the  liability  is  sought  to  be  enforced  well  understood 


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what  instrument  was  referred  to,  it  is  sufficient.  It  seems  also  to  be  the  rule 
that  a  verbal  notice  is  less  strictly  construed  than  a  written  one.  This  is 
because  a  verbal  communication  to  the  indorser,  and  which  calls  forth  a  conver- 
sation about  the  instrument  in  question,  is  very  different  from  a  written  notice 
sent  to  the  indorser.  The  latter  constitutes  the  only  means  of  information  as  to 
the  instrument  intended  by  it:  if  misdescribed  the  indorser  is  wronged,  because 
he  is  misled.  With  a  verbal  notice,  however,  he  has  the  opportunity  of  inform- 
ing himself  fully. 

Notice  of  dishonor  may  be  sent  as  soon  as  there  is  an  unqualified  refn^il 
to  accept  or  pay  the  instrument,  and  must  be  sent  if  the  parties  reside  in  the 
same  place,  before  the  expiration  of  the  proper  hours  of  business  of  the  day 
following  the  dishonor:  and,  where  the  parties  reside  in  different  places,  the 
notice  must  be  put  in  the  postoffice  in  time  to  go  by  mail  the  day  next  succeed- 
ing the  day  of  dishonor,  or  the  first  possible  or  practical  mail  after  the 
default. 

The  need  of  promptness  in  carrying  or  sending  the  notice  of  the  dishonor 
of  the  paper  can  hardly  be  overrated.  A  bill  of  exchange  must  be  protested,  or 
there  must  be  a  noting  of  the  protest  on  it.  on  the  same  day  as  the  presentment 
and  demand.  The  notice  should  be  given  by  the  earliest  available  mail  after 
the  paper  has  been  protested — if  not  on  the  same  day,  on  the  next,  though  if 
that  should  be  Sunday,  and  if  Saturday  was  the  proper  day  for  demand,  Mon- 
day has  been  held  early  enough.  But  in  one  case  where  the  note  was  protested 
two  hours  before  mail  time,  it  was  regarded  as  negligence  to  wait  until  after 
the  mail  had  closed. 

Si:rvice  of  Notice. — The  common  law  rule  is  that  the  notice  should  be 
delivered  in  person  if  the  party  to  be  notified  is  within  easy  reach,  but  may 
be  sent  by  mail  if  he  lives  out  of  toWn  or  at  any  inconvenient  distance.  But 
in  ^lichigan  it  is  enacted,  that  *'  Whenever  the  indorser  or  indorsers  of  any 
promissory  note,  or  the  drawer  or  indorser  of  any  check,  draft  or  bill  of 
exchange,  shall  reside  or  have  a  place  of  business,  or  upon  information  obtained 
by  diligent  inquiry  shall  be  reported  to  reside  or  have  a  place  of  business  in  the 
same  city,  village  or  township  where  such  promissory  note,  draft,  check  or 
bill  of  exchange  is  made  payable,  or  may  be  legally  presented  for  payment  or 
acceptance,  all  notices  of  the  non-payment  or  non-acceptance  thereof  may  be 
served  by  depositing  such  notices  with  the  postage  prepaid,  in  the  postoffice  in 
the  city,  township  or  village  where  such  promissory  note,  draft,  check  or 
bill  of  exchange  is  made  payable,  or  may  be  legally  persented  for  payment  or 
acceptance,  properly  directed  to  such  drawer  or  indorser  at  such  city,  village 
or  township,  and  whenever  any  promissory  note,  check  or  draft  shall  not  be 
made  payable  at  any  place,  notices  of  non-payment  or  non-acceptance  may  be 
served  by  depositing  the  same  in  a  postoffice,  prepaid,  directed  to  the  drawer 
or  indorser  at  his  reputed  place  of  postoffice  delivery,  such  reputed  place  of 
business,  residence  or  postoffice  delivery  to  be  ascertained  by  the  best  infor- 
mation that  can  be  obtained  by  diligent  inquiry  therefor."  This  is  so,  too.  in 
Alabama. 

Notwithstanding  this,  it  is  the  safer  way,  and  more  in  accordance  with 

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established  principles,  to  serve  the  notice  personally,  if  possible.  It  has  been 
held  that  the  notice  ought  to  be  delivered  in  person  and  not  sent  by  mail  when 
the  holder,  or  his  agent,  the  notary,  lives  in  the  same  town  with  the  indorser, 
and  that  it  should  either  be  served  on  the  indorser  himself,  or  at  his  residence 
or  place  of  business ;  so,  too,  when  the  two  live  within  two  miles  of  each  other. 

The  rule  requiring  an  indorser  to  be  promptly  notified  of  the  dishonor  of  a 
note  is  one  not  of  form,  but  of  substance.  It  is  legal  condition  of  the  contract 
that  he  shall  be  notified  or  discharged,  unless  where  reasonable  diligence  fails 
to  find  him,  and  this  rule  requires  that  the  person  giving  the  notice  shall  use 
such  means  as  are  reasonably  calculated  to  find  out  the  indorser's  residence. 
And  it  is  the  plain  and  obvious  duty  of  a  notary  public  to  make  diligent  search 
and  inquiry  as  to  the  residence  of  an  indorser,  which  search,  while  not  required 
to  be  unreasonably  long,  where  he  has  no  clue,  should  be  real  and  not  formal. 

The  service  is  good  if  the  notice  is  left  with  one  in  charge  of  the  indorser's 
place  of  business;  but  not  if  only  left  at  the  place  of  business  of  a  man  of 
the  same  name  as  the  indorser,  the  notary  not  being  informed  of  the  indorser's 
residence.  If  left  at  the  house  or  office  it  must  be  certain  that  it  was  the 
right  place  and  not  some  other  under  the  same  number,  or  that  it  was  left  with 
some  person  in  charge.  But  it  was  enough  for  the  notary  to  call  at  the  house, 
find  it  locked,  be  told  by  a  neighbor  that  the  indorser  was  out  of  town  with 
his  family  on  a  visit  for  he  did  not  know  how  long,  and  leave  the  notice  next 
door,  with  the  request  that  it  be  handed  to  the  indorser  when  he  came  back.  If 
the  notice  is  given  directfy  to  the  indorser  himself,  the  service  is  good  where- 
ever  it  is  made. 

Notice  by  mail  of  non-payment  may  properly  be  made  by  a  notary,  acting 
therein  as  the  holder's  agent,  just  as  he  does  in  dehvering  it  personally.  But 
it  is  not  enough  for  him  to  mail  it  to  the  place  of  the  note's  date  unless  the 
indorser  lives  there  or  the  holder  has  used  reasonable  diligence  to  learn  his 
residence.  It  is  sufficient  if  it  is  sent  to  the  postoffice  nearest  the  indorser's 
residence,  or  to  that  where  he  is  in  the  habit  of  receiving  his  letters,  or  to 
that  from  which  he  would  get  notice  soonest.  An  indorser  living  in  the  wilder- 
ness twenty  miles  from  any  postoffice  cannot  be  served  by  mail,  however,  but 
must  be  notified  in  person,  or  by  special  messenger.  Where  there  are  several 
parties  to  whom  notices  of  protest  are  to  be  given,  and  the  notary  only  knows 
the  residence  of  the  last  indorser,  he  should  make  out  one  notice  for  each  and 
inclose  them  all  to  the  last  indorser.  Distant  parties  receiving  their  own 
notice  from  a  notary  may  transmit  notice  according  to  the  laws  of  their  resi- 
dence, if  that  is  the  place  where  they  signed. 

Certificate  of  Protest. — The  notary's  certificate  should  contain  the  pro- 
test, a  statement  of  the  time,  manner  and  place  of  the  demand,  for  if  it  does  not 
it  will  not  appear  that  the  paper  was  duly  dishonored,  and  the  names  of  the 
parties  of  whom  the  demand  is  made,  and  of  whose  request  it  is  made,  and  of 
the  parties  notified.  It  is  not  vitiated  by  mere  verbal  mistakes,  and  indeed  the 
notice  of  protest  itself  is  not  vitiated  even  when  it  mistakes  the  amount,  as 
$175  for  $200,  if  the  indorser  is  not  misled  thereby. 

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FORM  OF  CERTIFICATE  OF  PROTEST. 

State  of  Michigan, 

County  of  

ss. 

Beit  Known,  That  on  the day  of ,  A.  D , 

at  the  request  of I,  a  Notary  Public,  duly  commissioned  and 

sworn,  residing  in  the of ,  County  and  State  aforesaid, 

did,   etc.,    (stating  facts   concerning  presentment,   etc.) and 

demanded  thereof,  which  was  refused. 

Whereupon,  I,  the  said  Notary,  at  the  request  aforesaid,  did  PROTEST,  and 
by  these  presents  do  solemnly  protest,  as  well  against  the   Drawers,   Makers  and 

Endorsers  of  the  said as  against  all  others  whom  it  doth  or  may 

concern  for  exchange,  re-exchange,  and  all  costs,  charges,  damages  and  interest  al- 
ready incurred  and  to  be  incurred  by  reason  of  the  non- of  the 

said 

And  I,  the  said  Notary,  do  hereby  certify,  that  on  the  same  day  and  year  afore- 
said, due  notices,  that  said  had  thus  been  presented  for 

and  that thereof  had  been  thus 

demanded  and  refused,  and  that  the  holders  of  the  said  did 

and  would  look  to  the  drawers,  makers  and  endorsers  thereof  for  payment  of  the 

same,  w.ere  put  into  the  Postoffice  at  ,  with  the  full 

legal   postage   paid   thereon,   and   directed   as   follows,   after   diligent   inquiry   being 
made  for  the  residence  and  place  of  business  of  the  drawers  and  indorsers: 

Notice  for  Directed   

Notice  for   Directed   • 

Notice  for  Directed   

Notice  for   Directed   

Notice  for  Directed   

Notice  for  Directed   

And  I  further  certify,  that  like  notices  were  left  as  follows: 

Notice  for ("  Left  at "  or  "  delivered  to  him  personally  ")• 

Notice  for ("  Left  at "  or  "  delivered  to  him  personally"). 

Notice  for ("  Left  at "  or  "  delivered  to  him  personally"). 

Notice  for ("  Left  at "  or  "  delivered  to  him  personally  "). 

Each  of  the  above  named  place  being  the  reputed  place  of  residence  or  business 

of  the  person  to  whom  the  notice  was  directed,  or  for  whom  it  was  left  as  aforesaid. 

In  Witness  Whereof,  I  have  hereunto  subscribed  my  name  and  affixed  my  seal 

of  office.  , 

Notary  Public  in  and  for County 

My  commission  expires 

A  notarial  certificate  of  protest  in  a  foreign  country  or  state,  proves  itself, 
and  is  sufficient  evidence  of  the  dishonor  of  a  foreign  bill.  The  custom  of 
merchants  requires  that  there  should  be  a  protest  in  case  of  the  non-acceptance 
of  a  foreign  bill  of  exchange ;  and  the  proper  officer  to  make  this  protest  is  a 
notary  public.  Drawn  up  in  the  usual  form  the  certificate  of  the  notary  should 
be  authenticated  by  his  seal  of  office :  so  executed,  it  is  received  in  all  courts, 
without  any  auxiliary  support,  as  evidence  of  the  protest  in  the  foreign  state. 
Whether  it  would  be  entitled  to  full  credit  without  a  seal,  admits  of  question : 
but  it  seems  that  if  executed  in  the  manner  pointed  out  by  the  local  law,  it  will 
be  sufficient. 

But  it  has  been  held  in  Alabama  that  the  notary's  seal  is  an  essential  part 

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of  the  certificate  of  protest,  and  that  unless  the  seal  be  affixed  the  certificate  will 
be  insufficient  evidence  of  protest. 

For  the  convenience  of  trade  and  commerce,  the  certificate  of  the  notary 
who  has  protested  a  foreign  bill,  given  under  his  seal  of  office,  is  made  evidence 
of  the  protest  in  a  foreign  state,  without  any  auxiliary  support,  and  is  so 
received  in  all  courts  according  to  the  usage  and  custom  of  merchants. 

In  some  of  the  States,  the  certificates  of  the  notary,  under  his  hand  and 
official  seal,  is  by  statute  made  competent  evidence,  prima  facie,  of  the  matters 
by  him  transacted,  in  relation  to  the  presentment  and  dishonor  of  the  bill, 
and  of  notice  thereof  to  the  parties  liable. 


RECEIPT. 

A  written  acknowledgment  of  payment  of  money  or  delivery  of  chattels. 

It  is  an  admission  only. 

The  mere  acknowledgment  of  payment  made  by  a  receipt  is  not  treated  in 
law  as  binding  or  conclusive  in  any  high  degree,  it  is  presumptive  evidence 
only,  and  is,  in  general,  open  to  explanation,  being  an  exception  to  the  general 
rule  that  patrol  evidence  cannot  be  admitted  to  contradict  or  vary  a  written 
instrument.  A  party  may  always  show,  in  explanation  of  a  receipt  limited  to 
such  acknowledgment,  the  actual  circumstances  under  which  it  was  made,  c.  g., 
that  it  was  given  under  a  mistake,  or  that  no  money  was  actually  paid,  as  stated 
in  the  receipt,  or  that  it  was  obtained  by  fraud,  etc. 

A  receipt  in  full  for  part  of  an  undisputed  claim  does  not  prevent  recovery 
of  the  balance,  though  given  with  knowledge,  and  there  was  no  error  or  fraud. 
However,  when  we  find  a  receipt  acknowledging  payment  "  in  full,"  of  a 
specific  debt,  or  "  in  full  of  all  accounts,"  or  of  "  all  demands  "  the  instru- 
ment is  of  a  much  higher  and  more  conclusive  character.  It  does  not  indeed, 
like  a  release,  operate  upon  the  demand  itself,  extinguishing  it  by  any  force  or 
virtue  in  the  receipt,  but  it  is  evidence  of  a  compromise  and  mutual  settlement 
of  the  rights  of  the  parties.  It  is  inferred,  from  such  an  acknowledgment,  that 
there  has  been  a  mutual  adjustment  and  settlement  of  the  amount  due,  after 
consideration  of  the  claims  of  the  respective  parties,  and  a  payment  of  the 
specified  sum  as  a  final  satisfaction.  A  compromise  thus  shown  by  a  receipt 
will  often  operate  to  extinguish  a  demand,  although  the  creditor  may  be  able 
to  show  that  he  did  not  receive  all  that  he  justly  ought. 

Papers  showing  a  receipt  of  money  in  full  satisfaction  of  a  decree  appealed 
from,  cannot  be  varied  or  contradicted  by  parol  evidence. 

A  receipt  for  a  note  taken  in  payment  of  an  account  will  not,  in  general, 
constitute  a  defense  to  an  action  on  the  account,  unless  it  appears,  by  proof, 
that  the  creditor  agreed  to  receive  the  note  as  payment  and  take  the  risk  of  its 

being  paid. 

A  receipt  for  rent  for  a  given  term  has  been  held  to  be  prima  facie  evi- 
dence of  the  payment  of  all  rent  previously  accrued. 

A  receipt  signed  in  the  name  of  a  certain  person  by  another  person,  con- 
stitutes no  evidence  of  the  receipt  of  the  money  by  the  latter. 


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REDRAFT. 

A  bill  of  exchange  drawn  at  the  place  where  another  bill  was  made  payable 
and  where  it  was  protested,  upon  the  place  where  the  first  was  drawn,  or,  when 
there  is  no  regular  commercial  intercourse  rendering  that  practicable,  then  in 
the  next  best  or  most  direct  practical  course. 


RE-EXCHANGE. 

The  expense  incurred  by  a  bill  being  dishonored  in  a  foreign  country 
where  it  is  made  payable  and  returned  to  that  country  in  which  it  was  made  or 
indorsed  and  there  taken  up. 

The  drawer  of  a  bill  is  liable  for  the  whole  amount  of  re-exchange 
caused  by  the  circuitous  mode  of  returning  the  bill  through  the  various  coun- 
tries in  which  it  has  been  negotiated,  as  much  as  that  occasioned  by  a  direct 
return. 

In  some  States  legislative  enactments  have  been  made  which  regulate 
damages  on  re-exchange. 

SHOP-BOOKS. 

The  books  of  a  retail  dealer,  mechanic,  or  other  person,  in  which  entries 
or  charges  are  made  of  work  done,  or  goods  sold  and  delivered  to  customers, 
commonly  called  "  account-books,"  or  "  books  of  account."  The  parties  own 
shop-books  are  in  certain  cases  admissible  in  evidence  to  prove  the  delivery  of 
goods  therein  charged,  where  a  foundation  is  laid  for  their  introduction.  The 
following  are  the  general  rules  governing  the  production  of  this  kind  of  evi- 
dence : 

First,  that  the  party  offering  the  books  kept  no  clerk ; 

Second,  that  the  books  offered  by  the  party  are  his  books  of  account, 
and  that  the  entries  therein  are  in  his  handwriting: 

Third,  it  must  appear,  by  some  of  those  who  have  dealt  with  the  party 
and  settled  by  the  books  offered,  that  they  found  them  correct ; 

Fourth,  it  must  be  shown  that  some  of  the  articles  charged  have  been 
delivered. 

Where  memoranda  made  by  a  clerk  during  the  day,  are  at  night  transferred 
to  the  book  by  another,  who  did  not  know  the  truth  of  the  facts  recorded 
by  the  former,  the  book  is  not  competent  testimony  and  cannot  be  used  to 
refresh  the  memory  of  the  party  who  made  the  memoranda. 

SOLVENT. 

One  who  has  sufficient  to  pay  his  debts  and  all  obligations. 

A  person  is  solvent  who  owns  property  enough  and  so  situated  that  all 
his  debts  can  be  collected  from  it  by  legal  proceedings :  but  other  cases  hold 
that  to  be  solvent  one  must  be  able  to  pay  his  debts  in  the  ordinary  course  of 
trade. 

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TENDER. 

An  offer  to  deliver  something,  made  in  pursuance  of  some  contract  or 
obligation,  under  such  circumstances  as  to  require  no  further  act  from  the 
party  making  it  to  complete  the  transfer. 

Tender  of  money  must  be  made,  by  some  party  authorized  by  the  debtor, 
to  the  creditor  or  to  some  person  properly  authorized,  and  who  must  have 
capacity  to  receive  it,  in  lawful  coin  of  the  country,  or  paper  money  which 
has  been  legalized  for  this  purpose,  as  United  States  Treasury  notes  and 
"  greenbacks,"  or  foreign  coin  made  current  by  law. 

A  tender  in  bank  notes  will  be  good  if  not  objected  to  on  that  account, 
so  a  refusal  to  accept  a  check  for  the  sole  reason  that  it  was  insufficient  in 
amount,  is  a  waiver  of  all  objections  to  the  form  of  the  tender. 

The  exact  amount  due  must  be  tendered,  but  more  may  be  tendered,  if 
the  excess  is  not  to  be  handed  back,  yet  asking  change  does  not  vitiate  the 
tender  unless  objection  is  made  on  that  account. 

The  offer  must  be  unqualified,  as  a  tender  accompanied  with  conditions 
which  the  party  has  no  right  to  impose  is  of  no  avail. 

He  who  tenders  must  be  ready  to  pay  or  have  within  his  reach  the 
means  to  pay  and  actually  offer  to  pay.  The  money  need  not  always  be  brought 
forward  as  well  as  offered,  especially  if  the  party  to  whom  it  is  offered  refuses 
to  receive  it. 

One  who  makes  a  tender  in  order  to  stop  the  running  of  interest  must 
show  that  he  has  kept  on  hand,  so  as  to  be  constantly  ready  and  able  to  pay, 
the  amount  of  the  tender,  in  lawful  money,  at  any  time  the  creditor  should 
elect  to  take  it. 

The  tender  of  money  is  supposed  to  be  an  admission  by  the  debtor  that 
the  entire  sum  tendered  is  due  and  payable,  yet  it  is  not  conclusive  evidence 
to  that  effect,  so  where  tender  was  made  after  suit  brought,  and  the  amount 
supposed  by  the  defendant  to  be  due  was  paid  into  court,  it  was  decided  that 
the  full  amount  must  be  paid  over  to  the  plaintiff,  notwithstanding  a  much 
less  sum  was  found  by  arbitrators  to  be  due. 

The  amount  of  the  tender  must  be  stated  in  making  the  offer;  it  must 
be  made  at  a  suitable  hour  of  the  day,  during  daylight,  at  the  time  and  place 
agreed  upon,  or,  if  no  time  or  place  has  been  agreed  upon,  whenever  and 
wherever  the  person  authorized  to  receive  payment  may  be  found. 


USURY. 

The  excess,  over  the  legal  rate,  charged  to  a  borrower  for  the  use  of 
money.  It  will  be  seen  that  unless  there  is  a  law  limiting  the  rate  of  interest 
that  can  be  charged  there  can  be  no  usury. 

The  shifts  and  devices  of  usurers  to  evade  the  statutes  against  usury  have 
taken  every  shape  and  form  that  the  wit  of  man  could  devise,  but  none  have 
been  allowed  to  prevail.  Courts  have  been  and  are  astute  in  getting  at  the  true 
intent  of  the  parties  and  in  giving  effect  to  the  statutes. 


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If  a  contract  is  usurious,  no  custom  can  legalize  it,  and  the  enactment 
of  a  usury  law  cannot  affect  prior  contracts. 

A  note  void  from  usury  cannot  be  enforced  by  an  innocent  purchaser  for 
value. 

The  common  practice  of  reserving  interest  on  negotiable  paper  at  the 
time  of  making  the  loan  is  very  ancient,  and  is  sanctioned  by  law,  and  an  agree- 
ment to  pay  interest  annually  in  advance  is  not  usurious. 

To  constitute  usury,  there  must  be  a  loan  in  contemplation  of  the  parties ; 
there  must  be  a  contract  for  the  return  of  the  money  at  all  events,  and  not 
upon  a  contingency,  and  the  borrower  must  be  obliged  to  pay  more  than  the 
lawful  rate  of  interest.  But  it  matters  not  in  what  manner  the  usurious  interest 
is  to  be  paid. 

The  ordinary  commissions  allowed  by  the  usages  of  trade  may  be  charged 
without  tainting  a  contract  with  usury;  but  it  must  plainly  appear  that  the 
commissions  are  charged  for  other  services,  and  are  not  merely  a  device  to 
evade  the  law.  A  bonus  paid  to  an  agent  in  addition  to  legal  interest  renders 
the  loan  usurious,  when  such  bonus  ensures  to  the  benefit  of  the  principal 
under  the  agent's  contract.  A  commission  charged  in  addition  to  interest,  for 
advancing  money  is  usurious.  Where  a  banker  discounts  a  bill  payable  in  a 
distant  place,  he  may  charge  the  usual  rate  of  exchange  on  that  place,  but  if 
such  charge  be  in  excess  of  the  usual  rate  it  will  be  considered  a  device  to 
cover  usurious  interest. 

Interest  may  be  collected  on  interest  coupons. 

The  defense  of  usury  must  be  supported  by  clear  proof,  which  may  be 
extrinsic  to  the  contract  but  an  express  agreement  for  usury  need  not  be 
proved. 

The  one  who  has  contracted  to  pay  usury,  and  his  legal  representatives,  or 
his  surety,  may  set  up  the  defense ;  but  one  who  buys  an  equity  of  redemption 
cannot  set  up  the  defense  against  the  mortgage. 


VALUE  RECEIVED. 

A  phrase  usually  employed  in  a  bill  of  exchange  or  promissory  note,  to 
denote  that  a  consideration  has  been  given  for  it.  In  most  States  these  words 
are  not  necessary. 

This  expression  in  a  bill  of  exchange  implies  that  the  drawer  of  the  bill 
may  be  presumed  to  acknowledge  the  fact  that  he  has  received  value  of  the 
payee,  or,  when  the  bill  has  been  made  payable  to  the  order  of  the  drawer  and 
accepted,  that  value  has  been  received  by  the  acceptor.  In  a  promissory  note 
it  imports  value  received  from  the  payee,  and  sufficiently  expresses  a  considera- 
tion, although  not  necessarily  in  money. 

Extrinsic  evidence  is  admissible  between  the  immediate  parties  to  prove 
absence,  failure,  or  illegality  of  consideration. 


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COMMERCIAL  LAW  FORMS. 

To  publish  a  complete  set  of  such  legal  forms  as  are  commonly  used 
in  each  state  for  various  commercial  transactions  would  require  a  volume 
by  itself  and  is  moreover  unneccessary.  Commercial  law  forms,  adapted 
to  the  legal  and  statutory  requirements  of  each  state  are  everywhere  published 
and  may  be  obtained  for  a  small  sum  at  a  stationer's.  The  forms  here  given 
are  mainly  for  the  purpose  of  illustrating  and  making  clear  certain  principles 
underlying  commercial  transactions  as  found  in  the  text,  rather  than  as 
models  to  be  followed  in  particular  cases.  It  must  be  remembered  that  a 
form  prepared  for  use  in  one  state,  may  not  be  adapted  to  use  under  the  laws 
of  another  state.  Familiarity  with  the  law  and  with  law  forms  is,  however, 
necessary  to  the  proper  use  of  printed  blanks,  and  illustrations  are  here  given 
of  the  principal  commercial  law  forms  completely  filled  out  to  fit  certain  hypo- 
thetical transactions.  Business  men  and  students  who  have  wrestled  with 
printed  blanks  will  readily  appreciate  the  value  of  the  fully  drawn  illustra- 
tive fonns  herein  contained. 

I.    -\  simple  contract. 

Agreement  entered  into  this  loth  dav  of  March,  A.  D.  1900.  between 
John  Doe,  party  of  the  first  part,  and  Richard  Roe,  party  of  the  second  part. 

Witnesseth,  that  the  party  of  the  first  part,  in  consideration  of  the 
agreement  of  the  party  of  the  second  part,  hereinafter  set  forth,  agrees  to 
deliver  to  the  said  party  of  the  second  part  at  his  place  of  business  in  New 
York  City,  on  or  before  May  15,  1909,  ten  tons  of  No.  1  express  wrapping 
paper,  freight  prepaid. 

The  said  second  party  in  consideration  of  the  agreement  of  the  said 
first  party,  hereby  agrees  to  pay  to  the  said  first  party  the  sum  of  six  hundred 
dollars  on  or  before  thirty  days  after  the  receipt  of  said  paper,  and  agrees 
to  honor  a  thirty  day's  draft  for  the  said  amount  upon  receipt  of  goods. 

John  Doe. 
Richard   Roe. 

IT.       AN    indemnity    HOND, 

Know  All  Men  by  These  Presents.  That John  Doe, 

as  principal,  and Richard  Roe  and  Samuel  White,  as 

sureties,  are held  and  firmly  bound   unto  the   Smith 

Harvester  Company,  a  corporation,  in  the  sum  of  Five  Thousand  Dollars 
('•$5,000.00)  lawful  money  of  the  United  States  of  America,  to  be  paid  to 
the  said  Smith  Harvester  Company,  or  to  its  certain  attorney,  successors  or 
assigns,  to  which  payment  well  and  truly  to  be  made,  we  bind  ourselves,  heirs, 
executors  and  adminstrators,  and  each  and  every  one  of  them,  firmly  by  these 
presents. 

Sealed  with  our  seals,  dated  the  first  day  of  March,  A.  D.  1909. 

The  Condition  of  this  Obligation  is  such,  Th!it  if  the  said  John  Doe,  his 
heirs,  executors,  administrators  or  assigns,  shall  pay  or  cause  to  be  paid  to 
the  said  Smith  Harvester  Company,  on  or  before  the  first  day  of  May,  A.  D. 

1412 


1909,  the  sum  of  twenty-five  hundred  ($2,500.00)  dollars  due  from  the  said 
John  Doe  to  the  said  Smith  Harvester  Company,  then  this  obligation  is  to 
be  void,  otherwise  to  remain  in  full  force. 

John  Doe. 

Richard  Rok. 

Samuel  White. 
Signed  Sealed  and  Delivered 

in  Presence  of 
George  Brown. 
Daniel  Scott. 


L.  S. 
L.  S. 
L.  S. 


State  of  Michigan 


•  ss. 


County  of  Wayne 

Richard  Roe  and  Samuel  White,  of  the  City  of  Detroit,  in  said  County 
of  Wayne,  the  sureties  named  in  and  who  signed  the  within  and  foregoing 
bond,  being  duly  sworn,  each  for  himself  deposes  and  says  that  he  is  worth 
in  unincumbered  property,  not  exempt  from  execution  under  the  laws  of  this 
State,  the  sum  of  Five  Thousand  ($5,000.00)  Dollars,  after  payment  of  all 
just  debts,  claims  and  liabilities. 

Richard   Roe. 
Samuel   White. 
Subscribed  and  sworn  to  before  me.  this  1st  day  of  March,  A.  D.  19(>9. 

John  E.  Jones, 
Notary  Public,  Wayne  County.  Mich. 
]\Iy  commission  expires  Dec.  oO.  1910. 


III.    a  power  of  attorney. 

Know  All  Men  p.y  These  Presents.  That  I,  Richard  Roe.  have  made, 
constituted  and  appointed,  and  By  These  Presents,  do  make,  constitute  and 
appoint  John  Doe  my  true  and  lawful  Attorney  for  me  in  my  name,  place 
and  stead,  to  lease,  sell,  or  make  any  other  disposition  of  any  and  all  real 
estate  of  which  I  may  be  possessed,  and  to  sign,  seal  and  deliver  any  agree- 
ment, lease,  land  contract,  quit-claim  or  warranty  deed  to  all  persons  who 
shall  lease,  purchase  or  agree  to  purchase  any  of  the  said  lands  and  premises 
or  parts  thereof,  and  in  due  form  of  law  to  acknowledge  any  instrument 
necessary  to  the  proper  leasing  or  conveyance  of  said  lands  and  i^remises 
or  any  part  thereof,  giving  and  granting  unto  John  Doe,  my  said  Attorney, 
full  power  and  authority  to  do  and  perform  all  and  every  act  and  thing 
whatsoever  requisite  and  necessarj'  to  be  done  in  and  about  the  premises,  as 
fully  to  all  intents  and  purposes,  as  I  might  or  would  do  if  personally  i^resent. 
with  full  power  of  substitution  and  revocation,  hereby  ratifying  and  con  finn- 
ing all  that  my  said  Attorney  or  his  substitute  shall  lawfully  do  or  cause  to 
be  done  by  virtue  hereof. 

In  Witness  Whereof.  I  have  hereunto  set  my  hand  and  seal  the  10th  day 

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Richard  Roe. 


L.  S. 


of  March,  one  thousand  nine  hundred  and  nine. 
Sealed  and  Dehvered  in 

Presence  of 
Samuel  White. 
George  Brown. 

State  of  Michigan  1 

j-ss. 
County  of  Wayne    J 

Be  it  Known,  That  on  this  tenth  day  of  March,  one 
thousand  nine  hundred  nine,  before  me,  a  Notary  PubHc  in 
and  for  said  County,  personally  appeared  Richard  Roe  above 
named,  who  is  to  me  known  to  be  the  person  described  in 
and  who  executed  the  above  Letter  of  Attorney,  and  acknowl- 
edged the  same  to  be  his  own  free  act  and  deed. 

John  E.  Jones, 
Notary  Public,  Wayne  County,  Mich. 

My  commission  expires  Dec.  30,  1910. 


IV.     ARTICLES  OF  CO-PARTNERSHIP. 

Articles  of  Agreement,  Made  the  second  day  of  January,  in  the  year 
one  thousand  nine  hundred  nine,  between  John  Doe  and  Richard  Roe,  wit- 
nesseth  as  follows : 

The  said  parties  above  named  have  agreed  to  become  co-partners  in 
business,  and  by  these  presents  do  agree  to  become  co-partners  together  under 
the  firm  and  partnership  name  of  John  Doe  and  Company,  for  the  purpose  of 
conducting  a  general  retail  boot  and  shoe  business,  the  said  partnership  to 
commence  on  the  second  day  of  January',  A.  D.  1909,  and  to  continue  for 
three  years  thereafter. 

To  that  end  and  purpose  the  said  John  Doe  has  contributed  the  stock  of 
boots  and  shoes  now  owned  by  him  and  located  at  the  store  known  as  130  Main 
Street,  of  the  value  of  Ten  Thousand  Dollars,  and  the  said  Richard  Roe 
has  contributed  the  sum  of  Five  Thousand  Dollars  in  cash,  the  capital  stock 
so  formed  to  be  used  and  employed  in  common  between  them,  for  the  sup- 
port and  management  of  the  said  business,  and  to  their  mutual  benefit  and 
advantage. 

It  is  agreed  by  and  between  the  parties  hereto  that  at  all  times  during 
the  continuance  of  their  co-partnership  they  and  each  of  them  will  give 
their  personal  attention  to  the  said  business,  and  will  to  the  utmost  of  their 
skill  and  power  exert  themselves  for  their  joint  interest,  profit,  benefit  and 
advantage,  in  the  said  business. 

It  is  Also  Agreed  by  and  between  the  parties  hereto,  that  they  shall  and 
will  at  all  times  during  the  said  co-partnership,  bear,  pay,  and  discharge  equally 
between  them,  all  rents  and  other  expenses  that  may  be  required  for  the 
support  and  management  of  the  said  business ;  and  that  all  gains,  profits  and 

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increase  that  shall  grow  or  arise  from  or  by  means  of  the  said  business,  shall 
be  divided  between  them  as  follows:  Two-thirds  to  the  said  John  Doe  and 
one-third  to  the  said  Richard  Roe. 

It  is  Also  Agreed  by  and  between  the  parties  hereto,  that  there  shall  be 
had  and  kept  at  all  times  during  the  continuance  of  their  said  co  partnership, 
perfect,  just  and  true  books  of  account;  which  said  books  shall  be  used  in 
common  between  the  said  partners,  so  that  either  of  them  may  have  access 
thereto,  without  any  interruption  or  hindrance  from  the  other. 

And  also,  that  the  said  partners,  once  in  every  six  months  or  oftener,  if 
necessary,  shall  make,  yield,  and  render,  each  to  the  other,  a  true,  just  and 
perfect  inventory  and  account  of  all  profits  by  them  or  either  of  them  made, 
and  of  all  losses  by  them  or  either  of  them  sustained,  and  such  inventory  and 
account  being  so  made,  the  said  parties  shall  and  will  adjust,  pay  and  deliver, 
each  to  the  other,  at  the  time,  their  just  share  of  the  profits,  and  pay  and  bear 
their  just  share  of  the  expenses  and  losses  so  made  as  aforesaid. 

It  is  also  agreed  by  and  between  the  parties  hereto,  that  during  the  con- 
tinuance of  the  said  co-partnership  neither  of  them  shall  nor  will  indorse 
any  note,  or  otherwise  become  surety  for  any  person  or  persons  whomsoever, 
without  the  consent  of  the  other  of  the  said  partners. 

It  is  Also  Agreed  by  the  parties  hereto,  that  in  case  of  the  violation  of 
any  of  the  foregoing  covenants  and  obligations  by  either  of  the  parties  hereto, 
the  party  not  in  default  may,  at  his  option,  dissolve  the  said  partnership,  by 
giving  the  party  in  default  thirty  days'  previous  notice  in  writing  of  his  election 
so  to  do. 

In  Witness  Whereof,  the  parties  hereto  have  hereunto  set  their  hands  and 
seals,  the  day  and  year  first  above  written. 

John  Doe. 
Richard  Roe. 

v.    notice  of  dissolution  of  partnership. 

Take  notice  that  the  firm  of  John  Doe  and  Company,  doing  a  general 
retail  boot  and  shoe  business  at  130  Main  Street,  Ann  Arbor,  Alichigan,  is  this 
day  dissolved.  All  debts  due  the  firm  are  payable  to  John  Doe,  who  also 
assumes  all  obligations  and  indebtedness  of  the  firm  and  will  continue  the 
business  at  the  above  address. 

John  Doe. 

Richard  Roe. 
Dated,  Ann  Arbor,  January  2,  1910. 


VI.      A  NEGOTIABLE  PROMISSORY  NOTE. 

$500.00.                                                                    New  York.  February  ??,  1909. 
Thirty  days  after  date  I  promise  to  pay  to  the  order  of  Richard  Roe 

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Five  Hundred Dollars 

at  the  First  National  Bank,  New  York. 

Value  received  with  interest  at  (>  per  cent,  per  annum. 

John  Doe. 

VII.      BILL   OF   exchange   OR   DRAFT. 

$100.00.  Boston.  May  1.  1000. 

Thirty  days  after  date  pay  to  John  Doe  or  order.  One  Hundred  Dollars, 
yalue  received,  and  charge  to  the  account  of 

To  Smith  and  Jones,  Richard  Roe. 

New  York  City. 

VIII.    check. 

Grand  Rapids.  Mich., June  1,  1008.  No.  043. 

Grand  Rapids  Savings  Bank. 

Pay  to  order  of  Richard  Roe .$5-i. 43/ 100 

FJ^ty-two  and  43/100 Dollars. 

John  Doe. 

IX.    certificate  of  deposit. 

Philadelphia,  March  fi,  1000. 
The  William  Penn  Trust  Company. 
$200.00. 

John   Doe   has   deposited   at   the   William    Penn   Trust   Company,   Two 

Hundred   •  .  ■    Dollars 

payable  to  himself  or  order  upon  the  return  of  this  certificate,  with  interest  at 
2%  per  annum. 

The  William  Penn  Tru.st  Company. 

By  Richard  Roe,  Cashier. 

X.      articles  of  INCORPOILVTION    (ILLINOIS.) 


American  Business  and  Accounting  Encyclopedia 


State  of  Illinois  1 


ss. 


Cook  County     J 
To  James  A.  Rose.  Secretary  of  State: 

We,  the  undersigned,  John  Doe,  Richard  Roe,  and  Samuel  White,  pro- 
pose to  form  a  corporation  under  an  Act  of  the  General  Assembly  of  the 
State  of  Illinois,  entitled  "  An  Act  Concernnig  Corporations,"  approved  April, 
18,  187?.  and  all  acts  amendatory  thereof :  and,  for  the  puq^ose  of  such  organ- 
ization we  hereby  state  as  follows,  to-wit : 

1.  The  name  of  such  corporation  is — ^The  Chicago  Millinery  Company. 

2.  The  object  for  which  it  is  formed  is  to  engage  in  the — general  manu- 

facture and  sale  of  millinery. 

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3. 
4 


5. 
6. 


7. 


The  capital  stock  shall  be  Ten  Thousand  Dollars. 

The  amount  of  each  share  is  Twenty-five  Dollars. 

The  number  of  shares  is  F'our  Hundred. 

The  location  of  the  principal  office  is  Chicago,  in  the  County  of  Cook. 

State  of  Illinois. 
The  duration  of  the  corporation  shall  be  Fifty  \>ars. 

John  Doe. 

Richard  Roe. 

Samuel  White. 
State  of  Illinois 

•ss. 
Cook  County 

J 

I.  John  E.  Jones,  a  Notary  Public  in  and  for  the  County  and  State 
aforesaid,  do  hereby  certify  that  on  the  14th  day  of  March,  A.  D.  10D!>.  person- 
ally appeared  before  me,  John  Doe,  Richard  Roe  and  Samuel  White,  to  me 
personally  known  to  be  the  same  persons  who  executed  the  foregoing  state- 
ment, and  severally  acknowledged  that  they  executed  the  same  for  the  purposes 
therein  set  forth. 

In  Witness  Whereof,  I  have  hereunto  set  my  hand  and  seal  the  day 
and  year  above  written. 

John  E.  Jones. 
Notary  Public. 

ft 

XI.      articles  of  incorporation   (MICHIGAN.) 

(common  and  preferred  stock) 
(cumulative  dividends) 

ARTICLES  OF  ASSOCIATION 

of 

The  Commercial  Auto.moijile  Company. 

We,  the  undersigned,  desirous  to  become  incor|x>rated  under  the.  pro- 
visions of  Act  No.  IWl,  of  the  Public  Acts  of  1003,  entitled  "  An  act  to  revise 
and  consolidate  the  laws  providing  for  the  incorporation  of  manufacturing 
and  mercantile  companies  or  any  union  of  the  two,  and  for  the  incoqwration 
of  companies  for  carrying  on  any  other  lawful  business,  e.xcept  such  as  are  pre- 
cluded from  organization  under  this  act  by  its  express  provisions,  and  to  pre- 
scribe the  powers  and  to  fix  the  duties  and  liabilities  of  such  corporations," 
and  the  acts  amendatory  thereof  and  supplementary  thereto,  do  hereby  make, 
execute  and  adopt  the  following  articles  of  association,  to-wit : 

Artlcle  I. 

The  name  assumed  by  this  association,  and  by  which  it  shall  be  known  in 
law,  is 

The  Commercial  Automop.ile  Company. 

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Article  II. 

The  purpose  or  purposes  of  this  corporation  are  as  follows: 
The  manufacture  and  sale  of  commercial  motor  vehicles,  gasoline  engines, 
and  automobile  parts. 

Article  III. 

The  principal  place  at  which  operations  are  to  be  conducted  is  at  Detroit, 
in  the  County  of  Wayne,  State  of  Michigan. 

Article  IV. 

The  capital  stock  of  the  corporation  hereby  organized  is  the  sum  of  Three 
Hundred  Thousand  Dollars,  of  which  One  Hundred  Thousand  Dollars  shall 
be  common  stock,  and  Two  Hundred  Thousand  Dollars  shall  be  preferred 
stock.  The  preferred  stock  shall  be  subject  to  redemption  at  par  on  the  first 
day  of  July,  A.  D,  1914,  and  the  holder  shall  be  entitled  to  a  dividend  of  6 
per  cent,  per  annum,  payably  semi-annually,  which  shall  be  cumulative  and 
payable  before  any  dividend  shall  be  set  apart  or  paid  on  the  common  stock. 
The  preferred  stockholders  shall  be  entitled  to  vote  for  directors. 

Article  V. 

The  number  of  shares  into  which  the  capital  stock  is  divided  is  Thirty 
Thousand  of  the  par  value  of  Ten  Dollars  each. 

Article  VI. 

The  amount  of  common  stock  subscribed  is  Fifty  Thousand  Dollars.  The 
amount  of  preferred  stock  subscribed  is  One  Hundred  Thousand  Dollars. 


Article  VII. 

The  amount  of  common  stock  actually  paid  in  is  the  sum  of  Twenty-five 
Thousand  Dollars,  of  which  Twenty-five  Thousand  Dollars  has  been  paid  in 
cash,  and no dollars  has  been  paid  in  other  property. 

The  amount  of  preferred  stock  actually  paid  in  is  the  sum  of  Fifty  Thou- 
sand Dollars,  of  which  Fifty  Thousand  Dollars  has  been  paid  in  cash,  and 
no dollars  has  been  paid  in  other  property. 

Article  VIII. 

The  ofiice  in  the  State  of  ^lichigan  for  the  transaction  of  business  shall  be 

kept  at 

Detroit,  Wayne  County,  Michigan. 


Article  TX. 

The  term  of  existence  of  this  corporation  is  fixed  at  thirty  years  from  the 
date  hereof. 


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American  Business  and  Accounting  Encyclopedia 

Article  X. 

The  names  of  the  stockholders,  their  respective  residences,  and  the  number 
of  shares  of  stock  subscribed  for  by  each  are  as  follows : 


Names. 


Residence. 


John  Doe 
Richard  Roe 
John  White 
Samuel  Jones 
Richard  Flint 


No.  OF  Shares. 
Common     Preferred. 


Detroit,  Mich.  50                   100 
Ann  Arbor.  Mich.  100                   300 
Detroit,  Mich.  50                   100 
New  York  City.  25 
Philadelphia,  Pa.  25 
In  Witness  Whereof,  We,  the  parties  hereby  associating,  for  the  pur- 
pose of  giving  legal  eflfect  to  these  articles,  hereunto  sign  our  names,  this  1st 
day  of  April,  A.  D.  1909. 

John  Doe. 
Richard  Roe. 
John  White. 
Samuel  Jones. 

Richard   Flint. 
State  of  Michigan  ] 

[ss. 
County  of  Wayne   J 

On  this  first  day  of  April,  1909,  before  me.  a  Notary  Public  in  and  for 
said  County,  personally  appeared  John  Doe,  Richard  Roe,  John  White,  Samuel 
Jones  and  Richard  Flint,  known  to  me  to  be  the  persons  named  in,  and  who 
executed  the  foregoing  instrument,  and  severally  acknowledged  that  they  ex- 
ecuted the  same  freely  and  for  the  intents  and  purposes  therein  mentioned. 

John  Davis, 
Notary  Public,  Wayne  Co.,  Mich. 
My  commission  expires  Dec.  29,  1910. 

xiT.    waiver  of  notice  of  stockholder's  meeting. 

We,  the  undersigned,  being  all  of  the  stockholders  and  incorporators  of 
the  Commercial  Automobile  Company,  do  hereby  waive  the  statutor>^  notice 
of  first  meeting  of  stockholders  and  publication  of  the  same  and  consent 
that  such  meeting  be  held  on  the  10th  day  of  April,  1909.  at  32fi  Majestic  Bldg., 
Detroit. 

John  Doe. 

Richard  Roe. 

John  White. 

Samuel  Jones. 

Richard   Flint. 
Detroit,  April  5,  1909. 

xiir.    certificate  of  stock. 
Incorporated  Under  the  Laws  of  the  State  of  Michigan. 


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Commercial  Automop.ile  Company. 
Capital  Stock  $300,000. 


■  Number 

lOi. 
Fully  Paid. 


Shares 
50 

Non-Assessable. 


E 


This  Certifies  That  John  Doe  is  the  owner  of  Fifty  Shares  of  the 

Capital  stock  of  the 

Commercial  Automobile  Company. 
transferable  only  on  the  books  of  the  Corporation  by  the 
S  holder  hereof  in  person  or  by  Attorney  upon  surrender 

of  this  Certificate  properly  endorsed. 

In  Witness  Whereof,  the  said  Corporation  has 
caused  this  certificate  to  be  signed  by  its  duly  authorized 
officers  and  to  be  sealed  with  the  Seal  of  the  Corpo- 
ration this  15th  day  of  April,  A.  D.  1909. 

John  Doe, 

President. 
Shares  $10  Each. 


L. 


Richard  Roe. 

Secretary. 


XIV.    bill  of  sale. 

Know  All  Men  by  These  PRESENTS,That  John  Doe,  of  the  City  of 
Detroit,  in  the  County  of  Wayne,  and  State  of  Michigan,  of  the  first  part, 
and  in  consideration  of  the  sum  of  Nine  Hundred  and  Fifty  Dollars,  lawful 
money  of  the  United  States,  to  him  paid  by  Richard  Roe,  of  the  second 
part,  the  receipt  whereof  is  hereby  acknowledged,  has  bargained  and  sold,  and 
by  these  presents  does  grant  and  convey,  unto  the  said  party  of  the  second 
part  his  executors,  administrators  or  assigns,  all  the  following  goods  and 
chattels,  to-wit :  One  Eagle  Automobile,  manufacturer's  number  6432,  belong- 
ing to  him  and  now  in  his  possession  at  300  Ferry  Ave.,  Detroit. 

To  Have  and  to  Hold  the  same  unto  the  said  party  of  the  second  part, 
his  executors,  administrators  and  assigns.  Forever.  And  the  said  party  of 
the  first  part,  for  himself,  heirs,  executors  and  administrators,  does  covenant 
and  agree  to  and  with  the  said  party  of  the  second  part,  his  executors,  admin- 
istrators and  assigns,  to  \\^arrant  and  Defend  the  sale  hereby  made  of  said 
property,  goods  and  chattels,  unto  the  said  party  of  the  second  part,  his 
executors,  administrators  and  assigns,  against  all  and  every  person  or  persons 
whatsoever. 

In   Witness  Whereof,   I   have   set  my  hand   and   seal   this   19th   day   of 
February,  A.  D.  1909. 
Signed.  Sealed  and  Delivered  in  John  Doe.  L.  S. 

Presence  of 
Mary  Smith. 
George  Brown.  i 


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XV.      CHATTEL   MORTGAGE. 


(power  OF  SALE,   INSECURITY   CLAUSES.) 

Know  All  Men  by  These  Presents,  That  Richard  Roe,  party  of  the 
iirst  part,  being  justly  indebted  unto  John  Doe,  party  of  the  second  part,  in 
the  sum  of  Two  Hundred  and  Fifty  Dollars,  has,  for  the  purpose  of  securing 
payment  of  said  debt,  and  the  interest  thereof,  granted,  bargained,  sold  and 
mortgaged,  and  by  these  presents  does  grant,  bargain,  sell  and  mortgage  unto 
the  said  party  of  the  second  part,  the  following  goods,  chattels  and  personal 
property,  to-wit: 

One  Eagle  Automobile,  manufacturer's  number  643'?,  which  said  alxn-e 
described  goods,  chattels  and  property  at  the  date  hereof,  are  situate  at 
306  Ferry  Avenue,  in  the  City  of  Detroit,  Wayne  County.  Michigan,  and 
are  free  and  clear  from  all  liens,  conveyances,  incumbrances  and  levies,  and 
for  a  valuable  consideration  he  hereby  warrants  the  above  representations  to 
be  true. 

To  Have  and  to  Hold  the  Same  Forever.  Provided,  always,  and  the 
condition  of  these  presents  is  such  that  if  the  said  party  of  the  first  part  shall 
pay  or  cause  to  be  paid  to  the  said  party  of  the  second  part  the  said  sum  of 
two  hundred  and  fifty  dollars,  being  the  debt  aforesaid,  with  interest  thereon 
at  the  rate  of  six  per  cent,  per  annum,  according  to  the  terms  of  a  certain 
promissory  note  bearing  even  date  herewith,  executed  by  said  Richard  Roe  to 
said  party  of  the  second  part,  and  to  which  this  mortgage  is  collateral  security, 
then  this  mortgage  and  said  promissory  note  shall  be  void  and  of  no  eflfect. 
And  the  said  party  of  the  first  part  agrees  to  pay  the  same  accordingly.  But 
if  default  be  made  in  such  payment,  the  said  party  of  the  second  part  is 
hereby  authorized  to  and  shall  sell  at  public  auction,  after  the  like  notice  as 
is  required  by  law  for  constables'  sales,  the  goods,  chattels  and  personal  prop- 
erty hereinbefore  mentioned,  or  so  much  thereof  as  may  be  necessary  to  satisfy 
the  said  debt,  interest  and  reasonable  expenses,  and  to  retain  the  same  out  of 
the  proceeds  of  such  sale,  the  overplus  or  residue,  if  any,  to  belong  to  and  to 
be  returned  to  the  said  Richard  Roe. 

And  the  said  party  of  the  second  part  is  hereby  authorized  at  any  time 
when  he  shall  deem  himself  insecure,  or  if  the  said  party  of  the  first  part 
shall  sell,  assign  or  dispose  of,  or  attempt  to  sell,  assigii  or  dispose  of,  the 
whole  or  any  j^art  of  the  said  goods  and  chattels,  or  remove  or  attempt  to 
remove  the  whole  or  any  part  thereof  from  the  said  City  of  Detroit,  without 
the  written  assent  of  the  party  of  tiie  second  part,  then  and  from  thenceforth 
it  shall  and  may  be  lawful  for  the  said  party  of  the  second  part,  his  executors, 
administrators  or  assigns,  or  his,  her  or  their  authorized  agents,  to  enter  upon 
the  premises  of  the  said  party  of  the  first  part  or  any  place  or  places  where 
goo(h  and  chattels,  or  any  part  thereof,  may  be,  and  take  possession  thereof 
and  the  same  retain  in  some  convenient  place,  at  the  risk  and  expense  of  the 
said  party  of  the  first  part  until  the  said  sum  of  money  shall  become  due  as 

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aforesaid,  and  then  to  dispose  of  the  same  in  the  manner  above  specified. 

In  Witness  Whereof,  the  said  party  of  the  first  part  has  hereunto  set 
his  hand  and  seal  the  oth  day  of  April,  A.  D.  1909. 

Signed,  Sealed  and  Delivered  in  Richard  Roe.  Seal. 

Presence  of 
Samuel  White. 
Mary  Smith. 


State  of  Michigan  1 


I 


ss. 


County  of  Wayne 

Richard  Roe,  being  duly  sworn  deposes  and  says  that  he  is  the  mortgagor 
named  in  the  annexed  chattel  mortgage,  that  he  has  knowledge  of  the  facts 
and  that  the  consideration  of  said  instrument  was  actual  and  adequate  and 
that  the  same  was  given  in  good  faith  for  the  purposes  therein  set  forth. 

Richard  Roe. 

Subscribed  and  sworn  to  before  me  this  5th  day  of  April,  1909. 

John  E.  Jones, 
Notary  Public,  Wayne  Co.,  Mich. 
My  commission  expires  Dec.  30,  191(\ 


XVI.     warranty  deed. 

This  Indenture,  Made  this  twelfth  day  of  March,  in  the  year  of  our 
Lord  one  thousand  nine  hundred  and  nine  Between  John  Doe  and  Mary  Doe, 
his  wife,  of  the  first  part,  and  Richard  Roe  of  the  second  part. 

Witnesseth,  That  the  said  parties  of  the  first  part,  for  and  in  consideration 
of  the  sum  of  Three  Thousand  ($3,000.00)  Dollars,  to  them  in  hand  paid 
by  the  said  party  of  the  second  part,  the  receipt  whereof  is  hereby  confessed 
and  acknowledged,  do  by  these  presents  grant,  bargain,  sell,  remise,  release, 
alien  and  confirm  unto  the  said  party  of  the  second  part,  and  his  heirs  and 
assigns.  Forever,  all  that  certain  piece  or  parcel  of  land,  situate  and  being 
in  the  City  of  Detroit,  County  of  Wayne  and  State  of  Michigan,  and  described 
as  follows,  to-wit: 

Lot  twenty-six  (26)  of  Block  two  (2)  of  the  subdivision  of  the  north  part 
of  lots  one  (1)  and  two  (2)  of  Morse's  Sub-division  of  the  Mullet  Farm, 
according  to  the  recorded  plat  thereof,  Wayne  County  Records. 

Together  with  all  and  singular  the  hereditaments  and  appurtenances  thereto 
belonging  or  in  anywise  appertaining :  To  Have  and  to  Hold  the  said  premises, 
as  described,  with  the  appurtenances,  unto  the  said  party  of  the  second  part, 
and  to  his  heirs  and  assigns.  Forever,  And  the  said  John  Doe  and  Mary  Doe, 
his  wife,  parties  of  the  first  part,  their  heirs,  executors  and  administrators,  do 

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covenant,  grant,  bargain  and  agree  to  and  with  the  said  party  of  the  second 
part,  his  heirs  and  assigns,  that  at  the  time  of  the  ensealing  and  delivery  of 
these  presents  they  are  well  seized  of  the  above  granted  premises  in  Fee  Simple ; 
that  they  are  free  from  all  incumbrances  whatever,  except  a  mortgage  for  one 
thousand  dollars,  due  to  the  People's  State  Bank,  and  that  they  will,  and  their 
heirs,  executors  and  administrators  shall  Warrant  and  Defend  the  same  against 
all  lawful  claims  whatsoever,  except  the  said  mortgage. 

In  Witness  Whereof,  The  said  parties  of  the  first  part  have  hereunto  set 
their  hands  and  seals  the  day  and  year  first  above  written. 
Signed,  and  Delivered  in 

Presence  of 
Mary  Smith.  John  Doe.         L.  S. 

Samuel  White.  •  Mary  Doe.        L.   S. 

State  of  ^Iichigan  1 

[  ss. 
County  of  Wayne    j 

On  this  thirteenth  day  of  March,  in  the  year  one  thousand  nine  hundred 
and  nine,  before  me.  Notary  Public,  in  and  for  said  County,  personally  ap- 
peared John  Doe  and  Mary  Doe,  to  me  known  to  be  the  same  persons  described 
in  and  who  executed  the  within  instrument,  who  severally  acknowledged 
the  same  to  be  their  free  act  and  deed. 

John  E.  Jones. 
Notary-  Public,  Wayne  Co.,  Mich. 
My  commission  expires  Dec.  30,  1910. 

XVII.     QUIT-CLAIM  DEED. 

This  Indenture,  ]\Iade  this  twelfth  day  of  March,  one  thousand  nine 
hundred  nine.  Between  John  Doe  and  Mary  Doe  his  wife,  of  the  first  part, 
and  Richard  Roe  of  the  second  part, 

WITNESSETH,  That  the  said  parties  of  the  first  part,  for  and  in  con- 
sideration of  the  sum  of  One  Dollar  to  them  in  hand  paid  by  the  said  party  of 
the  second  part,  the  receipt  whereof  is  hereby  confessed  and  acknowledged, 
do  by  these  presents,  grant,  bargain,  sell,  remise,  release  and  forever  Quit- 
Claim  unto  the  said  party  of  the  second  part,  and  to  his  heirs  and  assigns. 
Forever,  all  that  certain  piece  or  parcel  of  land,  situated  in  the  City  of  Detroit, 
in  Wayne  County,  and  State  of  Michigan,  known  and  described  as  follows : 

Lot  Twenty-six  ^26)  of  Block  two  (2)  of  the  subdivision  of  the  north 
part  of  lots  one  (1)  and  two  (2)  of  Morse's  Sub-division  of  the  Mullett 
Farm,  according  to  the  recorded  plat  thereof,  Wayne  County  Records. 

Together  with  all  and  singular  the  hereditaments  and  appurtenances 
thereunto  belonging  or  in  anywise  appertaining;  To  Have  and  To  Hold  the 
said  premises  to  the  said  party  of  the  second  part,  and  to  his  heirs  and  assigns, 
to  the  sole  and  only  proper  use,  benefit  and  behoof  of  the  said  party  of  the 
second  part,  his  heirs  and  assigns,  Forever. 


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In  Witness  Whereof,  the  said  parties  of  the  first  part  have  hereunto 
set  their  hands  and  seals  the  day  and  year  first  above  written. 
Signed,  Sealed  and  Delivered  in  John  Doe. 

Presence  of  Mary  Doe. 

Mary  Smith. 
Samiel  White. 


State  of  Michigan 


■ss. 


County  of  Wayne 

On  this  thirteenth  day  of  March,  one  thousand  nine  hundred  nine,  before 
me,  the  subscriber,  a  Notary  IHiblic  in  and  for  said  County,  personally  ap- 
peared John  Doe  and  Mary  Doe,  to  me  known  to  be  the  same  persons  described 
in  and  who  executed  the  within  instrument,  and  severally  acknowledged  the 
same  to  be  their  free  act  and  deed. 

John  E.  Jones. 
Notary  Public,  Wayne  Co.,  Mich. 
My  coiTMTiission  expires  Dec.  30,  1910. 


XVTII.      REAL  ESTATE  MORTGAGE. 
(power   OF   .SALE   CLAUSE.) 

This  Mortgage,  Made  the  twelfth  day  of  ^March,  in  the  year  one  thousand 
nine  hundred  and  nine. 

WITNESSETH,  That  John  Doe  and  Mary  Doe,  his  wife,  Mortgagors, 
mortgage  and  warrant  to  Richard  Roe,  Mortgagee,  his  heirs  and  assigns,  the 
parcel  of  land  situated  in  the  City  of  Detroit,  in  the  County  of  Wayne  and 
State  of  Michigan,  and  described  as  follows,  to-wit: 

Lot  Twenty-six  (26)  of  Block  two  (2)  of  the  subdivision  of  the  north 
part  of  lots  one  (1)  and  two  (2)  of  the  Mullet  Farm,  according  to  the 
recorded  plat  thereof,  \\  ayne  County  Records. 

Together  with  the  hereditaments  and  appurtenances  thereof,  to  secure  the 
payment  of  the  principal  sum  of  One  Thousand  ($1,000.00)  Dollars,  and 
interest  thereon  from  date  at  the  rate  of  six  per  cent,  per  annum,  payable  semi- 
annually, until  the  full  payment  of  said  principal  sum,  according  to  the  terms 
of  a  promissory  note  bearing  even  date  herewith,  executed  by  John  Doe  and 
Mary  Doe,  to  said  Mortagee. 

And  It  Is  Hereby  Expressly  Agreed,  by  and  between  the  parties  hereto, 
as  a  part  hereof: 

1st.  That  said  Mortgagors,  within  thirty  days  from  the  time  the  same 
become  due  and  payable,  will  pay  all  taxes  and  assessments  which  shall  be 
levied  or  placed  upon  the  said  land. 

2nd.  That  said  Mortgagors  will,  while  the  mortgage  debt  remains  unpaid, 
keep  all  buildings  upon  the  mortgaged  premises  insured  against  loss  and 
damage  by  fire,  by  insurers,  and  in  amount  approved  by  the  Mortgagee,  with 


the  insurance  money,  in  case  of  loss,  made  payable  in  the  policy  thereof  to  the 
Mortgagee  or  his  assigns  as  his  mortgage  interest  may  appear,  and  deliver,  as 
issued,  to  the  Mortgagee  to  be  kept  by  him  all  policies  of  such  insurance,  and 
pay,  on  their  issue,  the  premium  for  same. 

3d.  That  if  the  Mortgagors  make  default  in  the  payment  of  any  of  the 
aforesaid  taxes,  or  assessments,  or  premiums  as  above  covenanted  and  agreed, 
said  Mortgagee,  or  holder  of  the  mortgage  may  pay  the  same,  and  that  the 
sum  or  sums  so  paid  shall,  from  the  time  of  their  payment,  be  due  and  payable 
hereon  as  part  of  the  mortgage  debt,  with  interest. 

4th.  That  should  default  be  made  in  the  payment  of  the  principal,  or  of 
any  installment  of  interest  when  the  same  becomes  due  and  payable  or  of 
any  taxes  or  assessments  when  the  same  are  payable,  as  above  provided,  and 
should  the  same  or  any  part  thereof  remain  unpaid  for  a  period  of  thirty  days, 
then,  and  from  thenceforth,  the  aforesaid  principal  sum,  with  all  arrearages  of 
interest,  shall  at  the  option  of  said  ^Mortgagee,  his  legal  representatives,  or 
assigns,  become  and  be  payable  therefrom  and  thereafter. 

5th.  That  upon  default  being  made  in  the  payment  of  principal  or  interest 
hereon  or  of  any  part  thereof,  at  the  time  the  same  becomes  due  and  payable 
according  to  the  terms  hereof,  the  said  Mortgagee,  his  legal  representatives 
and  assigns,  are  hereby  authorized  and  empowered  to  grant,  bargain  and  sell, 
release  and  convey  the  said  premises,  property  and  appurtenances  at  public 
vendue  and  to  execute  and  deliver  to  the  purchaser  or  purchasers  at  such 
sale  good  and  sufficient  deeds  of  conveyance  in  law,  pursuant  to  the  statutes  in 
such  case  make  and  provided,  rendering  any  surplus  moneys,  after  pavment 
of  the  moneys  due  hereon,  the  attorney  fee  provided  by  law,  and  the  costs  and 
charges  of  such  vendue  and  sale,  to  the  said  Mortgagors,  their  heirs,  legal 
representatives  or  assigns. 

In  Witness  Whereof,  the  said  Mortgagors  have  hereunto  set  their  hands 
and  seals  the  day  and  year  first  above  written. 

Mary  Doe.  L.  S. 

Signed,  Sealed  and  Delivered  in  John  Doe.         L.  S. 

Presence  of 
Mary  Smith. 
Samuel  A\'hite. 

State  of  Michigan  ] 

[■ss. 
County  of  Wayne    J 

Before  me,  the  subscriber,  a  Notary  Public  in  and  for  said  County,  this 
12th  day  of  March,  A.  D.  1J)01),  personally  api)eared  John  Doe  and  Mary  Doe, 
known  to  me  to  be  the  persons  described  in,  and  who  executed  the  within  mort- 
gage, and  severally  acknowledged  the  execution  thereof  to  be  their  free  act 
and  deed. 

John  E.  Jones. 
Notary  Public,  Wayne  Co.,  Mich. 
My  commission  expires  Dec.  3().  1910, 


^ 
I 

I 


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xix.     mortgage  note. 

$1,000.00 

Detroit,  Mich.,  March  12,  1909. 
Three  years  after  date,  at  the  office  of  Richard  Roe,  in 
the  City  of  Detroit,  for  vakie  received,  we  promise  to  pay 
to  the  order  of  Richard  Roe,  One  Thousand  Dollars,  with 
interest  thereon  from  date  at  the  rate  of  six  per  cent,  per 
annum,  payable  semi-annually  from  the  date  hereof. 

Interest  on  overdue  principal  and  interest  to  be  paid  as 
in  the  mortgage  collateral  hereto  provided. 

John  Doe. 
Mary  Doe. 


XX.      ASSIGNMENT  OF  MORTGAGE. 

Know  All  Men  by  These  Presents,  That  Richard  Roe,  of  the  first 
part,  for  and  in  consideration  of  the  sum  of  One  Dollar  lawful  money  to 
him  in  hand  paid  by  George  Brown,  of  the  second  part,  the  receipt  whereof 
is  hereby  acknowledged,  has  granted,  bargained,  sold,  assigned,  transferred  and 
set  over,  and  By  These  Presents  does  grant,  sell,  assign,  transfer  and  set 
over,  unto  the  said  party  of  the  second  part,  a  certain  Indenture  of  Mortgage, 
bearing  date  the  12th  day  of  March,  one  thousand  nine  hundred  and  nine, 
made  by  John  Doe  and  Mary  Doe,  his  wife,  and  recorded  in  the  Register's 
Office  of  the  County  of  Wayne,  State  of  Michigan,  in  liber  280  of  Mortgages, 
at  page  34G,  with  all  and  singular  the  premises  therein  mentioned  and  de- 
scribed, together  with  the  note  therein  also  mentioned,  and  the  moneys  now 
due,  and  the  interest  that  may  hereafter  grow  due  thereon:  To  Have 
AND  To  Hold  the  same  unto  the  said  party  of  the  second  part,  his  heirs 
and  assigns,  Forever.  And  I  do  hereby  authorize  and  appoint  the  said 
party  of  the  second  part,  my  true  and  lawful  attorney,  irrevocable  in  my  name, 
to  have,  use  and  take  all  lawful  ways  and  means  for  the  recovery  of  the 
sum  or  sums  of  money  now  due  and  owing,  or  hereafter  to  become  due  and 
owing,  upon  the  said  note  and  mortgage ;  and  in  case  of  payment  to  give  suf- 
ficient discharge,  as  fully  as  I  might  or  could  if  these  presents  were  not  made. 

Signed,  sealed  and  delivered,  the  1st  day  of  May  A.  D.  1909. 
In  Presence  of  Richard  Roe. 

Mary  Smith. 
Samuel  White. 

State  of  Michigan  ] 

}•  ss. 
County  of  Wayne    J 

On  this  1st  day  of  May,  A.  D.  1909,  before  me,  a  Notary  Public,  in  and 
for  the  said  County,  personally  appeared  Richard  Roe,  to  me  known  to  be 

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the  person  described  in,  and  who  executed  the  within  instrument,  and  acknowl- 
edged the  same  to  be  his  free  act  and  deed. 

John  E.  Jones. 
Notary  Public,  Wayne  Co.,  Mich. 
My  commission  expires  Dec.  30,  1910. 


XXI.    lease. 

It  Is  Hereby  Agreed,  Between  John  Doe,  party  of  the  first  part,  and 
Richard  Roe,  party  of  the  second  part,  as  follows:     ' 

The  said  party  of  the  first  part,  in  consideration  of  the  rents  and  cove- 
nants herein  specified,  does  hereby  Let  and  Lease  to  the  said  party  of  the 
second  part,  the  following  described  premises,  situated  and  being  in  the  City 
of  Detroit,  County  of  Wayne,  and  State  of  Michigan,  to-wit : 

Store  known  as  63  Michigan  Avenue, 
for  the  term  of  three  years  from  and  after  the  1st  of  May,  1909,  on  the 
terms  and  conditions  hereinafter  mentioned,  to  be  occupied  for  clothing  and 
gents'  furnishing  business. 

Provided,  That  in  case  any  rent  shall  be  due  and  unpaid,  or  if  default  shall 
be  made  in  any  of  the  covenants  herein  contained,  then  it  shall  be  lawful  for 
the  said  party  of  the  first  part,  his  certain  attorney,  heirs,  representatives  and 
assigns,  to  re-enter  into,  re-possess  the  said  premises,  and  the  said  party  of 
the  second  part,  and  each  and  every  other  occupant,  to  remove  and  put  out. 

And  the  said  party  of  the  second  part  does  hereby  hire  the  said  premises 
for  the  term  of  three  years  as  above  mentioned,  and  does  covenant  and  promise 
to  pay  to  the  said  party  of  the  first  part,  his  representatives  and  assigns,  for 
rent  of  said  premises  for  said  term  the  sum  of  Thirty-six  Hundred  ($3,600.00) 
Dollars,  at  the  rate  of  One  Hundred  ($100.00)  Dollars  per  month,  payable 
upon  the  first  day  of  each  and  every  month  in  advance. 

And  Also,  that  said  party  of  the  second  part  will  at  his  own  expense, 
during  the  continuance  of  this  lease,  keep  the  said  premises  and  every  part 
thereof  in  as  good  repair,  and  at  the  expiration  of  the  term,  yield  and  deliver 
up  the  same  in  like  condition  as  when  taken,  reasonable  use  and  wear  thereof 
and  damage  by  the  elements  excepted. 

And  the  said  party  of  the  first  part  does  covenant  that  the  said  party  of 
the  second  part,  on  paying  the  aforesaid  installments  and  performing  all  the 
covenants  aforesaid,  shall  and  may  peaceably  and  quietly  have,  hold  and 
enjoy  the  said  demised  premises  for  the  term  aforesaid. 

The  covenants,  conditions  and  agreements,  made  and  entered  into  by  the 
several  parties  hereto,  are  declared  binding  on  their  respective  heirs,  repre- 
sentatives and  assigns. 

Witness  our  hands  and  seals  this  1st  day  of  IMay,  1909. 

John  Doe. 
Richard  Roe. 

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XXII.      STANDARD  FORM   INSURANCE  POLICY    (nEW  YORK  AND  OTHER  STATES.) 

No.  301654.  $1,000.00 

The  Business  Men's  Insurance  Company. 

OF  New  York. 

In  Consideration  of  the  Stipulations  Herein  Named  and  of  Five 

AND   50/100 Dollars   Premium,   Does   Insure 

John  Doe for  the  term  of  three  years  from  the  first  day  of  May, 

1909,  at  noon,  to  the  first  day  of  ^lay,  191-;,  at  noon,  against  all  direct  loss 
or  damage  by  fire,  except  as  hereinafter  provided, 

To  an  amount  not  exceeding One  Thousand Dollars,  to 

tlie   following  described  property  while  located  and  contained  as  described 
herein,  and  not  elsewhere,  to-wit: 

The  two-story  brick  house  situated  at  (53 
Jones  Street,  and  used  as  a  private  dwelling 
house. 

This  company  shall  not  be  liable  beyond  the  actual  cash  value  of  the 
property  at  the  time  any  loss  or  damage  occurs,  and  the  loss  or  damage  shall 
be  ascertained  or  estimated  according  to  such  actual  cash  value,  with  proper 
deduction  for  depreciation  however  caused,  and  shall  in  no  event  exceed  what 
it  would  then  cost  the  insured  to  repair  or  replace  the  same  with  material  of 
like  kind  and  quality ;  said  ascertainment  or  estimate  shall  be  made  by  the 
insured  and  this  company,  or  if  they  diflfer,  then  by  appraisers,  as  hereinafter 
provided ;  and,  the  amount  of  loss  or  damage  having  been  thus  determined, 
the  sum  for  which  this  company  is  liable  pursuant  to  this  policy  shall  be  pay- 
able sixty  days  after  the  due  notice,  ascertainment,  estimate,  and  satisfactory 
proof  of  the  loss  have  been  received  by  this  company  in  accordance  with  the 
terms  of  this  policy.  It  shall  be  optional,  however,  with  this  company  to  take 
all,  or  any  part,  of  the  articles  at  such  ascertained  or  appraised  value,  and  also 
to  repair,  rebuild  or  replace  the  property  lost  or  damaged  with  other  of  like 
kind  and  quality  within  a  reasonable  time  on  giving  notice,  within  thirty 
days  after  the  receipt  of  the  proof  herein  required,  of  its  intention  so  to  do; 
but  there  can  be  no  abandonment  to  this  company  of  the  property  described. 

This  entire  policy  shall  be  void  if  the  insured  has  concealed  or  misrepre- 
sented, in  writing  or  otherwise,  any  material  fact  or  circumstance  concerning 
this  insurance  or  the  subject  thereof;  or  if  the  interest  of  the  insured  in  the 
property  be  not  truly  stated  herein :  or  in  case  of  any  fraud  or  false  swearing 
by  the  insured  touching  any  matter  relating  to  this  insurance  the  subject 
thereof,  whether  before  or  after  a  loss. 

This  entire  policy,  unless  otherwise  provided  by  agreement  indorsed  here- 
on or  added  thereto,  shall  be  void  if  the  insured  now  has  or  shall  hereafter 
make  or  procure  any  other  contract  of  insurance,  whether  valid  or  not,  on 
property  covered  in  whole  or  in  part  by  this  policy:  or  if  the  subject  of  insur- 
ance be  a  manufacturing  establishment  and  it  be  operated  in  whole  or  in  part 
later  than  ten  o'clock,  or  if  it  cease  to  be  operated  for  more  than  ten  con- 

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secutive  days:  or  if  the  hazard  be  increased  by  any  n,eans  within  the  control 
or  knowledge  of  tlie  insured :  or  if  mechanics  be  employed  in  bnilding,  altering 
or  repairing  the  within  described  premises  for  more  than  fifteen  days  at  any 
one  time;  or  if  the  interest  of  the  insnred  be  other  than  unconditional  and 
sole  ownership:  or  ,f  the  subject  of  insurance  be  a  building  on  ground  not 
owned  by  the  insured  in  fee  simple;  or  if  the  subject  of  insurance  l,e  i^rsonal 
property  and  be  or  become  incumbered  by  a  chattel  mortgage:  or  if   with  the 
knowledge  of  the  insured,  foreclosure  proceedings  be  commenced  or  notice 
given  of  sale  of  any  property  covered  by  this  policy  by  virtue  of  anv  mort- 
gage or  trust  deed ;  or  if  any  change,  other  than  bv  the  death  of  an  insured 
take  place  in  the  interest,  title,  or  possession  of  the  subject  of  insurance' 
(except  change  of  occupants  without  increase  of  hazard)   whether  bv  leeal 
process  or  judgment  or  by  voluntary  act  of  the  insured,  or  otherwise';  or  if 
this  policy  be  assigned  before  a  loss;  or  if  illuminating  gas  or  vapor  be  gener- 
ated in  the  described  building  for  adjacent  thereto)  for  use  therein  •  or  if  (anv 
usage  or  custom  of  trade  or  manufacture  to  the  contrary  notwiihstanding) 
here  be  kept,  used,  or  allowed  on  the  above  described '  premises,  benzine 
benzole,  dynamite   ether,  fireworks,  gasolene,  greek  fire,  gunpowder  exceeding 
twenty-five  pounds  in  quantity,  naphtha,  nitro-glycerine  or  other  explosiyes 
phosphorus,  or  petroleum  or  any  of  its  products  of  greater  inflammability 
ban  kerosene  oil  of  the  United  .States  .standard  (which  last  may  be  useil  for 
lights  and  kept  for  sale  according  to  law  but  in  quantities  not  excelling  fiye 
barrels,  provided  it  be  drawn  and  lamps  filled  by  daylight  or  at  a  distance  not 
less  than  ten   feet   from  artificial  light);  or  if  a  building  herein  described 
whether  intended  for  occupancy  by  owner  or  tenant,  be  or  become  vacant  or 
unoccupied  and  so  remain  for  ten  days. 

This  company  .shall  not  be  liable  for  loss  cause<l  directly  or  indirectly  bv 
invasion,  insurrection,  riot,  civil  war  or  commotion,  or  military  or  usun«d 
power  or  by  order  of  any  civil  authority;  or  by  theft;  or  by  neglect  of  the 
Lisured  to  u.se  all  reasonble  means  to  save  and  preserve  the  property  at  an<l 
after  the  fire  or  when  the  property  is  endangered  by  fire  in  neighboring 
premises;  or  (unless  fire  ensues,  and  in  that  event,  for  the  damage  by 
fire  only)  by  explosion  of  any  kind,  or  lightning:  but  liability  for  direct 
damage  by  lightning  may  be  assumed  by  specific  agreement  hereon. 

If  a  building  or  any  part  thereof  fall,  except  as  the  result  of  fire  all 
insurance  by  this  policy  on  such  building  or  its  contents  shall  immediately 
cease. 

This  company  shall  not  be  liable  for  loss  to  accounts,  bills,  currencv  deeds 
evidences  of  debt,  money,  notes,  or  securities:  nor,  unless  liability  is  specificallv 
a.ssumed  hereon,  for  loss  to  awnings,  bullion,  casts,  curiosities,  drawing^ 
dies,  miplements,  jewels,  manuscripts,  medals,  models,  patterns,  pictures  scien- 
tific apparatus,  signs,  store  or  office  furniture  or  fixtures,  sculpture,  tools,  or 
property  held  on  storage  or  for  repairs:  nor.  beyond  the  actual  value  destroyed 
by  hre,  for  oss  occasioned  by  ordinance  or  law  regulating  constniction'  or 
repair  of  buildings,  or  by  interruptions  of  business,  manufacturing  processes, 

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or  otherwise;  nor 'for  any  greater  proportion  of  the  vakie  of  plate  glass, 
frescoes,  and  decorations  than  that  which  this  policy  shall  bear  to  the  whole 
insurance  on  the  building  described. 

If  an  application,  survey,  plan,  or  description  of  property  be  referred  to 
in  this  policy  it  shall  be  a  part  of  this  contract  and  a  warranty  by  the  msured. 
In  any  matter  relating  to  this  insurance  no  person,  unless  duly  authorized 
in  writing^  shall  be  deemed  the  agent  of  this  company. 

This  policy  may  by  a  renewal  be  continued  under  the  original  stipulations, 
in  consideration  of  premium  for  the  renewal  term,  provided  that  any  increase 
of  hazard  must  be  made  known  to  this  company  at  the  time  of  renewal  or  this 
policy  shall  be  void. 

This  poHcy  shall  be  cancelled  at  any  time  at  the  request  of  the  insured ; 
or  by  the  company  giving  five  days'  notice  of  such  cancellation.  If  this  policy 
shall  be  cancelled  as  hereinbefore  provided,  or  become  void  or  cease,  the 
premium  having  been  actually  paid,  the  unearned  portion  shall  be  returned  on 
surrender  of  this  policy  or  last  renewal,  this  company  retaining  the  customary 
short  rate ;  except  that  when  this  policy  is  cancelled  by  this  company  by  giving 
notice  it  shall  retain  only  the  pro  rata  premium. 

If,  with  the  consent  of  this  company,  an  interest  under  this  policy  shall 
exist  in  favor  of  a  mortgage  or  of  any  person  or  corporation  having  an 
interest  in  the  subject  of  insurance  other  than  the  interest  of  the  insured  as 
described  herein,  the  conditions  hereinbefore  contained  shall  apply  in  the 
manner  expressed  in  such  provisions  and  conditions  of  insurance  relating  to 
such  interest  as  shall  be  written  upon,  attached,  or  appended  hereto. 

If  property  covered  by  this  policy  is  so  endangered  by  fire  as  to  require 
removal  to  a  place  of  safety,  and  is  so  removed,  that  part  of  this  policy  in 
excess  of  its  proportion  of  any  loss  and  of  the  value  of  property  remaining 
in  the  original  location,  shall,  for  the  ensuing  five  days  only,  cover  the  property 
so  removed  in  the  new  location :  if  removed  to  more  than  one  location,  such 
excess  of  this  policy  shall  cover  therein  for  such  five  days  in  the  proportion 
that  the  value  in  any  one  such  new  location  bears  to  the  value  in  all  such 
new  locations ;  but  this  company  shall  not,  in  any  case  of  removal,  whether  to 
one  or  more  locations,  be  liable  beyond  the  proportion  that  the  amount  hereby 
insured  shall  bear  to  the  total  insurance  on  the  whole  property  at  the  time 
of  fire,  whether  the  same  cover  in  new  location  or  not. 

If  fire  occurs  the  insured  shall  give  immediate  notice  of  any  loss  thereby 
in  writing  to  this  company,  protect  the  property  from  further  damage,  forth- 
with separate  the  damaged  and  undamaged  personal  property,  put  it  in  the  best 
possible  order,  make  a  complete  inventory  of  the  same,  stating  the  quantity 
and  cost  of  each  article  and  the  amount  claimed  thereon;  and  within  sixty 
days  after  the  fire,  unless  such  time  is  extended  in  writing  by  this  com- 
pany, shall  render  a  statement  to  this  company,  signed  and  sworn  to  by  said 
insured  stating  the  knowledge  and  belief  of  the  insured  as  to  the  time  and 
origin  of  the  fire ;  the  interest  of  the  insured  and  of  all  others  in  the  property ; 
the  cash  value  of  e^ch  item  thereof  and  the  amount  of  loss  thereon;  all 


incumbrances  thereon ;  all  other  insurance,  whether  valid  or  not,  covering 
,  any  of  the  said  property;  and  a  copy  of  all  descriptions  and  schedules  in 
all  policies;  any  changes  in  the  title,  use,  occupation,  location,  possession,  or 
exposures  of  said  property  since  the  issuing  of  this  policy ;  by  whom  and  for 
what  purpose  any  building  herein  described  and  the  several  parts  thereof 
were  occupied  at  the  time  of  fire;  and  shall  furnish,  if  required,  verified 
plans  and  specifications  of' any  buildings,  fixtures,  or  machinery  destroyed  or 
damaged;  and  shall  also,  if  required,  furnish  a  certificate  of  the  magistrate 
or  notary  public  (not  interested  in  the  claim  as  a  creditor  or  otherwise, 
nor  related  to  the  insured)  living  nearest  the  place  of  fire,  stating  that  he 
examined  the  circumstances  and  believes  the  insured  has  honestly  sustained 
loss  to  the  amount  that  such  magistrate  or  notary  public  shall  certify. 

The  insured,  as  often  as  required,  shall  exhibit  to  any  person  designated 
by  this  company  all  that  remains  of  any  property  herein  described,  and  submit 
to  examinations  under  oath  by  any  persons  named  by  this  company,  and 
subscribe  the  same;  and  as  often  as  required,  shall  produce  for  examination 
all  books  of  account,  bills,  invoices,  and  other  vouchers,  or  certified  copies 
thereof  if  originals  be  lost,  at  such  reasonable  place  as  may  be  designated  by 
this  company  or  its  representative,  and  shall  permit  extracts  and  copies  thereof 
to  be  made. 

In  the  event  of  disagreement  as  to  the  amount  of  loss  the  same  shall,  as 
above  provided,  be  ascertained  by  two  competent  and  disinterested  appraisers, 
the  insured  and  this  company  each  selecting  one,  and  the  two  so  chosen  shall 
first  select  a  competent  and  disinterested  umpire :  the  appraisers  together  shall 
then  estimate  and  appraise  the  loss,  stating  separately  sound  value  and  damage, 
and  •  failing  to  agree,  shall  submit  their  differences  to  the  umpire ;  and  the 
award  in  writing  of  any  two  shall  determine  the  amount  of  such  loss;  the 
parties  thereto  shall  pay  the  aj^praiser  respectively  selected  by  them  and 
shall  bear  equally  the  expenses  of  the  appraisal  and  umpire. 

This  company  shall  not  be  held  to  have  waived  any  provision  or  condition 
of  this  policy  or  any  forfeiture  thereof  by  any  requirement,  act,  or  proceed- 
ing on  its  part  relating  to  the  appraisal  or  to  any  examination  herein  provided 
for;  and  the  loss  shall  not  become  payable  until  sixty  days  after  the  notice, 
ascertainment,  estimate,  and  satisfactory  proof  of  the  loss  herein  required  have 
been  received  by  this  company,  including  an  award  by  appraisers  when  appraisal 
has  been  required. 

This  company  shall  not  be  liable  under  this  policy  for  a  greater  proportion 
of  any  loss  on  the  described  property,  or  for  loss  by  and  expense  of  removal 
from  premises  endangered  by  fira,  than  the  amount  hereby  insured  shall  bear 
to  the  whole  insurance,  whether  valid  or  not.  or  by  solvent  or  insolvent  in- 
surers, covering  such  property,  and  the  extent  of  the  application  of  the  insur- 
ance under  this  policy  or  of  the  contribution  to  be  made  by  this  company  in 
case  of  loss,  may  be  provided  for  by  agreement  or  condition  written  hereon 
or  attached  or  appended  hereto.  Liability  for  re-insurance  shall  be  as  specifi- 
cally agreed  hereon. 


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If  this  company  shall  claim  that  the  fire  was  caused  by  the  act  or  neglect 
of  any  person  or  corporation,  private  or  municipal,  this  company  shall,  on 
payment  of  the  loss,  be  subrogated  to  the  extent  of  such  payment  to  all  right 
of  recovery  by  the  insured  for  the  loss  resuhing  therefrom,  and  such  right 
shall  be  assigned  to  this  company  by  the  insured  on  receiving  such  payment. 

No  suit  or  action  on  this  policy,  for  the  recovery  of  any  claim,  shall  be 
sustainable  in  any  court  of  law  or  equity  until  after  full  compliance  by  the 
insured  with  all  the  foregoing  requirements,  nor  unless  commenced  within 
twelve  months  next  after  the  fire. 

Wherever  in  this  policy  the  word  "  insured  "  occurs,  it  shall  be  held 
to  include  the  legal  representative  of  the  insured,  and  wherever  the  word 
*'  loss  "  occurs,  it  shall  be  deemed  the  equivalent  of  "  loss  or  damage." 

If  this  policy  be  made  by  a  mutual  or  other  company  having  special 
regulations  lawfully  applicable  to  its  organization,  membership,  policies  or 
contracts  of  insurance,  such  regulations  shall  apply  to  and  form  a  part  of  this 
policy  as  the  same  may  be  written  or  printed  upon,  attached,  or  appended 
hereto. 

This  Policy  is  Made  and  Accepted  Subject  to  the  Foregoing  Stipu- 
lations AND  Conditions,  together  with  such  other  provisions,  agreements,  or 
conditions  as  may  be  indorsed  hereon  or  added  hereto,  and  no  officer,  agent, 
or  other  representative  of  this  company  shall  have  power  to  waive  any  pro- 
vision or  condition  of  this  policy  except  such  as  by  the  terms  of  this  policy 
may  be  the  subject  of  agreement  indorsed  hereon  or  added  hereto,  and  as  to 
such  provision  and  conditions  no  officer,  agent,  or  representative  shall  have 
such  power  or  be  deemed  or  held  to  have  waived  such  provisions  or  con- 
ditions unless  such  waiver,  if  any,  shall  be  written  upon  or  attached  hereto, 
nor  shall  any  privilege  or  permission  affecting  the  insurance  under  this  policy 
exist  or  be  claimed  by  the  insured  unless  so  written  or  attached. 

In  Witness  Whereof,  this  company  has  executed  and  attested  these 
presents  this  1st  day  of  May,  1909. 

Samuel  White,  Richard  Roe. 

Secretary.  President. 


XXIII.      PROOF  OF  claim   IN   BANKRUPTCY. 

In  the  District  Court  of  the  United  States. 

For  the  Eastern  District  of  Michigan. 
In  the  Matter  of  John  Doe,  Bankrupt. 

State  of  Michigan 

■  ss. 
County  of  Wayne 

On  the  first  day  of  April,  A.  D.  1909.  came  Richard  Roe,  of  Detroit,  in 
the  County  of  Wayne,  State  of  Michigan,  and  made  oath,  and  says  that  John 
Doe,  the  person  against  whom  a  petition  for  adjudication  of  bankruptcy  has 
been  filed,  was  at  and  before  the  filing  of  said  petition,  and  still  is  justly  and 


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tnily  indebted  to  the  said  Richard  Roe  in  the  sum  of  three  hundred  and 
twenty  dollars,  ($320.00);  that  the  consideration  of  said  debt  is  as  follows: 
on  an  open  account ;  that  no  part  of  said  debt  has  been  paid ;  that  there  are 
no  set-ofl's  or  counter  claims  to  the  same,  and  that  said  Richard  Roe  has  not, 
nor  has  any  person  by  his  order,  or  to  the  knowledge  or  belief  of  said  de- 
ponent, for  his  use,  had  or  received  any  manner  of  security  for  said  debt 
whatever;  and  that  no  note  has  been  received  for  said  account  nor  has  any 
judgment  been  rendered  thereon. 

Richard  Roe. 
Subscribed  and  sworn  to  before  me  this  1st  day  of  April,  A.  D.  1909. 

John  E.  Jones. 
Notary  Public,  Wayne  Co.,  Mich. 
My  commission  expires  Dec.  30,  1910. 


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THE  NEGOTIABLE  INSTRUMENTS  LAW. 


A  General  Act  relating  to  Negotiable  Instruments  (being  an  Act  to 
establish  a  law  uniform  with  the  laws  of  other  States  on  that  subject)  now 
in  force  in  thirty-five  states  and  territories,  to-wit:  Alabama,  Arizona,  Colo- 
rado, Connecticut,  District  of  Columbia,  Florida,  Hawaii,  Idaho,  Illinois,  Iowa, 
Kansas,  Kentucky,  Louisiana,  Maryland,  Massachusetts,  Michigan,  Missouri, 
Montana,  Nebraska,  New  Jersey,  New  Mexico,  New  York,  North  Carolina, 
North  Dakota,  Ohio,  Oregon,  Pennsylvania,  Rhode  Island,  Tennessee,  Utah, 
Virginia,  Washington,  West  Virginia,  Wisconsin,  and  Wyoming. 

TITLE  I. — negotiable   INSTRUMENTS   IN   GENERx\L. 

ARTICLE  I. 

Form  and  Interpretation. 
Section  1.    Be  it  enacted,  etc.,  an  instrument  to  be  negotiated  must  con- 
form to  the  following  requirements: 

1.  It  must  be  in  writing  and  signed  by  the  maker  or  drawer. 

2.  Must  contain  an  unconditional  promise  or  order  to  pay  a   sum 

certain  in  money. 

3.  Must  be  payable  on  demand  or  at  a  fixed  determinable  future  time. 

4.  Must  be  payable  to  order  or  to  bearer ;  and 

5.  Where  the  instrument  is  addressed  to  a  drawee,  he  must  be  named 

or  otherwise  indicated  therein  with  reasonable  certainty. 
Sec.  2.    The  sum  payable  is  a  sum  certain  within  the  meaning  of  this  Act ; 
although  it  is  to  be  paid : 

1.  With  interest ;  or 

2.  By  stated  installments ;  or 

3.  By  stated  installments,  with  a  provision  that  upon  default  in  pay- 

ment of  any  installment,  or  of  interest,  the  whole  shall  become 
due ;  or 

4.  With  exchange,  whether  at  a  fixed  rate  or  at  the  current  rate;  or 
•  5.     With  costs  of  collection  or  an  attorney's  fee,  in  case  payment  shall 

not  be  made  at  maturity. 
Sec.  3.    An  unqualified  order  or  promise  to  pay  is  unconditional  within 
the  meaning  of  this  Act,  though  coupled  with : 

1.  An  indication  of  a  particular  fund  out  of  which  reimbursement  is 

to   be   made,   or   a   particular   account   to   be   debited    with   the 
amount ;  or 

2.  A  statement  of  the  transaction  which  gives  rise  to  the  instrument. 
But  an  order  or  promise  to  pay  out  of  a  particular  fund  is  not  uncon- 
ditional. 


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2. 
3. 


1. 


2. 


3. 


4. 


Sec.  4.     An  instrument  is  payable  at  a  determinable  future  time,  within 
the  meaning  of  this  Act,  which  is  expressed  to  be  payable : 
1.     At  a  fixed  rate  period  after  date  or  sight;  or 

On  or  before  a  fixed  or  determinable  future  time  specified  therein  ;  or 
On  or  at  a  fixed  period  after  the  occurrence  of  a  specified  event, 
which  is  certain  to  happen,  though  the  time  of  happening  be  un- 
certain. 
An  instrument  payable  upon  a  contingency  is  not  negotiable,  and  the 
happening  of  the  event  does  not  cure  the  defect. 
Sec.  5.    An  instrument  which  contains  an  order  or  promise  to  do  any  act 
in  addition  to  the  payment  of  money  is  not  negotiable.     But  the  negotiable 
character  of  an  instrument  otherwise  negotiable  is  not  aflFected  by  a  provision 
which:  .  . 

Authorizes  the  sale  of  collateral  securities  in  case  the  instrument 

be  not  paid  at  maturity ;  or 
Authorizes   a   confession   of   judgment   if   the   instrument   be  not 

paid  at  maturity ;  or 

Waives  the  benefit  of  any  law  intended  for  the  advantage  or  pro- 
tection of  the  obligor;  or 
Gives  the  holder  an  election  to  require  something  to  be  done  in 
lieu  of  payment  of  money. 
But  nothing  in  this  section  shall  validate  any  provision  or  stipulation 
otherwise  illegal. 
Sec.  fi.    The  validity  and  negotiable  character  of  an  instrument  are  not 
aflfected  by  the  fact  that : 

1.  It  is  not  dated ;  or 

2.  Does  not  specify  the  value  given,  or  that  any  value  has  been  given 

therefor;  or 

Does  not  specify  the  place  where  it  is  drawn  or  the  place  where  it  is 

payable;  or 
Bears  a  seal ;  or 

Designates  a  particular  kind  of  current  money  in  which  payment  is 
to  be  made. 

*But  nothing  in  this  section  shall  alter  or  repeal  any  statute  requiring  in 
certain  cases  the  nature  of  the  consideration  to  be  stated  in  the 
instrument. 

Sec.  7.    An  instrument  is  payable  on  demand : 

1.  Where  it  is  expressed  to  be  payable  on  demand,  or  at  sight,  or  on 

presentation;  or 

2.  In  which  no  time  for  payment  is  expressed. 

Where  an  instrument  is  issued,  accepted  or  indorsed  when  overdue,  it  is, 
as  regards  the  person  so  issuing,  accepting  or  indorsing  it.  payable 
on  demand. 

Sec.  8.  The  instrument  is  payable  to  order  where  it  is  drawn  payable  to 
the  order  of  a  specified  person  or  to  him  or  his  order.  It  may  be  drawn  pay- 
able to  the  order  of : 


3. 

4. 
6. 


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1.  A  payee  who  is  not  maker,  drawer  or  drawee ;  or 

2.  The  drawer  or  maker ;  or 

3.  The  drawee ;  or 

4.  Two  or  more  payees  jointly ;  or 

5.  One  or  some  of  several  payees ;  or 

6.  The  holder  of  an  office  for  the  time  being. 

\\'here  the  instrument  is  payable  to  order,  the  payee  must  be  named  or 
otherwise  indicated  therein  with  reasonable  certainty. 
Sec.  0.    The  instrument  is  payable  to  bearer : 

1.  When  it  is  expressed  to  be  so  payable ;  or 

2.  When  it  is  payable  to  a  person  named  therein  or  bearer ;  or 

3.  When  it  is  payable  to  the  order  of  a  ficititious  or  non-existing  person, 

and  such  fact  was  known  to  the  person  making  it  so  payable ;  or 

4.  When  the  name  of  the  payee  does  not  purport  to  be  the  name  of  any 

person ;  or 

5.  When  the  only  or  last  indorsement  is  an  indorsement  in  blank. 

Sec.  10.  The  instrument  need  not  follow  the  language  of  this  act,  but  any 
terms  are  sufficient  which  clearly  indicate  an  intention  to  conform  to  the  re- 
quirements hereof. 

Sec.  11.  When  the  instrument  or  an  acceptance  or  any  indorsement 
thereon  is  dated,  such  date  is  deemed  prima  facie  to  be  the  true  date  of  the 
making,  drawing,  acceptance  or  indorsement,  as  the  case  may  be. 

Sec.  12.  The  instrument  is  not  invalid  for  the  reason  only  that  it  is 
ante-dated  or  post-dated,  provided  this  is  not  done  for  an  illegal  or  fraudu- 
lent purpose.  The  person  to  whom  an  instrument  so  dated  is  delivered  ac- 
quires the  title  thereto  as  of  the  date  of  delivery. 

Sec.  13.  When  an  instrument  expressed  to  be  payable  at  a  fixed  period 
after  date  is  issued  undated,  or  where  the  acceptance  of  an  instrument  payable 
at  a  fixed  period  after  sight  is  undated,  any  holder  may  insert  therein  the 
true  date  of  issue  or  acceptance,  and  the  instrument  shall  be  payable  accord- 
ingly. The  insertion  of  a  wrong  date  does  not  avoid  the  instrument  in  the 
hands  of  a  subsequent  holder  in  due  course;  but  as  to  him,  the  date  so  in- 
serted is  to  be  regarded  as  the  true  date. 

Sec.  14.  Where  the  instrument  is  wanting  in  any  material  particular,  the 
person  is  possession  thereof  has  a  prima  facie  authority  to  complete  it  by 
filling  up  the  blanks  therein.  And  a  signature  on  a  blank  paper  deHvered 
by  the  person  making  the  signature  in  order  that  the  paper  may  be  converted 
into  a  negotiable  instrument  operates  as  a  prima  facie  authority  to  fill  up  as 
such  for  any  amount.  In  order,  however,  that  any  such  instrument  when 
completed  may  be  enforced  against  any  person  who  became  a  party  thereto 
prior  to  its  completion,  it  must  be  filled  up  strictly  in  accordance  with  the 
authority  given  and  within  a  reasonable  time.  But  if  any  such  instrument, 
after  completion,  is  negotiated  to  a  holder  in  due  course  it  is  valid  and 
efTectual  for  all  purposes  in  his  hands,  and  he  may  enforce  it  as  if  it  had 
been  filled  up  strictly  in  accordance  with  the  authority  given  and  within  a 
reasonable  time. 


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Sec.  15.  Where  an  incomplete  instrument  has  not  been  delivered  it  will 
not,  if  completed  and  negotiated,  without  authority,  be  a  valid  contract  in  the 
hands  of  any  holder,  as  against  any  person  whose  signature  was  placed 
thereon  before  delivery. 

Sec.  1().  Every  contract  on  a  negotiable  instalment  is  incomplete  and 
revokable  until  delivery  of  the  instrument  for  the  purpose  of  giving  effect 
thereto.  As  between  immediate  parties,  and  as  regards  a  remote  party  other 
than  a  holder  in  due  course,  the  delivery,  in  order  to  be  effectual,  must  be  made 
either  by  or  under  the  authority  of  the  party  making,  drawing,  accepting  or 
indorsing,  as  the  case  may  be :  and  in  such  case  the  delivery  may  be  shown 
to  have  been  conditional  or  for  a  special  purpose  only,  and  not  for  the  pur- 
pose of  transferring  the  property  in  the  instrument.  But  where  the  instrument 
is  in  the  hands  of  a  holder  in  due  course,  a  valid  delivery  thereof  by  all  parties 
prior  to  him  so  as  to  make  them  liable  to  him,  is  conclusively  presumed. 
And  where  the  instrument  is  no  longer  in  the  possession  of  a  party  whose 
signature  appears  thereon,  a  valid  and  intentional  delivery  by  him  is  presumed 
until  the  contrary  is  proved. 

Sec.  17.  Where  the  language  of  the  instrument  is  ambiguous,  or  there 
are  omissions  therein,  the  following  rules  of  construction  apply: 

1.  Where  the  sum  payable  is  expressed  in  words  and  also  in  figures 

and  there  is  a  discrepancy  between  the  two,  the  sum  denoted  by 
the  words  is  the  sum  payable;  but  if  the  words  are  ambiguous  or 
uncertain,  references  may  be  had  to  the  figures  to  fix  the  amount. 

2.  Where  the  instrument  provides  for  the  payment  of  interest,  without 

specifymg  the  date  from  which  interest  is  to  run,  the  interest 
runs  from  the  date  of  the  instrument,  and  if  the  instrument  is 
undated,  from  the  issue  thereof. 

3.  Where  the  instrument  is  not  dated,  it  will  be  considered  to  be 

dated  as  of  the  time  it  was  issued. 

4.  Where  there  is  conflict  between  the  written  and  printed  provisions 

of  the  instrument,  the  written  provisions  prevail. 

5.  Where  the  instrument  is  so  ambiguous  that  there  is  doubt  whether 

it  is  a  bill  or  a  note,  the  holder  may  treat  it  as  either,  at  his  election. 

6.  Where  a  signature  is  so  placed  upon  the  instrument  that  it  is  not 

clear  in  what  capacity  the  person  making  the  same  intended  to 
sign,  he  is  to  be  deemed  an  endorser. 

7.  Where  an  instrument  containing  the  words  "  I  promise  to  pay," 

is  signed  by  two  or  more  persons,  they  are  deemed  to  be  jointly 

and  severally  liable  thereon. 

Sec.  18.     Xo  person  is  liable  on  the  instrument  whose  signature  does 

not  appear  thereon,  except  as  herein  otherwise  provided.    But  one  who  signs  in 

a  trade  or  assumed  name  will  be  liable  to  the  same  extent  as  if  he  had  signed 

in  his  own  name 

Sec.  19.  The  signature  of  any  party  may  be  made  by  a  duly  authorized 
agent.  No  particular  form  of  appointment  is  necessary  for  this  purpose ;  and 
the  authority  of  the  agent  may  be  established  as  in  other  cases  of  agency. 


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Sec.  20.  Where  the  instrument  contains,  or  a  person  adds  to  his  signa- 
ture, words  indicating  that  he  signs  for  or  on  behalf  of  a  principal,  or  in  a 
representative  capacity,  he  is  not  liable  on  the  instrument  if  he  was  duly  author- 
ized ;  but  the  mere  addition  of  words  describing  him  as  agent,  or  as  filling  a 
representative  character  without  disclosing  his  principal,  does  not  exempt  him 

from  personal  liability. 

Sec.  21.  A  signature  by  "  procuration  "  operates  as  notice  that  the  agent 
has  but  limited  authority  to  sign,  and  the  principal  is  bound  only  in  case  the 
agent  in  so  signing  acted  within  the  actual  limits  of  his  authority. 

Sec.  22.  The  indorsement  or  assignment  of  the  instrument  by  a  corpora- 
tion or  by  an  infant  passes  the  property  therein,  notwithstanding  that  from 
want  of  capacity  the  corporation  or  infant  may  incur  no  liability  thereon. 

Sec.  23.  WI  ere  a  signature  is  forged  or  made  without  the  authority  of 
the  person  whose  signature  it  purports  to  be,  it  is  wholly  inoperative,  and  no 
right  to  retain  the  instrument,  or  to  give  a  discharge  therefor,  or  to  enforce 
payment  thereof  against  any  party  thereto,  can  be  acquired  through  or  under 
such  signature,  unless  the  party  against  whom  it  is  sought  to  enforce  such  right 
is  precluded  from  setting  up  the  forgery  or  want  of  authority. 

ARTICTLE    II. 

Consideration. 

Sec.  24.  Every  negotiable  instrument  is  deemed  prima  facie  to  have  been 
issued  for  a  valuable  consideration,  and  every  person  whose  signature  appears 
thereon  to  have  become  a  party  thereto  for  value. 

Sec.  25.  Value  is  any  consideration  sufficient  to  support  a  simple  contract. 
An  antecedent  or  pre-existing  debt  constitutes  value,  and  is  deemed  such, 
whether  the  instrument  is  payable  on  demand  or  at  a  future  time. 

Sec.  26.  Where  value  has  at  any  time  been  given  for  the  instrument, 
the  holder  is  deemed  a  holder  for  value  in  respect  to  all  parties  who  became 
such,  prior  to  that  time. 

Sec.  27.  Where  the  holder  has  a  lien  on  the  instrument,  arising  either 
from  contract  or  by  implication  of  law,  he  is  deemed  a  holder  for  value  to  the 
extent  of  his  lien. 

Sec.  28.  Absence  or  failure  of  consideration  is  a  matter  of  defense  as 
against  any  person  not  a  holder  in  due  course,  and  partial  failure  of  considera- 
tion is  a  defense  pro  tanto,  whether  the  failure  is  an  ascertained  and  liquidated 
amount  or  otherwise. 

Sec.  20.  An  accommodation  party  is  one  who  has  signed  the  instrument 
as  maker,  drawer,  acceptor,  or  indorser,  without  receiving  value  therefor,  and 
for  the  purpose  of  lending  his  name  to  some  other  person.  Such  a  person  is 
liable  on  the  instrument  to  a  holder  for  value,  notwithstanding  such  holder  at 
the  time  of  taking  the  instrument  knew  him  to  be  only  an  accommodation  party. 

ARTICLE  III. 

Negotiation. 
Sec.  30.     An  instrument  is  negotiated  when  it  is  transferred  from  one 


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person  to  another  in  such  a  manner  as  to  constitute  the  transferee  the  holder 
thereof.  If  payable  to  bearer,  it  is  negotiated  by  delivery ;  if  payable  to  order, 
it  is  negotiated  by  the  endorsement  of  the  holder,  completed  by  delivery. 

Sec.  31.  The  indorsement  must  be  written  on  the  instrument  itself  or 
upon  a  paper  attached  thereto.  The  signature  of  the  indorser,  without  addi- 
tional words,  is  a  sufficient  indorsement. 

Sec.  32.  The  indorsement  must  be  an  indorsement  of  the  entire  instru- 
ment. An  indorsement  which  purports  to  transfer  to  the  indorsee  a  part  only 
of  the  amount  payable,  or  which  purports  to  transfer  the  instrument  to  two 
or  more  indorsees  severally,  does  not  operate  as  a  negotiation  of  the  instru- 
ment. But  where  the  instrument  has  been  paid  in  part,  it  may  be  indorsed 
as  to  the  residue. 

Sec.  33.  An  indorsement  may  be  either  special  or  in  blank ;  and  it  may 
also  be  either  restrictive  or  qualified,  or  conditional. 

Sec.  31.  A  special  indorsement  specifies  the  person  to  whom  or  to 
whose  order  the  instrument  is  to  be  payable;  and  the  indorsement  of  such  in- 
dorsee is  necessary  to  the  further  negotiation  of  the  instrument.  An  indorse- 
ment in  blank  specifies  no  indorsee,  and  an  instrument  so  indorsed  is  payable 
to  bearer,  and  may  be  negotiated  by  delivery. 

Sec.  35.  The  holder  may  convert  a  blank  indorsement  into  a  special  in- 
dorsement by  writing  over  the  signature  of  the  indorser  in  blank  any  contract 
consistent  with  the  character  of  the  indorsement. 

Sec.  36.    An  indorsement  is  restrictive  which  either: 

1.  Prohibits  the  further  negotiation  of  the  instrument ;  or 

2.  Constitutes  the  indorsee  the  agent  of  the  indorser ;  or 
Vests  the  title  in  the  indorsee  in  trust  for  or  to  the  use  of  some 

other  person.     But  the  mere  absence  of  words  implying  power  to 
negotiate  does  not  make  an  indorsement  restrictive. 
37.    A  restrictive  indorsement  confers  upon  the  indorsee  the  right: 
To  receive  payment  of  the  instrument. 
To  bring  any  action  thereon  that  the  indorser  could  bring. 
To  transfer  his  rights  as  such  indorsee,  where  the  form  of  the  in- 
dorsement authorizes  him  to  do  so. 
But  all  subsequent  indorsees  acquire  only  the  title  of  the  first  indorsee 
under  the  restrictive  indorsement. 
Sec.  38.    A  qualified  indorsement  constitutes  the  indorser  a  mere  assignor 
of  the  title  to  the  instrument.     It  may  be  made  by  adding  to  the  indorser's 
signature  the  words  "  without   recourse  "  or  any  words  of  similar  import. 
Such  an  indorsement  does  not  impair  the  negotiable  character  of  the  instrument. 
Sec.  39.     Where  an  indorsement  is  conditional,  a  party  required  to  pay 
the  instrument  may  disregard  the  condition,  and  make  payment  to  the  indorsee 
or  his  transferee,  whether  the  condition  has  been  fulfilled  or  not.     But  any 
person  to  whom  an  instrument  so  indorsed  is  negotiated,  will  hold  the  same,  or 
the  proceeds  thereof,  subject  to  the  rights  of  the  person  indorsing  conditionally. 
Sec.  40.    Where  an  instrument,  payable  to  bearer,  is  indorsed  specially, 
it  may  nevertheless  be  further  negotiated  by  delivery ;  but  the  person  indorsing 


3. 


Sec. 
1. 
2. 
3. 


II 


11 


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specially  is  liable  as  indorser  to  only  such  holders  as  make  title  through  his 
indorsement. 

Sec.  41.  Where  an  instrument  is  payable  to  the  order  of  two  or  more 
payees  or  indorsees  who  are  not  partners,  all  must  indorse,  unless  the  one  in- 
dorsing has  authority  to  indorse  for  the  others. 

Sec.  42.  Where  an  instrument  is  drawn  or  indorsed  to  a  person,  as 
"  Cashier  "  or  other  fiscal  officer  of  a  bank  or  corporation,  it  is  deemed  prima 
facie  to  be  payable  to  the  bank  or  corporation  of  which  he  is  such  officer ;  and 
may  be  negotiated  by  either  the  indorsement  of  the  bank  or  corporation,  or  the 
indorsement  of  the  officer. 

Sec.  43.  Where  the  name  of  a  payee  or  indorsee  is  wrongly  designated  or 
misspelled,  he  may  indorse  the  instrument  as  therein  described,  adding,  if  he 
think  fit,  his  proper  signature. 

Sec.  44.  Where  any  person  is  under  obligation  to  indorse  in  a  representa- 
tive capacity,  he  may  indorse  in  such  terms  as  to  negative  personal  liability. 

Sec.  45.  Except  where  an  indorsement  bears  date  after  the  maturity  of  the 
instrument,  every  negotiation  is  deemed  prima  facie  to  have  been  eflfected  before 
the  instrument  was  overdue. 

Sec.  46.  Except  where  the  contrary  appears,  every  indorsement  is  pre- 
sumed prima  facie  to  have  been  made  at  the  place  where  the  instrument  is  dated. 

Sec.  47.  An  instrument  negotiable  in  its  origin  continues  to  be  negotiable 
until  it  has  been  restrictively  indorsed  or  discharged  by  payment  or  otherwise. 

Sec.  48.  The  holder  may  at  any  time  strike  out  any  indorsement  which 
is  not  necessary  to  his  title.  The  indorser  whose  indorsement  is  struck  out, 
and  all  indorsers  subsequent  to  him,  are  thereby  relieved  from  liability  on  the 
instrument. 

Sec.  49.  Where  the  holder  of  an  instrument  payable  to  his  order  transfers 
it  for  value  without  indorsing  it,  the  transfer  vests  in  the  transferee  such  title 
as  the  transferer  had  therein,  and  the  transferee  acquires,  in  addition,  the  right 
to  have  the  indorsement  of  the  transferer.  But  for  the  purpose  of  determining 
whether  the  transferee  is  a  holder  in  due  course,  the  negotiation  takes  effect  as 
of  the  time  when  the  indorsement  is  actually  made. 

Sec.  50.  Where  an  instrument  is  negotiated  back  to  a  prior  party,  such 
party  may,  subject  to  the  provisions  of  this  Act,  re-issue  and  further  negotiate 
the  same — but  he  is  not  entitled  to  enforce  payment  thereof  against  any  inter- 
vening party  to  whom  he  was  personally  liable. 

ARTICLE  IV. 

Rights  of  the  Holder. 

Sec  51.  The  holder  of  a  negotiable  instrument  may  sue  thereon  in  his 
own  name  and  payment  to  him  in  due  course  discharges  the  instrument. 

Sec  52.  A  holder  in  due  course  is  a  holder  who  has  taken  the  instrument 
under  the  following  conditions: 

1.    That  it  is  complete  and  regular  upon  its  face. 


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3,     That  he  became  the  holder  of  it  before  it  was  overdue,  and  without 
notice  that  it  had  been  previously  dishonored,  if  such  was  the  fact. 

3.  That  he  took  it  in  good  faith  and  for  value. 

4.  That  at  the  time  it  was  negotiated  to  him  lie  had  no  notice  of  any 

infirmity  in  the  instrument  or  defect  in  the  title  of  the  person 
negotiating  it. 

Sec  53.  Where  an  instrument  payable  on  demand  is  negotiated  an  unrea- 
sonable length  of  time  after  its  issue,  the  holder  is  not  deemed  in  due  course. 

Sec.  54.  Where  the  transferee  receives  notice  of  any  infirmity  in  the 
instrument  or  defect  in  the  title  of  the  person  negotiating  the  same  before  he 
has  paid  the  full  amount  agreed  to  be  paid  therefor,  he  will  be  deemed  a  holder 
in  due  course  only  to  the  extent  of  the  amount  theretofore  paid  by  him. 

Sec  55.  The  title  of  a  person  who  negotiates  an  instrument  is  defective 
within  the  meaning  of  this  Act  when  he  obtained  the  instrument,  or  any  signa- 
ture thereto,  by  fraud,  duress,  or  force  and  fear,  or  other  unlawful  means,  or 
for  an  illegal  consideration,  or  when  he  negotiates  it  in  breach  of  faith,  or  under 
such  circumstances  as  amount  to  a  fraud. 

Sec  5fi.  To  constitute  notice  of  an  infirmity  in  the  instrument  or  defect  in 
the  title  of  the  person  negotiating  the  same,  the  person  to  whom  it  is  negotiated 
must  have  had  actual  knowledge  of  the  infirmity  or  defect,  or  knowledge  of  such 
facts  that  his  action  in  taking  the  instrument  amounted  to  bad  faith. 

Sec  57.  A  holder  in  due  course  holds  the  instrument  free  from  any  defect 
of  title  of  prior  parties,  and  free  from  defenses  available  to  prior  parties  among 
themselves,  and  may  enforce  payment  of  the  instrument  for  the  full  amount 
thereof  against  all  parties  liable  thereon. 

Sec  58.  In  the  hands  of  any  holder  other  than  a  holder  in  due  course, 
a  negotiable  instrument  is  subject  to  the  same  defenses  as  if  it  were  non- 
negotiable.  But  a  holder  who  derives  his  title  through  a  holder  in  due  course, 
and  who  is  not  himself  a  party  to  any  fraud  or  illegality  affecting  the  instru- 
ment, has  all  the  rights  of  such  former  holder  in  respect  of  all  parties  prior 
to  the  latter. 

Sec  59.  Every  holder  is  deemed  prima  facie  to  be  a  holder  in  due  course ; 
but  when  it  is  shown  that  the  title  of  any  person  who  has  negotiated  the  in- 
strument was  defective,  the  burden  is  on  the  holder  to  prove  that  he  or  some 
person  under  whom  he  claims  acquired  the  title  as  a  holder  in  due  course. 
But  the  last  mentioned  rule  does  not  apply  in  favor  of  a  party  who  became 
bound  on  the  instrument  prior  to  the  acquisition  of  such  defective  title. 


article  v. 
Liabilities  of  Parties. 

Sec  60.  The  maker  of  a  negotiable  instrument  by  making  it  engages  that 
he  will  pay  it  according  to  its  tenor,  and  admits  the  existence  of  the  payee 
and  his  then  capacity  to  indorse. 

Sec  61.    The  drawer  by  drawing  the  instrument  admits  the  existence  of 


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the  payee  and  his  then  capacity  to  indorse,  and  engages  that  on  due  present- 
ment the  instrument  will  be  accepted  or  paid,  or  both,  according  to  its  tenor, 
and  that  if  it  be  dishonored,  and  the  necessary  proceedings  on  dishonor  be 
duly  taken,  he  will  pay  the  amount  thereof  to  the  holder,  or  to  any  subse- 
quent indorser  who  may  be  compelled  to  pay  it.  But  the  drawer  may  insert 
in  the  instrument  an  express  stipulation  negativing  or  limiting  his  own  liability 
to  the  holder. 

Sec.  62.  The  acceptor  by  accepting  the  instrument  engages  that  he  will 
pay  it  according  to  the  tenor  of  his  acceptance,  and  admits : 

1.  The  existence  of  the  drawer,  the  genuineness  of  his  signature,  and 

his  capacity  and  authority  to  draw  the  instrument;  and 

2.  The  existence  of  the  payee  and  his  then  capacity  to  indorse. 

Sec.  63.  A"  person  placing  his  signature  upon  an  instrument  otherwise  than 
as  maker,  drawer  or  acceptor  is  deemed  to  be  an  indorser,  unless  he  clearly  in- 
dicates by  appropriate  words  his  intention  to  be  bound  in  some  other  capacity. 

Sec.  64.  Where  a  person,  not  otherwise  a  party  to  an  instrument,  places 
thereon  his  signature  in  blank  before  delivery,  he  is  liable  as  indorser  in 
accordance  with  the  following  rules: 

1.  If  the  instrument  is  payable  to  the  order  of  a  third  person,  he  is 

liable  to  the  payee  and  to  all  subsequent  parties. 

2.  If  the  instrument  is  payable  to  the  order  of  the  maker  or  drawer, 

or  is  payable  to  bearer,  he  is  liable  to  all  parties  subsequent  to  the 
maker  or  drawer. 

3.  If  he  signs  for  the  accommodation  of  the  payee,  he  is  liable  to  all 

parties  subsequent  to  the  payee. 

Sec.  65.  Every  person  negotiating  an  instrument  by  delivery  or  by  a  quali- 
fied indorsement,  warrants: 

1.  That  the  instrument  is  genuine  and  in  all  respects  what  it  purports 

to  be. 

2.  That  he  has  a  good  title  to  it. 

3.  That  all  prior  parties  had  capacity  to  contract. 

4.  That  he  has  no  knowledge  of  any  fact  which  would  impair  the 

validity  of  the  instrument  or  render  it  valueless. 
But  when  the  negotiation  is  by  delivery  only,  the  warranty  extends  in 

favor  of  no  holder  other  than  the  immediate  transferee. 
The  provisions  of  subdivision  three  of  this   section  do  not  apply  to 

persons   negotiating   public   or   corporate   securities,   other   than 

bills  and  notes. 

Sec.  ^Cy.  Every  indorser  who  indorses  without  qualification,  warrants  to 
all  subsequent  holders  in  due  course : 

1.  The  matters  and  things  mentioned  in  subdivisions  one,  two  and 

three  of  the  next  preceding  section  ;  and 

2.  That  the  instrument  is  at  the  time  of  his  indorsement  valid  and 

subsisting. 


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And,  in  addition,  he  engages  that  on  due  presentment,  it  shall  be 
accepted  or  paid,  or  both,  as  the  case  may  be,  according  to  its 
tenor,  and  that  if  it  be  dishonored  and  the  necessary  proceedings 
on  dishonor  be  duly  taken,  he  will  pay  the  amount  thereof  to  the 
holder,  or  to  any  subsequent  indorser  who  may  be  compelled 
to  pay  it. 
Sec.  67.  Where  a  person  places  his  indorsement  on  an  instrument  negoti- 
able by  delivery  he  incurs  all  the  liabilities  of  an  indorser. 

Sec.  68.  As  respects  one  another,  indorsers  are  liable  prima  facie  in  the 
order  in  which  they  indorse ;  but  evidence  is  admissible  to  show  that  as  between 
or  among  themselves  they  have  agreed  otherwise.  Joint  payees  or  joint  in- 
dorsees who  indorse  are  deemed  to  indorse  jointly  and  severally. 

Sec.  69.  Where  a  broker  or  other  agent  negotiates  an  instrument  without 
indorsement,  he  incurs  all  the  liabilities  prescribed  by  Section  sixty-five  of  this 
Act,  unless  he  discloses  the  name  of  his  principal,  and  the  fact  that  he  is 
acting  only  as  agent. 

article  vr. 
Presentment  for  Payment. 

Sec.  70.  Presentment  for  payment  is  not  necessary  in  order  to  charge  the 
person  primarily  liable  on  the  instrument;  but  if  the  instrument  is,  by  its  terms, 
payable  at  a  special  place,  and  he  is  able  and  willing  to  pay  it  there  at  maturity, 
such  ability  and  willingness  are  equivalent  to  a  tender  of  payment  upon  his 
part.  But  except  as  herein  otherwise  provided,  presentment  for  payment  is 
necessary  in  order  to  charge  the  drawer  and  indorsers. 

Sec.  71.  Where  the  instrument  is  not  payable  on  demand,  presentment 
must  be  made  on  the  day  it  falls  due.  Where  it  is  payable  on  demand,  pre- 
sentment must  be  made  within  a  reasonable  time  after  its  issue,  except  that  in 
the  case  of  a  bill  of  exchange,  presentment  for  payment  will  be  sufficient  if 
made  within  a  reasonable  time  after  the  last  negotiation  thereof. 

•     Sec.  73.    Presentment  for  payment,  to  be  sufficient,  must  be  made : 

1.  By  the  holder,  or  by  some  person  authorized  to  receive  payment  on 

his  behalf. 

2.  At  a  reasonable  hour  on  a  business  day. 

3.  At  a  proper  place  as  herein  defined. 

4.  To  the  person  primarily  liable  on  the  instrument,  or  if  he  is  absent 

or  inaccessible,  to  any  person  found  at  the  place  where  the  pre- 
sentment is  made. 

Sec.  73.    Presentment  for  payment  is  made  at  the  proper  place : 

1.  Where  a  place  of  payment  is  specified  in  the  instrument  and  it  is 

there  presented. 

2.  Where  no  place  of  payment  is  specified  but  the  address  of  the 

person  to  make  payment  is  given  in  the  instrument  and  it  is  there 
presented. 


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3.  Where  no  place  of  payment  is  specified  and  no  address  is  given  and 

the  instrument  is  presented  at  the  usual  place  of  business  or 
residence  of  the  person  to  make  payment. 

4.  In  any  other  case,  if  presented  to  the  person  to  make  payment 

wherever  he  can  be  found,  or  if  presented  at  his  last  known  place 
of  business  or  residence. 

Sec.  74.  The  instrument  must  be  exhibited  to  the  person  from  whom 
payment  is  demanded,  and  when  it  is  paid  must  be  delivered  up  to  the  party 
paying  it. 

Sec.  75.  W'^here  the  instrument  is  payable  at  a  bank,  presentment  for 
payment  must  be  made  during  banking  hours,  unless  the  person  to  make  pay- 
ment has  no  funds  there  to  meet  it  at  any  time  during  the  day,  in  which  case 
presentment  at  any  hour  before  the  bank  is  closed  on  that  day  is  sufficient. 

Sec.  76.  Where  the  person  primarily  liable  on  the  instrument  is  dead, 
and  no  place  of  payment  is  specified,  presentment  for  payment  must  be 
made  to  his  presonal  representative,  if  such  there  be,  and  if  with  the  exercise 
of  reasonable  diligence  he  can  be  found. 

Sec.  77.  Where  the  persons  primarily  liable  on  the  instrument  are  liable 
as  partners,  and  no  place  of  payment  is  specified,  presentment  for  payment 
may  be  made  to  any  one  of  them,  even  though  there  has  been  a  dissolution  of 
the  firm. 

Sec.  78.  Where  there  are  several  persons,  not  partners,  primarily  liable 
on  the  instrument,  and  no  place  of  payment  is  specified,  presentment  must  be 
made  to  them  all. 

Sec.  79.  Presentment  for  payment  is  not  required  in  order  to  charge  the 
drawer  where  he  has  no  right  to  expect  or  require  that  the  drawee  or  acceptor 
will  pay  the  instrument. 

Sec.  80.  Presentment  for  payment  is  not  required  in  order  to  charge 
an  indorser  where  the  instrument  was  made  or  accepted  for  his  accomoda- 
tion, and  he  has  no  reason  to  expect  that  the  instrument  will  be  paid  if 
presented. 

Sec.  81.  Delay  in  making  presentment  for  payment  is  excused  when 
the  delay  is  caused  by  circumstances  beyond  the  control  of  the  holder,  and 
not  imputable  to  his  default,  misconduct  or  negligence.  When  the  cause  of 
d-lay  ceases  to  operate,  presentment  must  be  made  with  reasonable  diligence. 

Sec.  82.    Presentment  for  payment  is  dispensed  with : 

1.  Where  after  the  exercise  of  reasonable  diligence  presentment  as 

required  by  this  Act  cannot  be  made. 

2.  Where  the  drawee  is  a  fictitious  person. 

3.  By  waiver  of  presentment,  express  or  implied. 

Sec.  83.     The  instrument  is  dishonored  by  non-payment  when : 

1.     It  is  duly  presented  for  payment  and  payment  is  refused  or  cannot 

be  obtained :  or 
?.     Presentment  is  excused  and  the  instrument  is  overdue  and  unpaid. 

Sec.  84.     Subject  to  the  provisions  of  this  Act,  ivhen  the  instrument  is 


r 


f 


dishonored  by  non-payment,  an  immediate  right  of  recourse  to  all  parties 
secondarily  liable  thereon,  accrues  to  the  holder. 

Sec.  85.  Every  negotiable  instrument  is  payable  at  the  time  fixed 
therein  without  grace.  When  the  day  of  maturity  falls  upon  Sunday,  or  a 
holiday,  the'  instrument  is  payable  on  the  next  succeeding  business  dav.  In- 
struments falling  due  on  Saturday  are  to  be  presented  for  payment  on  the  next 
succeeding  business  day,  except  that  instruments  payable  on  demand  may,  at 
the  option  of  the  holder,  be  presented  for  payment  before  12:00  o'clock 
noon  on  Saturday  when  that  entire  day  is  not  a  holiday. 

Sec.  86.  Where  the  instrument  is  payable  at  a  fixed  period  after  date, 
after  sight,  or  after  the  happening  of  a  specified  event,  the  time  of  payment 
is  determined  by  excluding  the  day  from  which  the  time  is  to  begin  to  run, 
and  by  including  the  date  of  payment. 

Sec.  87.  Where  the  instrument  is  made  payable  at  a  bank  it  is  equivalent 
to  an  order  to  the  bank  to  pay  the  same  for  the  account  of  the  principal 
debtor  thereon. 

Sec.  88.  Payment  is  made  in  due  course  when  it  is  made  at  or  after 
maturity  of  the  instrument  to  the  holder  thereof  in  good  faith  and  without 
notice  that  his  title  is  defective. 

ARTICLE   VI I. 

Notice  of  Dishonor. 

Sec.  89.  Except  as  herein  otherwise  provided,  when  a  negotiable  m- 
strument  has  been  dishonored  by  non-acceptance  or  non-payment,  notice  of 
dishonor  must  be  given  to  the  drawer  and  to  each  indorser,  and  any  drawer 
or  indorser  to  whom  such  notice  is  not  given  is  discharged. 

Sec.  90.  The  notice  may  be  given  by  or  on  behalf  of  the  holder,  or  by 
or  on  behalf  of  any  party  to  the  instrument  who  might  be  compelled  to  pay 
it  to  the  holder,  and  who.  upon  taking  it  up.  would  have  a  right  to  reim- 
bursement from  the  party  to  whom  the  notice  is  given. 

Sec.  91.  Notice  of  dishonor  may  be  given  by  an  agent  either  in  his 
own  name  or  in  the  name  of  any  party  entitled  to  give  notice,  whether  that 
party  be  his  principal  or  not. 

Sec.  92.  Where  notice  is  given  by  or  on  behalf  of  the  holder,  it  inures 
for  the  benefit  of  all  subsequent  holders  and  all  prior  parties  who  have  a 
right  of  recourse  against  the  party  to  whom  it  is  given. 

Sec.  93.  Where  notice  is  given  by  or  on  behalf  of  a  party  entitled  to 
give  notice,  it  insures  for  the  benefit  of  the  holder  and  all  parties  subsequent 
to  the  party  to  whom  notice  is  given. 

Sec.  94.  Where  the  instrument  has  been  dishonored  in  the  hands  of  an 
agent,  he  may  either  himself  give  notice  to  the  parties  liable  thereon,  or  he  may 
give  notice  to  his  principal.  If  he  gives  notice  to  his  principal,  he  must  do  so 
within  the  same  time  as  if  he  were  the  holder,  and  the  principal,  upon  the 
receipt  of  such  notice,  has  himself  the  same  time  for  giving  notice  as  if  the 
agent  had  been  an  independent  holder. 

Sec.  95.  A  written  notice  need  not  be  signed,  and  an  insufficient  written 
notice  may  be  supplemented  and  validated  by  verbal  communication.     A  mis- 


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description  of  the  instrument  does  not  vitiate  the  notice,  unless  the  party  to 
whom  the  notice  is  given  is  in  fact  misled  thereby. 

Sec.  96.  The  notice  may  be  in  writing  or  merely  oral  and  may  be  given 
in  any  terms  which  sufficiently  identify  the  instrument  and  indicate  that  it  has 
been  dishonored  by  non-acceptance  or  non-payment.  It  may  in  all  cases  be 
given  by  delivering  it  personally  or  through  the  mails. 

Sec.  97.  Notice  of  dishonor  may  be  given  either  to  the  party  himself  or 
to  his  agent  in  that  behalf. 

Sec.  98.  Where  any  party  is  dead,  and  his  death  is  known  to  the  party 
giving  notice,  the  notice  must  be  given  to  a  personal  representative,  if  there 
be  one,  and  if  with  reasonable  diligence,  he  can  be  found.  If  there  be  no  personal 
representative,  notice  may  be  sent  to  the  last  residence  or  last  place  of  business 
of  the  deceased. 

Sec.  99.  Where  the  parties  to  be  notified  are  partners,  notice  to  any  one 
partner  is  notice  to  the  firm,  even  though  there  has  been  a  dissolution. 

Sec.  100.  Notice  to  joint  parties  who  are  not  partners  must  be  given 
to  each  of  them,  unless  one  of  them  has  authority  to  receive  such  notice  for 

the  others. 

Sec.  101.  'Where  a  party  has  been  adjudged  a  bankrupt  or  an  insolvent, 
or  has  made  an  assignment  for  the  benefit  of  creditors,  notice  may  be  given 
either  to  the  party  himself  or  to  his  trustee  or  assignee. 

Sec.  102.  Notice  may  be  given  as  soon  as  the  instrument  is  dishonored, 
and  unless  delay  is  excused  as  hereinafter  provided,  must  be  given  within 
the  times  fixed  by  this  act. 

Sec.  103.  Where  the  person  giving  and  the  person  to  receive  notice  reside 
in  same  place,  notice  must  be  given  within  the  following  times : 

1.  If  given  at  the  place  of  business  of  the  person  to  receive  notice  it 

must  be  given  before  the  close  of  business   hours   on   the   day 
following. 

2.  If  given  at  his  residence,  it  must  be  given  before  the  usual  hours 

of  rest  on  the  day  following. 

3.  If  sent  by  mail,  it  must  be  deposited  in  the  post-office  in  time  to 

reach  him  in  usual  course  on  the  day  following. 
■    Sec.  104.    Where  the  person  giving  and  the  person  to  receive  notice  reside 
in  diflferent  places,  the  notice  must  be  given  within  the  following  times : 

1.  If  sent  by  mail,  it  must  be  deposited  in  the  post-office  in  time  to  go 

by  mail  the  day  following  the  day  of  dishonor,  or  if  there  be  no 
mail  at  a  convenient  hour  on  that  day,  by  the  next  mail  thereafter. 

2.  If  given  otherwise  than  through  the  post-office,  then  within  the 

time  that  notice  would  have  been  received  in  due  course  of  mail,  if 

it  had  been  deposited  in  the  postoffice  within  the  time  specified 

in  the  last  subdivision. 

Sec.  10.5.    Where  notice  of  dishonor  is  duly  addressed  and  deposited  in 

the  post-office,  the  sender  is  deemed  to  have  given  due  notice,  notwithstanding 

any  miscarriage  in  the  mails. 

Sec.  106.    Notice  is  deemed  to  have  been  deposited  in  the  postoffice  when 


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deposited  in  any  branch  post-office  or  in  any  letter  box  under  the  control  of  the 
post-office  department. 

Sec.  107.  Where  a  party  receives  notice  of  dishonor,  he  has,  after  the 
receipt  of  such  notice,  the  same  time  for  giving  notice  to  antecedent  parties 
that  the  holder  has  after  the  dishonor. 

Sec.  108.  Where  a  party  has  added  an  address  to  his  signature,  notice 
of  dishonor  must  be  sent  to  that  address ;  but  if  he  has  not  given  such  address, 
then  the  notice  must  be  sent  as  follows : 

1.  Either  to  the  post-office  nearest  to  his  place  of  residence,  or  to  the 

postoffice  where  he  is  accustomed  to  receive  his  letters ;  or 

2.  If  he  lives  in  one  place,  and  have  his  place  of  business  in  another, 

notice  may  be  sent  to  either  place ;  or 

3.  If  he  is  sojourning  in  another  place,  notice  may  be  sent  to  the  place 

where  he  is  sojourning. 
But  where  the  notice  is  actually  received  by  the  party  within  the  time 
specified  in  this  Act,  it  will  be  sufficient,  though  not  sent  in  accord- 
ance with  the  requirements  of  this  section. 

Sec.  109.  Notice  of  dishonor  may  be  waived,  either  before  the  time  of 
giving  notice  has  arrived,  or  after  the  omission  to  give  due  notice,  and  the 
waiver  may  be  express  or  implied. 

Sec.  110.  Where  the  waiver  is  embodied  in  the  instrument  itself,  it  is 
binding  upon  all  parties ;  but  where  it  is  written  above  the  signature  of  an  in- 
dorser,  it  binds  him  only. 

Sec.  111.  A  waiver  of  protest,  whether  in  the  case  of  a  foreign  bill  of 
exchange  or  other  negotiable  instrument,  is  deemed  to  be  a  waiver  not  only  of 
a  formal  protest,  but  also  of  presentment  and  notice  of  dishonor. 

Sec.  112.  Notice  of  dishonor  is  dispensed  with  when,  after  the  exercise 
of  reasonable  diligence,  it  cannot  be  given  to  or  does  not  reach  the  parties 
sought  to  be  charged. 

Sec.  113.  Delay  in  giving  notice  of  dishonor  is  excused  when  the  delay 
is  caused  by  circumstances  beyond  the  control  of  the  holder  and  not  imputable 
to  his  default,  misconduct  or  negligence.  When  the  cause  of  delay  ceases  to 
operate,  notice  must  be  given  with  reasonable  diligence.  • 

Sec.  114.  Notice  of  dishonor  is  not  required  to  be  given  to  the  drawer  in 
either  of  the  following  cases : 

1.  Where  the  drawer  and  the  drawee  are  the  same  person ; 

2.  Where  the  drawee  is  a  fictitious  person  or  a  person  not  having  capac- 

ity to  contract; 

3.  Where  the  drawer  is  the  person  to  whom  the  instrument  is  presented 

for  payment ; 

4.  Where  the  drawer  has  no  right  to  expect  or  require  that  the  drawee 
or  acceptor  will  honor  the  instrument. 

5.  Where  the  drawer  has  countermanded  payment. 

Sec.  115.  Notice  of  dishonor  is  not  required  to  be  given  to  an  indorser  in 
either  of  the  following  cases; 


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1.  \\'here  the  drawee  is  a  fictitious  person  or  a  person  not  having 

capacity  to  contract  and  the  indorser  was  aware  of  the  fact  at  the 
time  he  indorsed  the  instrument ; 

2.  Where  the  indorser  is  the  person  to  whom  the  instrument  is  pre- 

sented for  payment. 

3.  Where  the  instrument  was  made  or  accepted  for  his  accommodation. 
Sec.  116.    Where  due  notice  of  dishonor  by  non-acceptance  has  been  given, 

notice  of  a  subsequent  dishonor  by  non-payment  is  not  necessary,  unless  in  the 
meantime  the  instrument  has  been  accepted. 

Sec.  117.  An  omission  to  give  notice  of  dishonor  by  non-iacccptance  does 
not  prejudice  the  rights  of  a  holder  in  due  course  subsequent  to  the  omission. 

Sec.  118.  Where  any  negotiable  instrument  has  been  dishonored  it  may 
be  protested  for  non-acceptance  or  non-payment  as  the  case  may  be ;  but  pro- 
test is  not  required  except  in  the  case  of  foreign  bills  of  exchange. 

article  viii. 
Discharge  of  Negotiable  Instruments. 

Sec.  119.    A  negotiable  instrument  is  discharged : 

1.  By  payment  in  due  course  by  or  on  behalf  of  the  principal  debtor. 

2.  By  payment  in  due  course  by  the  party  accommodated,  where  the 

instrument  is  made  or  accepted  for  accommodation. 

3.  By  the  intentional  cancellation  thereof  by  the  holder. 

4.  By  any  other  act  which  will  discharge  a  simple  contract  for  the 

payment  of  money. 

5.  When  the  principal  debtor  becomes  the  holder  of  the  instrument  at 

or  after  maturity  in  his  own  right. 
Sec.  120.    A  person  secondarily  liable  on  the  instrument  is  discharged : 

1.  By  any  act  which  discharges  the  instrument. 

2.  Fiy  the  intentional  cancellation  of  his  signature  by  the  holder. 

3.  By  the  discharge  of  a  prior  party. 

4.  By  a  valid  tender  of  payment  made  by  a  prior  party. 

6.  By  a  release  of  the  principal  debtor,  unless  thfe  holder's  right  of 

recourse  against  the  party  secondarily  liable  is  expressly  reserved. 
6.     By  any  agreement  binding  upon  the  holder  to  extend  the  time  of 
payment,  or  to  postpone  the  holder's  right  to  enforce  the  instru- 
ment, unless  made  with  the  assent  of  the  party  secondarily  liable,  or 
unless    the    right    of    recourse    against    such    party    is    expressly 
reserved. 
Sec.  1-31.    Where  the  instrument  is  paid  by  a  party  secondarily  liable  there- 
on it  is  not  discharged  :  but  the  party  so  paying  it  is  remitted  to  his  former  rights 
as  regards  all  prior  parties,  and  he  may  strike  out  his  own  and  all  subsequent 
indorsements,  and  again  negotiate  the  instrument,  except : 

1.  Where  it  is  payable  to  the  order  of 'a  third  person,  and  has  been 

paid  by  the  drawer :  and 

2.  Where  it  was  made  or  accepted  for  accommodation,  and  has  been 

paid  by  the  party  accommodated. 
Sec.  122.    The  holder  may  expressly  renounce  his  rights  against  any  part> 


American  Business  and  Accounting  Encyclopedia 

to  the  instrument  before,  at,  or  after  its  maturity.  An  absolute  and  uncondi- 
tional renunciation  of  his  rights  against  the  principal  debtor  made  at  or  before 
the  maturity  of  the  instrument  discharges  the  instrument.  But  a  renunciation 
does  not  affect  the  rights  of  a  holder  in  due  course  without  notice.  A  renuncia- 
tion must  be  in  writing,  unless  the  instrument  is  delivered  up  to  the  person 
primarily  liable  thereon. 

Sec.  123.  A  cancellation  made  unintentionally,  or  under  a  mistake,  or 
without  the  authority  of  the  holder,  is  inoperative;  but  where  an  instrument 
or  any  signature  thereon  appears  to  have  been  cancelled,  the  burden  of  proof 
lies  on  the  party  who  alleges  that  the  cancellation  was  made  unintentionally,  or 
under  a  mistake  or  without  authority. 

Sec.  124.  Where  a  negotiable  instrument  is  materially  altered  without 
the  assent  of  all  parties  liable  thereon,  it  is  avoided,  except  as  against  a  party 
who  has  himself  made,  authorized  or  assented  to  the  alteration  and  subsequent 
indorsers. 

But  when  an  instrument  has  been  materially  altered  and  is  in  the  hands 
of  a  holder  in  due  course,  not  a  party  to  the  alteration,  he  may 
enforce  payment  thereof  according  to  its  original  tenor. 

Sec.  125.    Any  alteration  which  changes : 

1.  The  date. 

2.  The  sum  payable,  either  for  principal  or  interest. 

3.  The  time  or  place  of  payment. 

4.  The  number  or  the  relations  of  the  parties. 

5.  The  medium  or  currency  in  which  payment  is  to  be  made. 

Or  which  adds  a  place  of  payment  where  no  place  of  payment  is  specified, 
or  any  other  change  or  addition  which  alters  the  effect  of  the 
instrument  in  any  respect,  is  a  material  alteration. 

title  II. — bills  of  exchange. 

article  I. 
Form  and  Interpretation. 

Sec.  120.  A  bill  of  exchange  is  an  unconditional  order  in  writing  ad- 
dressed by  one  person  to  another,  signed  by  the  person  giving  it,  rec|uiring  the 
person  to  whom  it  is  addressed  to  pay  on  demand,  or  at  a  fixed  or  determinable 
future  time,  a  sum  certain  in  money  to  order  or  to  bearer. 

Sec.  127.  A  bill  of  itself  does  not  operate  as  an  assignment  of  the  funds 
in  the  hands  of  the  drawee  available  for  the  payment  thereof,  and  the  drawee 
is  not  liable  on  the  bill  unless  and  until  he  accepts  the  same. 

Sec.  128.  A  bill  may  be  addressed  to  two  or  more  drawees  jointlv,  whether 
they  are  partners  or  not ;  but  not  to  two  or  more  drawees  in  the  alternative  or 
in  succession. 

Sec.  129.  An  inland  bill  of  exchange  is  a  bill  which  is,  or  on  its  face 
purports  to  be,  both  drawn  and  payable  within  this  state.  Anv  other  bill  is  a 
foreign  bill.  Unless  the  contrary  appears  on  the  face  of  the  bill,  the  holder 
may  treat  it  as  an  inland  bill. 

Sec.  130.    Where  in  a  bill,  drawer  and  drawee  are  the  same  person,  or 


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where  the  drawee  is  a  fictitious  person,  or  a  person  not  having  capacity  to  con- 
tract, the  holder  may  treat  the  instrument  at  his  option,  either  as  a  bill  of 
exchange  or  a  promissory  note. 

Sec  131.  The  drawer  of  a  bill  and  any  indorser  may  insert  thereon  the 
name  of  a  person  to  whom  the  holder  may  resort  in  case  of  need,  that  is  to  say, 
in  case  the  bill  is  dishonored  by  non-acceptance  or  non-payment.  Such  person 
is  called  the  referee  in  case  of  need.  It  is  in  the  option  of  the  holder  to  resort 
to  the  referee  in  case  of  need  or  not,  as  he  may  see  fit. 

article  ii. 

Acceptance. 

Sec.  13*2.  The  acceptance  of  a  bill  is  the  signification  by  the  drawee  of  his 
assent  to  the  order  of  the  drawer.  The  acceptance  must  be  in  writing  and 
signed  by  the  drawee.  It  must  not  express  that  the  drawee  will  perform  his 
promise  by  any  other  means  than  the  payment  of  money. 

Sec.  133.  The  holder  of  a  bill  presenting  the  same  for  acceptance  may 
require  that  the  acceptance  be  written  on  the  bill,  and  if  such  request  is  refused, 
may  treat  the  bill  as  dishonored. 

Sec.  134.  Where  an  acceptance  is  written  on  a  paper  other  than  the  bill 
itself,  it  does  not  bind  the  acceptor  except  in  favor  of  a  person  to  whom  it  is 
shown  and  who,  on  the  faith  thereof,  receives  the  bill  for  value. 

Sec.  135.  An  unconditional  promise  in  writing  *to  accept  a  bill  before  it  is 
drawn  is  deemed  an  actual  acceptance  in  favor  of  every  person  who,  upon  the 
faith  thereof,  receives  the  bill  for  value. 

Sec.  136.  The  drawee  is  allowed  twenty-four  hours  after  presentment  in 
which  to  decide  whether  or  not  he  will  accept  the  bill ;  but  the  acceptance,  if 
given,  dates  as  of  the  day  of  presentation. 

Sec.  137.  Where  a  drawee  to  whom  a  bill  is  delivered  for  acceptance 
destroys  the  same,  or  refuses  within  twenty-four  hours  after  such  delivery  or 
within  such  other  period  as  the  holder  may  allow,  to  return  the  bill  accepted  or 
non-accepted  to  the  holder,  he  will  be  deemed  to  have  accepted  the  same. 

Sec.  138.  A  bill  may  be  accepted  before  it  has  been  signed  by  the  drawer, 
or  while  otherwise  incomplete,  or  when  it  is  overdue,  or  after  it  has  been  dis- 
honored by  a  previous  refusal  to  accept,  or  by  non-payment.  But  when  a  bill 
payable  after  sight  is  dishonored  by  non-acceptance  and  the  drawee  subsequently 
accepts  it,  the  holder,  in  the  absence  of  any  different  agreement,  is  entitled  to 
have  the  bill  accepted  as  of  the  date  of  the  first  presentment. 

Sec.  139.  An  acceptance  is  either  general  or  qualified.  A  general  accept- 
ance assents  without  qualification  to  the  order  of  the  drawer.  A  qualified 
acceptance  in  express  terms  varies  the  effect  of  the  bill  as  drawn. 

Sec.  1 10.  An  acceptance  to  pay  at  a  particular  place  is  a  general  acceptance 
unless  it  expressly  states  that  the  bill  is  to  be  paid  there  only,  and  not  elsewhere. 

Sec.  141,    An  acceptance  is  qualified,  which  is: 


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1.  Conditional;  that  is  to  say,  which  makes  payment  by  the  acceptor 

dependent  on  the  fulfillment  of  a  condition  therein  stated. 

2.  Partial ;  that  is  to  say,  an  acceptance  to  pay  part  only  of  the  amount 

for  which  the  bill  is  drawn. 

3.  Ix)cal ;  that  is  to  say,  an  acceptance  to  pay  only  at  a  particular  place. 

4.  Qualified  as  to  time. 

5.  The  acceptance  of  some  one  or  more  of  the  drawees,  but  not  of  all. 
Sec.  142.    The  holder  may  refuse  to  take  a  qualified  acceptance,  and  if  he 

does  not  obtain  an  unqualified  acceptance,  he  may  treat  the  bill  as  dishonored 
by  non-acceptance.  Where  a  qualified  acceptance  is  taken,  the  drawer  and  in- 
dorsers  are  discharged  from  liability  on  the  bill,  unless  they  have  expressly  or 
impliedly  authorized  the  holder  to  take  a  qualified  acceptance,  or  subsequently 
assent  thereto.  When  the  drawer  or  an  indorser  receives  notice  of  a  qualified 
acceptance,  he  must  within  a  reasonable  time  express  his  dissent  to  the  holder, 
or  he  will  be  deemed  to  have  assented  thereto. 

article  III. 

Presentment  for  Acceptance, 
Sec.  143.    Presentment  for  acceptance  must  be  made : 

1.  Where  the  bill  is  payable  after  sight,  or  in  any  other  case  where  pre- 

sentment for  acceptance  is  necessary  in  order  to  fix  the  maturity 
of  the  instrument ;  or 

2.  Where  the  bill  expressly  stipulates  that  it  shall  be  presented  for  ac- 

ceptance ;  or 

3.  Where  the  bill  is  drawn  payable  elsewhere  than  at  the  residence  or 

place  of  business  of  the  drawee. 
In  no  other  case  is  presentment  for  acceptance  necessary  in  order  to 
render  any  party  to  the  bill  liable. 
Sec.  144.    Except  as  herein  otherwise  provided,  the  holder  of  a  bill  which 
is  required  by  the  next  preceding  section  to  be  presented  for  acceptance  must 
either  present  it  for  acceptance  or  negotiate  it  within  a  reasonable  time.    If  he 
fail  to  do  so,  the  drawer  and  all  indorsers  are  discharged. 

Sec.  145.  Presentment  for  acceptance  must  be  made  by  or  on  behalf  of 
the  holder  at  a  reasonable  hour,  on  a  business  day  and  before  the  bill  is 
overdue,  to  the  drawee  or  some  person  authorized  to  accept  or  refuse  accept- 
ance on  his  behalf ;  and : 

1.     Where  a  bill  is  addressed  to  two  or  more  drawees  who  are  not 

partners,  presentment  must  be  made  to  them  all,  unless  one  has 

authority  to  accept  or  refuse  acceptance  for  all,  in  which  case 

presentment  may  be  made  to  him  only. 

3.     Where  the  drawee  is  dead,  presentment  may  be  made  to  his  personal 

representative. 
3.     Where  the  drawee  has  been  adjudged  a  bankrupt  or  an  insolvent, 
or  has  made  an  assignment  for  the  benefit  of  creditors,  present- 
ment may  be  made  to  him  or  to  his  trustee  or  assignee. 


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Sec.  14G.  A  bill  may  be  presented  for  acceptance  on  any  day  on  which 
negotiable  instruments  may  be  presented  for  payment  under  the  provisions  of 
sections  seventy-two  and  eigthy-five  of  this  Act.  When  Saturday  is  not  other- 
wise a  holiday,  presentment  for  acceptance  may  be  made  before  12  o'clock 
noon  on  that  dav. 

Sec.  147.  Where  the  holder  of  a  bill  drawn  payable  elsewhere  than  at 
the  place  of  business  or  the  residence  of  the  drawee  has  not  time  with  the^ 
exercise  of  reasonable  diligence  to  present  the  bill  for  acceptance  before  pre- 
senting it  for  payment  on  the  day  that  it  falls  due,  the  delay  caused  by  pre- 
senting the  bill  for  acceptance  before  presenting  it  for  payment  is  excused  and 
does  not  discharge  the  drawers  and  indorsers. 

Sec.  148.  Presentment  for  acceptance  is  excused  and  a  bill  may  be 
treated  as  dishonored  by  non-acceptance,  in  either  of  the  following  cases: 

1.     Where  the  drawee  is  dead,  or  has  absconded,  or  is  a  fictitious  person 
or  a  person  not  having  capacity  to  contract  by  bill. 
Where  after  the  exercise  of  reasonable  diligence,  presentment  cannot 

be  made. 
Where  although  presentment  has  been  irregular,  acceptance  has  been 
refused  on  some  other  ground. 
Sec.  149.    A  bill  is  dishonored  by  non-acceptance : 

1.  When  it  is  duly  presented  for  acceptance  and  such  an  acceptance 

as  is  prescribed  by  this  Act  is  refused  or  can  not  be  obtained ;  or    * 

2.  When  a  presentment  for  acceptance  is  excused  and  the  bill  is  not 

accepted. 

Sec.  150.  Where  a  bill  is  duly  presented  for  acceptance  and  is  not  accepted 
within  the  prescribed  time,  the  person  presenting  it  must  treat  the  bill  as  dis- 
honored by  non-acceptance  or  he  loses  the  right  of  recourse  against  the  drawer 
and  indorsers. 

Sec.  151,  W^hen  a  bill  is  dishonored  by  non-acceptance,  an  immediate 
right  of  recourse  against  the  drawers  and  indorsers  accrues  to  the  holder  and 
no  presentment  for  payment  is  necessary. 


2. 


3. 


article  IV. 

Protest. 

Sec.  152.  W^here  a  foreign  bill  appearing  on  its  face  to  be  such  is  dis- 
honored by  non-acceptance,  it  must  be  duly  protested  for  non-acceptance,  and 
where  such  a  bill  which  has  not  previously  been  dishonored  by  non-acceptance 
is  dishonored  by  non-payment,  it  must  be  duly  protested  for  non-payment.  If 
it  is  not  so  protested,  the  drawer  and  indorsers  are  discharged.  Where  a  bill 
does  not  appear  on  its  face  to  be  a  foreign  bill,  protest  thereof,  in  case  of  dis- 
honor, is  unnecessary. 

Sec.  153.  The  protest  must  be  annexed  to  the  bill,  or  must  contain  a  copy 
thereof,  and  must  be  under  the  hand  and  seal  of  the  notary  making  it,  and  must 
specify: 


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1. 

9 


The  time  and  place  of  presentment. 

The  fact  that  presentment  was  made  and  the  manner  thereof. 

3.  The  cause  or  reason  for  protesting  the  bill. 

4.  The  demand  made  and  the  answer  given,  if  any,  or  the  fact  that 

the  drawee  or  acceptor  could  not  be  found. 
Sec.  154.     Protest  may  be  made  by: 

1.  A  notary  public ;  or 

2.  By  any  respectable  resident  of  the  place  where  the  bill  is  dishonored, 
in  the  presence  of  two  or  more  credible  witnesses. 

Sec.  155.  When  a  bill  is  protested,  such  protest  must  be  made  on  the 
day  of  its  dishonor,  unless  delay  is  excused  as  herein  provided.  When  a  bill 
has  been  duly  noted,  the  protest  may  be  subsecjuently  extended  as  of  the  date 
of  the  noting. 

Sec.  15fi.  A  bill  must  be  protested  at  the  place  where  it  is  dishonored, 
except  that  when  a  bill  drawn  payable  at  the  place  of  business  or  residence 
of  some  person  other  than  the  drawee,  has  been  dishonored  by  non-accept- 
ance, it  must  be  protested  for  non-payment  at  the  place  where  it  is  expressed 
to  be  payable ;  and  no  further  presentment  for  payment  to,  or  demand  on,  the 
drawee  is  necessary. 

Sec.  157.  A  bill  which  has  been  protested  for  non-acceptance  may  be  sub- 
sequently protested  for  non-payment. 

Sec.  158.  Where  the  acceptor  has  been  adjudged  a  bankrupt  or  an  in- 
solvent or  has  made  an  assignment  for  the  benefit  of  creditors,  before  the 
bill  matures,  the  holder  may  cause  the  bill  to  be  protested  for  better  security 
against  the  drawer  and  indorsers. 

Sec.  159.  Protest  is  dispensed  with  by  any  circumstances  which  would 
dispense  with  notice  of  dishonor.  Delay  in  noting  or  protesting  is  excused 
when  delay  is  caused  by  circumstances  beyond  the  control  of  the  holder  and 
not  imputable  to  his  default,  misconduct  or  negligence.  When  the  cause  of 
delay  ceases  to  operate,  the  bill  must  be  noted  or  protested  with  reasonable 
diligence. 

Sec.  IfiO.  W^here  a  bill  is  lost  or  destroyed,  or  is  wrongly  detained  from 
the  person  entitled  to  hold  it,  protest  may  be  made  on  a  copy  or  written 
particulars  thereof. 


article  v. 
Acceptance  for  Honor. 

Sec.  Ifil.  Where  a  bill  of  exchange  has  been  protested  for  honor  by  non- 
acceptance,  or  protested  for  better  security,  and  is  not  overdue,  any  person 
not  being  a  party  already  liable  thereon,  may,  with  the  consent  of  the  holder, 
intervene  and  accept  the  bill  supra  protest  for  the  honor  of  any  party  liable 
thereon  or  for  the  honor  of  the  person  for  whose  account  the  bill  is  drawn. 
The  acceptance  for  honor  may  be  for  part  only  of  the  sum  for  which  the 
bill  is  drawn,  and  where  there  has  been  an  acceptance  for  honor  for  one  party. 


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there  may  be  a  further  acceptance  by  a  different  person  for  the  honor  of 
another  party. 

Sec.  1()2.  An  acceptance  for  honor  supra  protest  must  be  in  writing  and 
indicate  that  it  is  an  acceptance  for  honor,  and  must  be  signed  by  the  acceptor 
for  honor. 

Sec.  163.  Where  an  acceptance  for  honor  does  not  expressly  state  for 
whose  honor  it  is  made,  it  is  deemed  to  be  an  acceptance  for  the  honor  of 
the  drawer. 

Sec.  104.  The  acceptor  for  honor  is  Hable  to  the  holder  and  to  all  parties 
to  the  bill  subsequent  to  the  party  for  whose  honor  he  has  accepted. 

Sec.  165.  The  acceptor  for  honor  by  such  acceptance  engages  that  he 
will  on  due  presentment  pay  the  bill  according  to  the  terms  of  his  accept- 
ance, provided  it  shall  not  have  been  paid  by  the  drawee,  and  provided  also, 
that  it  shall  have  been  duly  presented  for  payment  and  protested  for  non- 
payment and  notice  of  dishonor  given  to  him. 

Sec.  166.  Where  a  bill  payable  after  sight  is  accepted  for  honor  its 
maturity  is  calculated  from  the  date  of  the  noting  for  non-acceptance  and  not 
from  the  date  of  the  acceptance  for  honor. 

Sec.  167.  Where  a  dishonored  bill  has  been  accepted  for  honor  supra 
protest  or  contains  a  reference  in  case  of  need,  it  must  be  protested  for  non- 
payment before  it  is  presented  for  payment  to  the  acceptor  for  honor  or 
referee  in  case  of  need. 

Sec.  168.  Presentment  for  payment  to  the  acceptor  for  honor  must  be 
made  as  follows: 

1.  If  it  is  to  be  presented  in  the  place  where  the  protest  for  non- 
payment was  made,  it  must  be  presented  not  later  than  the  day 
following  its  maturity. 
•  2.  If  it  is  to  be  presented  in  some  other  place  than  the  place  where  it 
was  protested,  then  it  must  be  forwarded  within  the  time  specified 
in  Section  104. 

Sec.  169.  The  provisions  of  Section  81  apply  where  there  is  delay  in 
making  presentment  to  the  acceptor  for  honor  or  referee  in  case  of  need. 

Sec.  170.  When  the  bill  is  dishonored  by  the  acceptor  for  honor  it  must 
be  protested  for  non-payment  by  him. 


article  VI. 
Payment  for  Honor. 

Sec.  171.  Where  a  bill  has  been  protested  for  non-payment,  any  person 
may  intervene  and  pay  it  supra  protest  for  the  honor  of  any  person  liable  there- 
on or  for  the  honor  of  the  person  for  whose  account  it  was  drawn. 

Sec.  172.  The  payment  for  honor  supra  protest  in  order  to  operate  as 
such  and  not  as  a  mere  voluntary  payment  must  be  attested  by  a  notarial  act 
of  honor  which  may  be  appended  to  the  protest  or  form  an  extension  to  it. 

Sec.  173.     The  notarial  act  of  honor  must  be  founded  on  a  declaration 

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made  by  the  payer  for  honor  or  by  his  agent  in  that  behalf  declaring  his  in- 
tention to  pay  the  bill  for  honor  and  for  whose  honor  he  pays. 

Sec.  174.  Where  two  or  more  persons  offer  to  pay  a  bill  for  the  honor 
of  different  parties,  the  person  whose  payment  will  discharge  most  parties  to 
the  bill'  is  to  be  given  the  preference. 

Sec.  175.  Where  a  bill  has  been  paid  for  honor  all  parties  subsequent 
to  the  party  for  whose  honor  it  is  paid  are  discharged,  but  the  payer  for  honor 
is  subrogated  for,  and  succeeds  to,  both  the  rights  and  duties  of  the  holder 
as  regards  the  party  for  whose  honor  he  pays  and  all  parties  liable  to  the  latter. 

Sec.  176.  Where  the  holder  of  a  bill  refuses  to  receive  payment  supra 
protest,  he  loses  his  right  to  recourse  against  any  party  who  would  have  been 
discharged  by  such  payment. 

Sec.  177.  The  payer  for  honor  on  paying  to  the  holder  the  amount  of  the 
bill  and  the  notarial  expenses  incidental  to  its  dishonor,  is  entitled  to  receive 
both  the  bill  itself  and  the  protest. 

article  VII. 

Bills  in  a  Set. 

Sec.  178.  Where  a  bill  is  drawn  in  a  set,  each  part  of  the  set  being 
numbered  and  containing  a  reference  to  the  other  parts,  the  whole  of  the  parts 
constitute  one  bill. 

Sec.  179.  Where  two  or  more  parts  of  a  set  are  negotiated  to  different 
holders  in  due  course,  the  holder  whose  title  first  accrues  is  as  between  such 
holders  the  true  owner  of  the  bill.  But  nothing  in  this  section  affects  the 
rights  of  a  person  who  in  due  course  accepts  or  pays  the  part  first  presented 
to  him. 

Sec.  180.  Where  the  holder  of  a  set  indorses  two  or  more  parts  to  dif- 
ferent persons  he  is  liable  on  every  such  part,  and  every  indorser  subsequent 
to  him  is  liable  on  the  part  he  has  himself  indorsed,  as  if  such  parts  were 
separate  bills. 

Sec.  181.  The  acceptance  may  be  written  on  any  part  and  it  must  be 
written  on  one  part  only.  If  the  drawee  accepts  more  than  one  part„  and 
such  accepted  parts  are  negotiated  to  different  holders  in  due  course,  he  is  liable 
on  every  such  part  as  if  it  were  a  separate  bill. 

Sec.  182.  When  the  acceptor  of  a  bill  drawn  in  a  set  pays  it  without  re- 
quiring the  part  bearing  his  acceptance  to  be  delivered  up  to  him,  and  that  part 
at  maturity  is  outstanding  in  the  hands  of  a  holder  in  due  course,  he  is  liable 
to  the  holder  thereon. 

Sec.  183.  Except  as  herein  otherwise  provided  where  any  one  part  of  a 
bill  drawn  in  a  set  is  discharged  by  payment  or  otherwise,  the  whole  bill  is 
discharged. 

title  III. — PROMIbSORY  NOTES  AND  CHECKS. 

article  T. 
Sec.    184.    A  negotiable  promissory  note  within  the  meaning  of  this  Act 

*  1455 


American  Business  and  Accounting  Encyclopedia 

is  an  unconditional  promise  in  writing  made  by  one  person  to  another,  signed 
by  the  maker  engaging  to  pay  on  demand  or  at  a  fixed  or  determinable  future 
time,  a  sum  certain  in  money  to  order  or  to  bearer.  Where  a  note  is  drawn  to 
the  maker's  own  order,  it  is  not  complete  until  indorsed  by  him. 

Sec.  185.  A  check  is  a  bill  of  exchange  drawn  on  a  bank  payable  on 
demand.  Except  as  herein  otherwise  provided,  the  provisions  of  this  Act  which 
are  applicable  to  a  bill  of  exchange  payable  on  demand  apply  to  a  check. 

Sec.  18().  A  check  must  be  presented  for  payment  within  a  reasonable 
time  after  its  issue,  or  the  drawer  will  be  discharged  from  liability  thereon  to 
the  extent  of  the  loss  caused  by  the  delay. 

Sec.  187.  Where  a  check  is  certified  by  the  bank  on  which  it  is  drawn, 
the  certification  is  equivalent  to  an  acceptance. 

Sec,  188.  Where  the  holder  of  a  check  procures  it  to  be  accepted  or  certi- 
fied, the  drawer  and  all  indorsers  are  discharged  from  liability  thereon. 

Sec.  189.  A  check  of  itself  does  not  operate  as  an  assignment  of  any  part 
of  the  funds  to  the  credit  of  the  drawer  with  the  bank,  and  the  bank  is  not 
liable  to  the  holder,  unless  and  until  it  accepts  or  certifies  the  check. 


title  IV. 


general  provisions. 


ARTICLE  I. 

Sec.  190.    This  Act  shall  be  known  as  the  Negotiable  Instruments  Law. 
Sec.  191.     In  this  Act,  unless  the  context  otherwise  requires: 

"  Acceptance  "  means  an  acceptance  completed  by  delivery  or  notification. 

"  Action  "  includes  counter-claim  and  set-ofF. 

"  Bank  "  includes  any  person  or  association  of  persons  carrying  on  the 

business  of  banking,  whether  incorporated  or  not. 
"  Bearer  "  means  the  person  in  possession  of  a  bill  or  note  which  is  pay- 
able to  bearer. 
**  Bill  "  means  bill  of  exchange,  and  "  note  "  means  negotiable  promissory 

note. 
"  Delivery  "  means  transfer  of  possession,  actual  or  constructive,  from 
one  person  to  another. 
Holder  "  means  the  payee  or  indorsee  of  a  bill  or  note,  who  is  in  pos- 
session of  it.  or  the  bearer  thereof. 
Indorsement  "  means  an  indorsement  completed  by  delivery. 
Instrimient  "  means  negotiable  instrument. 
Issue  "  means  the  first  delivery  of  the  instrument,  complete  in  form, 

to  a  person  who  takes  it  as  a  holder. 
Person  "  includes  a  body  of  persons,  whether  incorporated  or  not. 
"  Value  "  means  valuable  consideration. 
"  Written  "  includes  printed,  and  "  writing  "  includes  print. 
Sec.  19?.     The  person  "primarily"  liable  on  an  instrument  is  the  person 
who  by  the  terms  of  the  instrument  is  absolutely  required  to  pay  the  same. 
All  other  parties  are  "  secondarily  "  liable. 

Sec.  193.     In  determining  what  is  a  "  reasonable  time  "  or  an  "  unrea- 

1456 


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American  Business  and  Accounting  Encyclopedia 

¥<3nable  time  "  regard  is  to  be  had  to  the  nature  of  the  instrument,  the  usage 
of  trade  or  business  (if  any)  with  respect  to  such  instruments,  and  the  facts 
of  the  particular  case. 

Sec.  194.  Where  the  day,  or  the  last  day,  for  doing  any  act  herein 
permitted  to  be  done,  falls  on  Sunday  or  on  a  holiday,  the  act  may  be  done  on 
the  next  succeeding  secular  or  business  day. 

Sec.  195.  The  provisions  of  this  Act  do  not  apply  to  negotiable  instru- 
ments made  and  delivered  prior  to  the  passage  hereof. 

Sec.  196.  In  any  case  not  provided  for  in  this  Act,  the  rules  of  the  law 
merchant  shall  govern. 


1451 


CONTENTS  OF  VOL.  VI 


STONE  QUARRY  ACCOUNTING,  938.      COMMERCIAL  LAW,  1323. 


STORAGE  BUSINESS  ACCOUNTING, 

939. 
Cold  Storage,  940. 
Storage  of  Household  Goods,  941. 
Tabular      Storage      Record — Provisions, 

942. 

STREET  RAILWAY  ACCOUNTING, 
943. 

Prepayments,   944. 

Securities,  945. 

Classification  of  Car-Miles,  Car  Seat- 
Miles,  and  Car-Hours,  946. 

SUBSIDIARY  BOOKS,  947. 

SURPLUS,  948. 

SUSPENSE,  949. 

Bad  Debts,  950. 

TELEPHONE  BUSINESS  RECORDS, 
951. 

Telephone  Material  and  Supplies,  952. 

Telephone  Construction,  953. 

Telephone  Ledgers,  954. 

A  Classification  of  Accounts  for  a  Tele- 
phone  Company,  955. 

THEATER  ACCOUNTING,  956. 

TICKLER,  957. 

TOOLS  AND  SUPPLIES,  958. 

TRAVELING  SALESMEN'S  REC- 
ORDS, 959. 

TRLAL  BALANCE,  960. 

TURNOVER,  961. 

VOUCHER,   962. 

Voucher  Check,  963. 

Voucher  Record,  964. 

Voucher  Register,  965. 

Voucher  Record  for  Cotton  Manufactur- 
ing Business,  966. 

Voucher  Record  for  College  or  Univer- 
sity, 967, 

Voucher  Record  for  Gold  and  Copper 
Mining  Business,  968. 

Voucher  System,  969. 

Unpaid  Vouchers,  970. 

WAGES,  TABLE  OF,  971. 

WAGON  FACTORY  COST  AC- 
COUNTING, 972. 

WORKING  BALANCE  SHEET,  973. 


Abatement,  1323. 

Abbreviation,  1323, 

Abode,  1323. 

About,  1323. 

Abscond,  1324. 

Absent,  1324. 

Abstract  of  Title,  1324. 

Accept — Acceptance,    1324. 

Accommodation  Paper,  1325. 

Accord  and  Satisfaction,  1326. 

Account,  1326. 

Acount  Book,  1328. 

Accrued,  1328. 

Accruing  Interest,  1328. 

Acknowledge,  1328. 

Acknowledgment — Form  of,   1329. 

Acquiescence,   1329. 

Act  of  God,  1329. 

Actual,  1329 

Actual  Damages,  1330 

Agent,  1330. 

Agreement,  1331. 

Allonge,  1331. 

Alteration,  1332. 

Ambiguity,  1332. 

Amount   Covered,  1332. 

Annually,   1332. 

Any,    1333. 

Apportionment,  1333. 

Aopraisement,  1333. 

Apportionment  of  Payments,  1333. 

Approved  Endorsed  Notes,  1334. 

Arbitration,  1335. 

Arrears,  1335. 

Articles  of  Agreement,  1335. 

Articles  of  Co-Partnership,  1335. 

Assets,  1336. 

Assign,  1337. 

Assignee,  1337. 

Assignment,  1337. 

Assignor,  1337. 

Assured,  1338, 

Attorn,  1338. 

Attorney,  1338. 

Attorney  in   Fact,   1338. 

Authentic  Act,  1338. 

Authentication,  1339.     . 


Authority,  1338. 

Bailment,  1339. 

Balance  Sheet,  1340. 

Bank  Account,  1340. 

Bank  Notes  or  Bank  Bills,  1340. 

Banks,  1341. 

Bargain,  1341. 

Barter,  1341. 

Bearer,  1342. 

Bid,  1342. 

Bidder,  1342. 

Bilan,   1342. 

Bill,  1342. 

Bill  of  Exchange,  1343. 

Bill  of  Lading,  1344. 

Bills  Payable,  1344. 

Bills  Receivable,  1344. 

Bill  of  Sale,  1345. 

Bond,  1345. 

Breach  of  Trust,  1345. 

Bribe,  1345. 

Bribery,  1345. 

Broker,  1345. 

Brokerage,  1346. 

Capital,    1346. 

Capital  Stock,  1347. 

Certified  Check,  1347. 

Check,  1347. 

Chose,  1347. 

Chose  in  Action,  1347. 

Clerk,  1348. 

Codicil,  1348. 

Common   Carrier,   1348. 

Compromise,  1351. 

Confirmation,    1351. 

Confusion  of  Goods,  1352. 

Confusion  of  Rights,  1352. 

Consideration,  1352. 

Consignee,  1355. 

Contract,  1355. 

Conveyance,  1356. 

Copy,  1356. 

Copyright,  1356. 

Cost,  1357. 

Coupons,   1357. 

Covenant,  .1357. 

Credit,  1357. 

Creditor,  1357. 

Currency,  1357. 

Current  Money,  1357. 

Custom,  1358. 

Custom  House,  1358. 

Custom  House  Broker,  1358. 

Custom  of  Merchant,  1358. 

Daily,   1358. 

Date,   1358. 

Day,  1358. 


Days  of  Grace,  1359. 

Dead  Letters,  1359. 

Debt,  1360. 

Deed,  1360. 

Deficit,  1361. 

Defraud,  1361. 

Delivery  in  Contracts,  1361. 

Demand,  1362. 

Deposit,  1362. 

Discount  in   Contracts,  1363. 

Dishonor,  1363. 

Dividend;  1303. 

Documents,  1364, 

Draft,  1364. 

Drawback,  1365. 

Drawee,  1365. 

Due,    1365. 

Due-Bill,  1365. 

Duplicate,   1365. 

Earnest,  1366. 

Earnings,  1366. 

Embezzlement,   1366, 

Employed,   1367. 

Employee,    1367. 

Endorse,  1367. 

Engagement,  1367. 

Engross,  1367. 

Enhanced,  1367. 

Entry,  1367. 

Erasure,  1367, 

Estoppel,  1368. 

Evidence,  1368. 

Exchange,  1368. 

Extinguishment  of  a  Debt,  1368. 

Face,  1368. 

Factor,  1368. 

False   Pretences,   1369. 

Falsification,  1369. 

Fictitious  Payee,  1369. 

Finances,  1369. 

Fixtures,   1370. 

Floating  Capital,  1370. 

Floating  Debt,  1370. 

Foreign,  1370. 

Foreign  Bill  of  Exchange,  1370. 

Foreign  Creditor,  1370. 

Foreign  Trade,  1370. 

Forgery,   1371. 

Freight,   1371. 

Futures,  1372. 

Gaming,  1372. 

Gifts,   1373. 

Gold,    1373. 

Good  Faith,  1373. 

Goods,  1374. 

Goods,  Wares,  and  Merchandise,  1374. 

Guarantee.   1374. 


ii«t«w»^'"*' 


Guaranty,  1374. 

Half  Year,  1375. 

Handwriting,   1375. 

Holder,  1375. 

Holder  in  Due  Course,  1375. 

Holiday,   1376. 

Income,   1376. 

Indorse,   1376. 

Indorsee,  1376. 

Indorsee  in   Due   Course,  1377. 

Indorsement.   1377. 

Ink,   1378. 

Insolvency,   1380. 

Insolvent,  1380. 

Interest,  1380. 

Interlineation,    1388. 

Joint,  1388. 

Joint  and  Several,  1389. 
Judgment.  1389. 
Judgment  Xotc,  1389. 
Jurat,  1389. 

Law  Merchant,  1389. 

Lawful  1389. 

Lawful  Money,  1390. 

Legal   Estate,  1390. 

Legal   Tender,   1390. 

Letter  of  Credit,  1390. 

Liquidated  Account,  1391. 

Merchandise,  1391. 

Merchantable,  1391. 

jMiddleman,  1391. 

Month,   1392. 

Negotiable   Instruments,  1392. 

Negotiate,  1392. 

Negotiation,  1392. 

Notice  of  Dishonor,  1392. 

On  Demand,  1393. 

Open  Account,  1393. 

Order,  1394. 

Overdraw,  1394. 

Overdue,  1394. 

Owing,   1394. 

Paper  Money,  1394. 

Par.  1395. 

Par  of  Exchange,  1395. 

Payment.  1395. 

Place  of  Business,  1396. 

Pledge,  1396. 

Possession,  1399. 

Presentment,   1400. 

Prima  Facie,   1400. 

Principal,    1400. 

Printed  Forms,  1401. 

Proceeds.   1401. 

Promissory  Note,   1401. 

Protest.  1402. 

Receipt,  1408. 


Redraft,  1409. 
Re-Exchange,  1409. 
Shop-Books,  1409. 
Solvent,   1409. 
Tender,  1410. 
Usury,   1410. 
Value  Received,  1411. 

COMMERCIAL  LAW  FORMS. 

A  Simple   Contract,   1412. 
An  Indemnity  Bond,  1412. 
Power  of  Attorney,  1413. 
Articles  of  Co-Partnership,  1414. 
Dissolution  of  Partnership,  1415. 
Negotiable   Promissory   Note,   1415. 
Bill  of  Exchange  or  Draft,  1416. 
Check,  1416. 

Certificate  of  Deposit,  1416. 
Articles  of  Incorporation   (111.),  1416. 
Articles  of  Incorporation  (Mich.),  1417. 
Waiver  of  Notice  of  Stockholders  Meet- 
ing, 1419. 
Certificate  of  Stock,  1420. 
Bill  of  Sale,   1420. 
Chattel    Mortgage.    1421. 
Warranty  Deed.   1422. 
Quit  Claim  Deed,  1423. 
Real  Estate  Mortgage,  1424. 
Mortgage   Note,   1426. 
Assignment  of  Mortgage,  1426. 
Lease.  1427. 

Standard  Form  Insurance  Policy.  1428. 
Proof  of  Claim  in  Bankruptcy,  1432. 

THE  NEGOTL^BLE  INSTRUMENTS 
LAW. 

NEGOTIABLE    INSTRUMENTS    IN 

GENERAL. 
Form  and  Interpretation,  1434. 
Consideration,  1438. 
Negotiation.    1438. 
Rights   of   Holder,   1440. 
Liabilities  of  Parties.  1441. 
Presentment  for  Payment,  1443. 
Notice  of  Dishonor.  1445. 
Discharge    of    Negotiable     Instruments, 

1448. 

BILLS  OF  EXCHANGE. 
Form  and  Intrepretation,  1449. 
Acceptance,   1450. 

Presentment  for  Acceptance,  1451. 

Protest,  1452. 

Acceptance  for  Honor,  1454. 

Bills  in  a  Set,  1455. 

Promissory  Notes  and  Checks,  1455. 

General  Provisions,  1456. 


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END  OF 

TITLE 


